915 Indian Trail, LLC v. State Bank & Trust Co.

• Decision Date: 24 July 2014
• Docket Number: No. A14A0415.,A14A0415.
• Court: Georgia Court of Appeals
• Parties: 915 INDIAN TRAIL, LLC v. STATE BANK AND TRUST COMPANY.

328 Ga.App. 524

759 S.E.2d 654

915 INDIAN TRAIL, LLC

v.STATE BANK AND TRUST COMPANY.

No. A14A0415.

Court of Appeals of Georgia.

July 3, 2014.

Reconsideration Denied July 24, 2014.

David Lawrence Turner, Atlanta, Abby Grozine Von Fischer-Benzon, for Appellant.

Jeffrey Hobart Schneider, Atlanta, Steven M. Mills, for Appellee.

McMILLIAN, Judge.

915 Indian Trail, LLC (the “LLC”) appeals the trial court's order denying its motion for summary judgment and granting summary judgment to State Bank and Trust Company (the “Bank”) in the Bank's suit to establish a priority lien under the doctrine of equitable subrogation ¹ on property located at 915 Indian Trail in Lilburn, Georgia (the “Property”). We affirm for the reasons set forth below.

“Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. We review the grant of summary judgment de novo, construing the evidence in favor of the nonmovant.” (Citation and punctuation omitted.) Secured Realty Investment v. Bank of North Ga., 314 Ga.App. 628, 628, 725 S.E.2d 336 (2012).

Viewed in that light, the evidence shows that Aziz Dhanani is a principal in three of the corporations involved in the series of transactions in this case: the LLC, Premier Petroleum, Inc. (“Premier”), and Al–Madinah Petroleum, Inc. (“Al–Madinah”). Al–Madinah first purchased the Property, which contains a convenience store and gas station, in 1993 and sold it to Hasan S. Ahmed and Mohammad B. Hussain (collectively, the “Borrowers”) on August 30, 2001, for around $750,000. On the same day, the Borrowers executed a deed to secure debt (the “BB & T lien”) as security for a $694,500 loan from Branch Banking & Trust Company (the “BB & T loan”).

Approximately six years later, on May 3, 2007, the Borrowers executed a second deed to secure debt in favor of Al–Madinah to secure payment of a $150,000 loan (the “Al–Madinah lien”). That deed, which was recorded on May 4, 2007, expressly provided that it was subordinate to the BB & T lien.

A few months later, the Borrowers sought to refinance the BB & T loan through Buckhead Community Bank (“BCB”). As a condition for the refinancing, BCB required cancellation of the Al–Madinah lien, and on December 3, 2007, Dhanani executed a “Satisfaction of Deed to Secure Debt” on behalf of Al–Madinah (the “Satisfaction”), which stated that Al–Madinah's $150,000 loan to the Borrowers had been “paid in full.” However, the same day, unbeknownst to BCB, the Borrowers executed both a Promissory Note in the amount of $125,000 (the “Premier loan”) and a security deed entitled “Second Deed to Secure Debt, Security Agreement and Assignment of Rents” in favor of Premier, another of Dhanani's corporations (the “Premier lien”). That deed also recited that it was subject to the terms of the BB & T lien. The Bank concedes that no evidence exists that Dhanani knew as of December 3, 2007, about the Borrowers' plans to refinance the BB & T loan through BCB.

The Premier lien was recorded the day of its execution, December 3, 2007, but it is undisputed that it was not indexed in the computerized statewide database of real property records until 10 p.m. on December 7, 2007. BCB's title examiner testified that the entry for the Premier lien may not have been available for review even at that time, because “many times” the noted times are incorrect and “there is a delay.” Thus, “in all likelihood,” the Premier lien would not have been discoverable in a title examination until after December 7.

Meanwhile, on December 6, 2007, the Borrowers closed (the “Closing”) on their refinancing with BCB (the “BCB loan”), and that loan was secured by a “Deed to Secure Debt and Security Agreement” signed by the Borrowers ² in favor of BCB referencing a loan in the amount of $840,000 (the “BCB lien”). Of that amount, $621,746.03 was used to satisfy the BB & T loan. As a part of the Closing, the Borrowers executed an affidavit of ownership affirming that there were “no security deeds, mortgages or liens of any kind ... affecting title to the Property” except as disclosed on an attached exhibit, which made no reference to the Premier lien. The BCB lien and other documents relating to the Closing, including the Satisfaction executed by Dhanani, were not recorded until December 19, 2007. The title insurance policy obtained by BCB, also dated as of December 19, does not reflect the Premier lien, and no evidence exists that an additional title check was performed in the intervening 13 days between the Closing and the filing of the Closing documents. Additionally BB & T executed a satisfaction of the BB & T lien on December 24, 2007, but, inexplicably, that document was not recorded until almost one year later, on December 16, 2008.

Approximately one year after that filing, on December 4, 2009, the Federal Deposit Insurance Corporation was appointed as the receiver for BCB after it was closed by the Georgia Department of Banking and Finance. And on December 15, 2009, unbeknownst to the Bank, the Borrowers and Premier executed a “First Modification and Second Deed to Secure Debt, Security Agreement, and Assignment of Rents” (the “First Modification”) in connection with the Premier lien, which purported to increase the amount of that lien to $935,000,³ based on a separate supply agreement for petroleum products (the “Supply Agreement”).⁴

In or around October 2010, the BCB loan was assigned to the Bank, by which time the Borrowers were in default. The Bank chose to attempt to collect the debt first rather than immediately pursuing foreclosure. At some point, the Borrowers also defaulted on the Premier loan, and in February 2011, in anticipation of foreclosure, Premier conducted a title review, which gave it notice of the BCB lien. And on February 11, 2011, Premier filed the First Modification, reflecting the increased lien amount, in the county property records.

Premier advertised the pending foreclosure in February, and conducted a nonjudicial foreclosure sale on March 1, 2011, at which Premier made the successful bid of $350,000. On March 18, 2011, Premier executed a quitclaim deed conveying title to the Property to the LLC. Although Dhanani stated that the LLC was to pay Premier $350,000 for the Property, the LLC had made no payment as of the time of Dhanani's deposition in February 2013, and the quitclaim deed indicates that no transfer tax was paid. The Bank did not learn of the Premier lien or the foreclosure until May or June 2011 when it conducted its own title search in anticipation of foreclosure, while at the same time pursuing a default judgment against the Borrowers.

On January 3, 2012, the Bank sent the LLC a letter stating that the Bank would be asserting a priority lien on the Property, and on August 14, 2012, the Bank filed this lawsuit. Subsequently, the trial court's summary judgment order granted the Bank a first priority lien to the Property, making it superior to the LLC's claims. This appeal followed.

1. The LLC asserts that the trial court erred in granting summary judgment to the Bank on its equitable subrogation claim because the Bank was guilty of culpable or inexcusable neglect and the superior or equal equity of the LLC and others will be prejudiced.

“In substance, the principle [of equitable subrogation] provides that in certain circumstances, a lender who pays off the lien of a senior creditor may step into the shoes of the senior creditor as to the priority of the senior creditor's lien.” Greer v. The Provident Bank, Inc., 282 Ga.App. 566, 568, 639 S.E.2d 377 (2006). As the Supreme Court of Georgia has often explained,

[w]here one advances money to pay off an encumbrance on realty either at the instance of the owner of the property or the holder of the encumbrance, either upon the express understanding or under circumstances under which an understanding will be implied that the advance made is to be secured by the senior lien on the property, in the event the new security is for any reason not a first lien on the property, the holder of the security, if not chargeable with culpable or inexcusable neglect, will be subrogated to the rights of the prior encumbrancer under the security held by him, unless the superior or equal equity of others would be prejudiced thereby; knowledge of the existence of an intervening encumbrance will not alone prevent the person advancing the money to pay off the senior encumbrance from claiming the right of subrogation where the exercise of such right will not in any substantial way prejudice the rights of the intervening encumbrancer ....

(Citations and footnote omitted.) Davis v. Johnson, 241 Ga. 436, 438, 246 S.E.2d 297 (1978). “The typical remedy is that equity will set aside a cancellation of the original security and revive it for the benefit of the party who paid it off.” (Citation and punctuation omitted.) Secured Equity Financial, LLC v. Washington Mut. Bank, F.A., 293 Ga.App. 50, 53, 666 S.E.2d 554 (2008). Additionally, we note that the “basis [of subrogation] is the doing of complete, essential, and perfect justice between all the parties, without regard to form, and its object is the prevention of injustice. The courts incline rather to extend than restrict the principle.” (Citation and punctuation omitted.) Davis, 241 Ga. at 439, 246 S.E.2d 297.

Here, as the Premier lien expressly acknowledged, the BB & T lien held the position of senior lienholder at the time the Premier lien was filed and retained that position until such time as it was satisfied as of record. A portion of the proceeds of the BCB loan was used to pay off the BB & T loan in full. Thus, the Bank, as the assignee of the BCB loan, meets the prima facie requirement for establishing the right to equitable subrogation. Hayes v. EMC Mtg. Corp., 296 Ga.App. 709, 711, 675 S.E.2d 594 (2009). And “if [the Bank] can show that it was not guilty of culpable or inexcusable neglect, that the superior or...