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Vinings Bank v. Homeland Community Bank

Court of Appeals of Tennessee, Nashville

June 28, 2019


          Session January 10, 2018

          Appeal from the Circuit Court for White County No. CC2513 Jonathan L. Young, Judge

         The key issue on appeal is the scope of a dragnet clause under Georgia law. Mortgagors refinanced debt secured by their real property with a new lender. Although the new lender sent the original mortgagee the requested payoff amount, the original mortgagee refused to release its deed of trust. The original mortgagee claimed that the real property was also security for other debts by virtue of an unrecorded instrument signed by one of the mortgagors that contained a dragnet clause. The mortgagee sought a declaratory judgment that its unrecorded instrument had priority over the deed of trust recorded by the new lender. The new lender counterclaimed, seeking the statutory penalty for the mortgagee's failure to release its deed of trust and recovery of attorney's fees and expenses. The trial court concluded that the unrecorded instrument was unenforceable and not effective as to the new lender due to a lack of actual notice. The court also ordered the original mortgagee to release its deed of trust and awarded the new lender the statutory penalty and attorney's fees. On appeal by the original mortgagee, we conclude that the unrecorded instrument was enforceable, but under Georgia law, the dragnet clause was limited to the debts of the mortgagor who signed the instrument. Because of the lack of actual notice, the unrecorded instrument was not effective as to the new lender. Despite the new lender being a defendant in the declaratory judgment action, the new lender's counterclaim for the statutory penalty entitled it to an award of attorney's fees. We affirm the decision of the trial court as modified.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed as Modified and Case Remanded.

          Stephen C. Knight and Nader Baydoun, Brentwood, Tennessee, for the appellant, Vinings Bank.

          William J. Butler, McMinnville, Tennessee, for the appellee, Homeland Community Bank.

          Donald Capparella and Candi Henry, Nashville, Tennessee, for the appellees, Forrest Clark Cantrell, Jr. and Mark R. Cantrell.

          W. Neal McBrayer, J., delivered the opinion of the court, in which Frank G. Clement, Jr., P.J., M.S., and Richard H. Dinkins, J., joined.





         Although the property at the center of the present dispute is located in White County, Tennessee, some of the parties call Georgia home, and the events leading up to this appeal began there.[1] In 2006, Georgia residents, Dr. Clark Cantrell, a pediatrician, and his wife, refinanced debt on their home (the "Georgia Property"). They obtained a loan for $177, 070.50 from Unity National Bank (the "Georgia Loan"). To secure their obligation, Dr. and Mrs. Cantrell signed a "deed to secure debt" in favor of Unity for the Georgia Property.[2] Unity's interest was junior to an interest already held in the Georgia Property by Wells Fargo Bank. The following year, Unity assigned the Georgia Loan along with the security deed to Vinings Bank, a Georgia state-chartered bank.

         In 2008, Dr. Cantrell sought to consolidate his personal debts by obtaining a loan directly from Vinings Bank for $85, 977.25 (the "Tennessee Loan"). Dr. and Mrs. Cantrell signed a promissory note for that amount, which provided that the Tennessee Loan would be secured by "real property known as 518 Cedar Lane Sparta, TN 38583" (the "Sparta Property"). Dr. Cantrell jointly owned the Sparta Property with his brother, Mark Cantrell, so when it came time to sign a deed of trust for the Sparta Property, Dr. Cantrell and Mark Cantrell signed along with their wives (the "Vinings Deed of Trust").

         The Vinings Deed of Trust specifically provided that it secured repayment of the Tennessee Loan, including any renewals, extensions, or modifications of the Tennessee Loan, and the performance of any "covenants and agreements" under the Vinings Deed of Trust or the Tennessee Loan. The Vinings Deed of Trust made no mention of the Georgia Loan. The Vinings Deed of Trust was also quite specific about its release:

Upon payment of all sums secured by [the Vinings Deed of Trust], Lender shall release [the Vinings Deed of Trust]. Lender may charge Borrower a fee for releasing [the Vinings Deed of Trust], but only if the fee is paid to a third party for services rendered and the charging of the fee is permitted under Applicable Law.

         In addition to the Vinings Deed of Trust and central to this appeal, Vinings Bank also required Mark Cantrell to separately sign an "Owner's Consent to Pledge of Collateral" (the "Owner's Consent"). The Owner's Consent referenced other indebtedness of Dr. and Mrs. Cantrell beyond the Tennessee Loan and included an acknowledgment that the Sparta Property would also secure the other indebtedness. In pertinent part, the Owner's Consent provided as follows:

Undersigned agrees that [the Sparta Property] shall secure, and that a security interest in [the Sparta Property] shall exist and will continue to exist in Lender's favor as security for any and all indebtedness, obligations or liabilities of every kind and nature of [Dr. and Mrs. Cantrell, ] or of the undersigned, to Lender, howsoever evidenced, whether now existing or hereafter arising, either direct or indirect, joint or several, as maker, endorser, guarantor, surety or otherwise and any and all extensions or renewals thereof, including reasonable attorney's fees if any of said debt is collected by or through an attorney at law.

         Despite the language of the Owner's Consent, Dr. and Mrs. Cantrell never agreed that the Sparta Property would secure all their debts to Vinings Bank. A clause, such as the one quoted from the Owner's Consent, that "purports to include within the coverage of the deed of trust all present and future indebtedness owed by the borrower to the lender in addition to the specific debt being secured by the deed of trust" is known as a "dragnet clause." In re Lemka, 201 B.R. 765, 767 n.2 (Bankr.E.D.Tenn. 1996), cited in Home Fed. Bank, FSB v. First Nat'l Bank, 110 S.W.3d 433, 436 (Tenn. Ct. App. 2002). Vinings Bank later claimed that, "[d]ue to a drafting error," the Vinings Deed of Trust did not include a dragnet clause or language similar to that of the Owner's Consent.

         Vinings Bank recorded the Vinings Deed of Trust in White County, Tennessee. But it never recorded the Owner's Consent. While Vinings Bank did later record a modification to the Vinings Deed of Trust, the modification did not add a dragnet clause. The modification reflected a change in the maturity date of the Tennessee Loan. Otherwise, "[a]ll other terms and conditions of the [Vinings] Deed of Trust . . . remain[ed] in full force and effect."


         In 2010, Dr. Cantrell lost his job. And Wells Fargo Bank began foreclosure proceedings on the Georgia Property. Seeking to avoid a foreclosure on his residence, Dr. Cantrell contacted both Wells Fargo and Vinings Bank about consenting to a private sale of the Georgia Property for less than the total outstanding debt. The parties characterized this as a "short sale."[3]

         On July 1, 2010, Mark Adams, an assistant vice president with Vinings Bank, emailed Dr. Cantrell with the conditions under which Vinings Bank would cancel its deed to secure debt of the Georgia Property. The email also addressed Vinings Bank's expectations concerning the outstanding debt, including the Tennessee Loan:

         Instead of writing a narrative, let me just hit the high points like this. Please call me if something does not make sense. . . .

• Please confirm/verify that the foreclosure has been postponed as early tomorrow as possible - Monday is a holiday and will be too late.
• Clark Hungerford[, chief credit officer of Vinings Bank, ] would like to schedule a meeting as soon as possible with you at the bank to discuss everything.
• We will draft an agreement for you to sign concerning the short sale issues. This agreement will state in a nutshell that after you sign, we will release our lien on the deed to your house but not the debt. Any outstanding balance will be considered an unsecured loan to you. It will also state that as long as you continue to make payments as scheduled on both loans, [Vinings Bank] will not exercise any rights against the [Sparta Property]. Furthermore, [Vinings Bank] will not release the deed on the [Sparta Property] until all debts you have with the bank have been retired.
• If Wells Fargo allows Vinings Bank to have some of the proceeds from the short sale, [Vinings Bank] will reduce your balance with [Vinings Bank] by the same amount.
I'm sure there is more, but those are the most important things for you to think about.

         Although Mr. Adams's assertion that Vinings Bank would not release the Vinings Deed of Trust on the Sparta Property "until all debts" owed by Dr. Cantrell were "retired" conflicted with the terms of the Vinings Deed of Trust, Dr. Cantrell did not challenge the assertion.

         During this time, Vinings Bank apparently also intimated to Dr. Cantrell that it might have to foreclose on the Sparta Property. While Dr. Cantrell and Mark Cantrell co-owned the Sparta Property, they acquired it from their parents, who still lived on the property. Anxious to spare their parents the possibility of being evicted from their home following a foreclosure, the brothers decided to pay the Tennessee Loan through a refinancing.

         On July 22, 2010, Dr. Cantrell emailed Mr. Adams at Vinings Bank to request that wiring instructions and the payoff amount for the Tennessee Loan be sent to his brother, Mark. Mr. Adams responded indicating that it would be the following day before he could get the payoff information. Additionally, he added the following caveat regarding the release of the Vinings Deed of Trust:

Please let [Mark Cantrell] know that we will accept the payoff but will not release the lien on your folks' house[, the Sparta Property, ] at least until after you talk with [Mr. Hungerford]-or possibly until after the dust settles from the . . . short sale [from the Georgia Property], or all of your debts here are retired. I just have no way of knowing that answer at this time.

         The next day, as requested, Mr. Adams sent an email to Mark Cantrell, which included the payoff and wiring instructions as attachments. In the body of the email, Mr. Adams included an almost identical caveat regarding the release of the Vinings Deed of Trust. Although Mark Cantrell later acknowledged ...

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