Bankers Trust Co. v. Collins

• Decision Date: 30 June 2003
• Docket Number: No. W2002-03016-COA-R3-CV.,W2002-03016-COA-R3-CV.
• Parties: BANKERS TRUST COMPANY v. Timothy L. COLLINS and April Collins, Lou Robertson, and Commercial Credit Plan, Incorporated.
• Court: Tennessee Court of Appeals

124 S.W.3d 576

BANKERS TRUST COMPANY v. Timothy L. COLLINS and April Collins, Lou Robertson, and Commercial Credit Plan, Incorporated.

No. W2002-03016-COA-R3-CV.

Court of Appeals of Tennessee, Eastern Section, at Knoxville.

May 12, 2003 Session.

June 30, 2003.

Permission to Appeal Denied by Supreme Court December 22, 2003.

Petition to Rehear Denied January 26, 2004.

Edward T. Brading, Johnson City, Tennessee, for Appellant.

Stanley F. Roden, Knoxville, Tennessee, for Appellees.

OPINION

HERSCHEL PICKENS FRANKS, J. delivered the opinion of the court, in which CHARLES D. SUSANO, Jr., J., and D. MICHAEL SWINEY, J., joined.

In this declaratory judgment action, the Trial Court held that recorded trust deeds and notes had priority over unrecorded trust deeds and notes and dismissed the action. We affirm.

In this declaratory judgment action, the plaintiff made loans to Timothy L. And April Collins, which were secured by trust deeds which were not recorded. Subsequently, defendant made loans to the Collins secured by trust deeds which were recorded. Collins defaulted on the subsequent loans and defendant foreclosed on Collins' property which was sold to a third party. The parties stipulated documents which comprise the evidentiary record, and the Chancellor ruled in favor of defendant, and dismissed plaintiff's action.

The parties on appeal are Bankers Trust Company ("plaintiff") and Commercial Credit Plan, Inc., ("defendant"). Plaintiff is the successor-in-interest to Advanta National Bank, also d/b/a Advanta Mortgage Corporation, although no assignment to Bankers of the account in question has been recorded. During the pendency of the case, Defendant changed its name to CitiFinancial, Inc., and defendant Lou Robertson was a trustee of the deeds of trust held by defendant. She was succeeded by Brian K. Warren as substitute trustee. Defendants Timothy Collins and April Collins are the homeowner of the subject property located in Knox County. April Collins was non-suited as a result of a discharge in bankruptcy. Timothy Collins failed to appear and defend; a judgment on sworn account for $120,986.05 was entered against him.

In February of 1999, Collins took out a loan with Advanta for $87,125.00 and a Home Equity Line of Credit for $15,375.00. Both loans were secured by deeds of trust on the Collins' property executed in favor of Advanta, but neither the deeds nor notes were recorded with the Knox County Register of Deeds. The loan proceeds paid off an existing mortgage held by Sterling Bank and Trust Company ("Sterling"), which filed a Release of its deed of trust with the register's office in June of 1999.

In April 1999, Collins obtained a loan in the amount of $93,731.21 from the defendant, and executed two notes and deeds of trust in favor of defendant on the same property. Defendant recorded both documents with the Knox County Register of Deeds on April 21, 1999. Defendant in its loan to Collins agreed to payoff the Advanta indebtedness. On April 7, 1999 Advanta provided the Collins the payoff amounts on the indebtedness. Defendant disbursed its check to Advanta in the amount of $74,788.00 as payoffs for the accounts in Timothy Collins' name. One month later, Advanta returned the check tendered in payment of the two loan accounts of Timothy Collins, stating it was unable to identify the proper loan for applying the funds. It did have record of two account numbers in the Collins name, but the check was insufficient to pay off those loans; and was therefore returned.

In June of 1999 Advanta declared the loan in default and threatened foreclosure. Collins hired an attorney who attempted to rectify the problem, twice advising Advanta that Collins stood ready to pay the account and counsel had the check in his possession, pending resolution of the problem. There is nothing in the record indicating what action Advanta expected or what steps it felt either party should take to conclude the matter.

The record shows that Advanta received a title examination of the subject property dated December 15, 1999. The title report prominently states that the February 1999 notes and deeds of trust in favor of Advanta had not been recorded. The report reflected the original Sterling mortgage, and reported were the two deeds of trust filed by defendant on April 21, 1999, and the lack of an assignment from Advanta to plaintiff.

Defendant foreclosed on its interest and the Collins property was sold by the substitute trustee to a bona fide purchaser on July 26, 2000. There are no issues pertaining to the regularity or validity of the foreclosure proceedings.

In September 2000, plaintiff filed its action for Declaratory Judgment. The Chancellor ruled in favor of the defendant and found that plaintiff's failure to record its deeds precluded any claim of constructive notice. The Court further held that defendant had not been unjustly enriched and dismissed defendant from the action.

Where only questions of law are involved, the trial court's findings are reviewed de novo upon the record with no presumption of correctness on appeal. Guffey v. Creutzinger, 984 S.W.2d 219 (Tenn.Ct.App.1998). Cases involving priority of rights among lienholders and mortgage holders where the facts are undisputed are solely questions of law. ATS, Inc. v. Kent, 27 S.W.3d 923 (Tenn.Ct.App.1998).

Tenn Code Ann. § 66-26-103 provides:

Unregistered Instruments Void as to Creditors and Bona Fide Purchasers:

Any of such instruments not so proved or acknowledged and registered or noted for registration shall be null and void as to existing or subsequent creditors of, or bona fide purchasers from, the makers without notice.

There is nothing in the record to indicate that the letter from Advanta to Collins was furnished to defendant. The only evidence in the record as to what notice defendant had at the time it made the loan...