Session January 10, 2018
from the Circuit Court for White County No. CC2513 Jonathan
L. Young, Judge
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.
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.
Capparella and Candi Henry, Nashville, Tennessee, for the
appellees, Forrest Clark Cantrell, Jr. and Mark R. Cantrell.
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.
NEAL MCBRAYER, JUDGE
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. 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. 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.
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
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
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.
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
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
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."
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
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
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.
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.
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.
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.
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