Baxter v. Bayview Loan Servicing, LLC

• Court: Georgia Court of Appeals
• Writing for the Court: Blackburn
• Citation: Baxter v. Bayview Loan Servicing, LLC, 688 S.E.2d 363, 301 Ga. App. 577 (Ga. App. 2009)
• Decision Date: 11 December 2009
• Docket Number: No. A09A1751.,A09A1751.
• Parties: BAXTER v. BAYVIEW LOAN SERVICING, LLC, et al.

688 S.E.2d 363

301 Ga. App. 577

BAXTER v. BAYVIEW LOAN SERVICING, LLC, et al.

No. A09A1751.

Court of Appeals of Georgia.

December 11, 2009.

Gibson, Deal & Fletcher, John W. Gibson, for appellant.

Paul, Hastings, Janofsky & Walker, Stefanie H. Jackman, J. Allen Maines, Atlanta, for appellees.

BLACKBURN, Presiding Judge.

This case involves a dispute as to the existence and priority of competing security interests held by Ellis Baxter and Bayview Loan Servicing, LLC ("Bayview") in certain real property located on Peachtree Industrial Boulevard in DeKalb County ("the Property"). The trial court granted summary judgment against Baxter and in favor of Bayview on Baxter's claims (1) that an agreement between Baxter and his ex-wife and his son granted Baxter a mortgage on the Property; and (2) that, because Bayview took its deed to secure debt on the Property with constructive notice of Baxter's mortgage lien, Baxter's security interest was superior to that of Bayview. Baxter now appeals from that order, as well the trial court's order granting Bayview's motion to release the surety bond Bayview had posted as a condition of cancelling Baxter's notice of lis pendens against the Property.¹

For reasons explained below, we find that Baxter did hold a mortgage lien against the Property, and that a question of fact exists as to whether Bayview took its security deed with notice of that lien. We further find that, even if Bayview did have notice of Baxter's security interest in the Property, it is nevertheless entitled to be subrogated to the rights of a senior lien holder, whose debt was satisfied by a portion of the loan Bayview made against the Property. Finally, we hold that the trial court abused its discretion in unconditionally granting Bayview's motion for the return and release of its surety bond. Accordingly, we reverse the grant of summary judgment to Bayview and vacate and remand the order granting Bayview's motion for the return and release of its surety bond.

"On appeal from a grant of summary judgment, we conduct a de novo review of the evidence to determine if there exists a genuine issue of material fact and whether the undisputed facts, viewed in the light most favorable to the nonmoving party, entitle the movant to judgment as a matter of law." (Punctuation omitted.) Bone v. The Children's Place,²

So viewed, the record shows that from approximately 1991 until approximately September 2005, Baxter, together with his son and his ex-wife, operated Duncan Loudspeakers, Inc., d/b/a Audio Forest ("Duncan"). In 1998, Baxter and his son formed Fielding Partners, GP ("Fielding"), a general partnership whose sole purpose was to purchase and hold real property on which Duncan could operate its business. Baxter owned an 85% interest in Fielding and his son owned the remaining 15%. After Fielding purchased the Property using a loan obtained from the Small Business Administration, Duncan began operating its business out of a commercial building located thereon.

Fielding's only source of income was the rent paid to it by Duncan for the use of the commercial building. By summer of 2005, however, Duncan was experiencing financial difficulties and could not pay its rent. As a result, Fielding fell behind in its mortgage payments and the Property was threatened with foreclosure. Baxter, as the controlling partner in Fielding, decided to sell the Property, and received an offer on the same. After that contract failed to close, Baxter's ex-wife approached him about purchasing his 85% interest in Fielding. The parties then negotiated Baxter's sale of his interest in Fielding to his ex-wife. On October 5, 2005 the parties executed a document, captioned "Agreement," which provided: "It is agreed that the purchase price of ... 85% of Fielding ... is $265,000 and this purchase price is secured by the 85% interest in Fielding ... including the [P]roperty...." The document further stated:

After the signing of this agreement ... it may be necessary to sign additional papers to effect[uate] the intent of this document[. A]ll parties agree to in a timely manner finish all paper work and or sign all documents necessary to effect the transfer and completion of this agreement.

The purchase price for Baxter's interest in Fielding was based on the parties' valuation of the Property, which represented Fielding's sole asset. Although they never had the Property appraised, both Baxter and his ex-wife testified that they believed the Property was worth between $1.2 and $1.4 million. Additionally, although the October 5, 2005 writing did not reflect this fact, the parties believed that the ex-wife and son would be able to obtain a loan of approximately $950,000, secured by the Property. That loan amount would be used to pay off the existing mortgage on the Property and to pay Baxter the entire $265,000 owed him under the October 5 agreement.

In late October 2005, however, Baxter's ex-wife contacted him and told him that she and their son had only been able to obtain a loan of $578,500 on the Property, and that this amount would not provide the necessary funds to pay Baxter the $265,000 owed him under the October 5 agreement. The loan was necessary, however, to keep the Property from being foreclosed upon, and because Baxter was still the controlling partner of record in Fielding, his signature was required on the loan closing documents. Baxter agreed to participate in the loan closing only if his ex-wife and son would execute an amended agreement, which changed the purchase price of Baxter's share of Fielding to $275,000. The ex-wife and son acquiesced and on November 2, 2005 the parties executed two additional documents drafted by Baxter. The first document, captioned "Security Agreement," provided that Baxter was selling his interest in Fielding for $275,000; that the entire purchase price would be paid to Baxter no later than December 18, 2005;³ that the purchase price was secured by both "the 85% interest [in Fielding] ... and the Property"; that this Security Agreement would be recorded as a lien against the Property; and that if the ex-wife and son failed to pay Baxter the full purchase price for his interest in Fielding by December 18, 2005, they would furnish him with a quitclaim deed to the Property.

The November 2 security agreement further provided:

As a further inducement for this loan ... [Baxter's ex-wife and son] agree to present [t]hemselves ... at a reasonable time and with reasonable notice to re[-]sign formal legal papers to comply with the terms and intent of the documents here in [sic] comprised, which intent is stated that ... at anytime if the first mortgage payment is not made ... within 31 days of [its] due date the 85% interest in [F]ielding and the total interest in the [P]roperty (subject to the [refinancing] loan to Fielding) shall be transferred to Ellis Baxter....

This security agreement was never recorded, apparently because it did not comply with the statutory requirements for recording.⁴ Baxter and his ex-wife testified, however, that the purpose of the language requiring his ex-wife and son to "re-sign formal legal papers" was to require them to execute documents evidencing Baxter's mortgage on the Property in a form that met the legal requirements for recordation.⁵

On November 2, 2005, Fielding Partners closed a loan for $587,500 from LIB Properties, Inc. ("the LIB Loan"). Baxter, his ex-wife, and son each signed the closing documents in their capacities as partners in Fielding. In the deed to secure debt executed in favor of LIB Properties, each of those individuals covenanted that Fielding "has the right to grant and convey the Property and that the Property is unencumbered, except for encumbrances of record."

Baxter received $21,024.12 from the LIB Loan, which represented the amount of loan proceeds left after payment of the existing mortgage, closing costs, and other loan-related expenses.⁶ When his ex-wife and son failed to pay him the remainder of the $275,000 owed him for his interest in Fielding, Baxter filed suit against them on February 17, 2006. In his complaint, Baxter asserted a claim for breach of contract and sought either: (i) a declaratory judgment that he had a valid security interest in the Property in the amount of the unpaid balance of the purchase price ($253,975.88); or, alternatively, (ii) a reformation of the written agreements to reflect the parties' "true intent" — i.e., that the unpaid balance of the purchase price for Baxter's interest in Fielding was to be secured by an interest in the Property "second only to the interest of the refinancing lender [LIB Properties]." Also on February 17, 2006, Baxter filed a notice of lis pendens in DeKalb County asserting an interest in the Property, and that lis pendens was recorded on February 21, 2006.

Six days later, on February 27, 2006, Fielding, now composed solely of Baxter's ex-wife and son, closed a new loan on the Property from Interbay Funding Company, LLC ("Interbay"). Of the $735,000 loan amount, $616,663. 99 was used to satisfy the security deed held by LIB Properties, and Baxter's ex-wife and son received $91,678.87. Prior to closing this loan, Interbay conducted a title search on the Property, but did not discover Baxter's lis pendens. On August 28, 2006, Interbay assigned its deed to secure debt on the Property to Bayview, as Interbay's successor in interest.

Several months after filing suit, Baxter discovered the existence of the Interbay deed to secure debt. Baxter's counsel then contacted the attorneys who had conducted the Interbay loan closing, informing them of Baxter's asserted interest in the Property. The closing attorneys forwarded this information to Interbay, who filed a motion to intervene in the lawsuit between Baxter and his ex-wife and son. Interbay thereafter filed a motion to substitute Bayview, as the real party in interest, as the intervenor. Over Baxter's objection, the trial court...