Graham v. First Union Nat. Bank of Georgia
| Decision Date | 10 April 1998 |
| Docket Number | Civil Action No. 97-C-805-E. |
| Citation | 18 F.Supp.2d 1310 |
| Parties | James P. GRAHAM, Jr., Plaintiff, v. FIRST UNION NATIONAL BANK OF GEORGIA, et al., Defendants. |
| Court | U.S. District Court — Middle District of Alabama |
Michael J. Bellamy, Phenix City, AL, Kenneth Leroy Funderburk, Funderburk, Day & Lane, Phenix City, AL, for Plaintiff.
Jeffrey A. Brown, W. Donald Morgan, Jr., Rothschild & Morgan, Columbus, GA, for Defendants.
On April 15, 1997, the plaintiff, James P. Graham Jr., filed this action in the Circuit Court for Russell County, Alabama, against First Union National Bank of Georgia and First Union Mortgage Corporation. The complaint alleges that the defendants committed fraud by misrepresentation and fraud by suppression. The case was removed to this court on May 21, 1997. On December 8, 1997, the defendants filed a counterclaim for recission of contract. The court permitted an amendment to the counterclaim on January 8, 1998. Currently pending before the court is a motion for summary judgment filed by the defendants on January 21, 1998 directed to plaintiff's claims.1 The plaintiff has filed an extensive response to the motion.2
On August 11, 1976, Thomas and Joan Godfrey purchased a parcel of real property in Russell County, Alabama described as Lot 111, Whiterock Subdivision. They executed a note and mortgage in favor of American Federal Savings and Loan Association of Columbus, Georgia. On April 26, 1978, the Godfreys sold the property to John and Barbara Wilson. The warranty deed prepared in connection with the sale shows that the property was subject to the original American Federal mortgage. The deed also recites that the Wilsons agreed to assume the original mortgage at the original interest rate of 9%. A little over a year later, on September 28, 1979, the Wilsons sold the property to Billy and LaDonna Donaldson. The Donaldsons assumed the original American Federal loan, according to the warranty deed. According to a separate document which is entitled "FHLMC Assumption and Release Agreement," the Donaldsons assumed the loan at a rate of 10%. In June 1982, apparently following a divorce, LaDonna Donaldson conveyed all of her interest in the property to Billy Donaldson. Sometime after this transaction, the American Federal through subsequent assignments came to be owned by the defendant First Union National Bank of Georgia. The other defendant, First Union Mortgage Corporation, acts as servicing agent for First Union, the bank.4
In December 1995, Billy Donaldson contracted with Marshall and Sylvia Williams to buy the property at Lot 111 Whiterock Subdivision. The plaintiff, James A. Graham, Jr., was the attorney assigned to perform the closing of this transaction. Graham is a Phenix City, Alabama, attorney with an extensive real estate practice. He is assisted in his real estate practice by an experienced paralegal, Joan Herring, who bears the office title of Real Estate Coordinator. Graham contracts virtually all of his title work to a title abstractor named Bonnie Smith. In his deposition, Graham testified about Herring's responsibilities and his relationship with Smith:
Joan is the contact person from real estate agents, builders, mortgage companies, that they want us to close a loan. She's the one that communicates with Bonnie Smith or whoever is doing the —
Every once in a while Bonnie will be tied up and we'll have to use someone else, but I would say Bonnie does ninety-nine percent of the stuff.
She sets up the closings with the real estate agents and mortgage companies and she and her assistant, Debbie Davis, get all of the information from the mortgage company on the loans and they prepare the loan documents in anticipation of closing.5
Bonnie Smith was assigned to do the title work for the transaction between Donaldson and the Williams. In the course of doing that work, she prepared a document called a "pencil chain" which shows the various transactions on a piece of property. The pencil chain prepared for the transaction at issue in this case shows an outstanding mortgage to American Federal dated August 11, 1976. This is the original mortgage on the property made to the original purchasers, Thomas and Joan Godfrey. The sheet also showed tax liens, a mortgage to First Capital and an assignment to Fleet Finance. According to Smith, it was clear from her pencil chain that the American Federal mortgage had not been canceled.
The transaction between Donaldson and the Williams was to be a first mortgage which meant that any existing indebtednesses was to be paid off and the new lender was to receive a purchase money primary security interest. In order to determine what payoffs needed to be made, Herring had Donaldson or his second wife Carla, provide her with copies of the information concerning their mortgage companies and account numbers. She also referred to the title work done by Bonnie Smith.6
Donaldson furnished Herring with a loan payoff statement he had obtained from First Union Mortgage Corporation. The payoff statement indicated that there was a mortgage held by FUMC on property owned by Donaldson at 148 Lee Road 602, Phenix City, Alabama, which is in Lee rather than Russell County. Lot 111, Whiterock Subdivision is, of course, in Russell County, not Lee. The 148 Lee Road address is not the address of the property at Lot 111 Whiterock Subdivision. Herring testified both in her deposition and by affidavit that she contacted the Payoff Department at First Union Mortgage about the discrepancy in the address on the payoff statement. She was told by an unnamed person that the account number which was listed on the payoff statement given to her by Donaldson was for the Lee Road property, not the Whiterock Subdivision property which was to be the subject of the closing.7 She was also told that First Union Mortgage did not have a mortgage on Lot 111 of the Whiterock Subdivision. In response to that information, Herring asked the person in the Payoff Department to send Graham a power of attorney so that they could cancel the mortgage of record. Herring further states, in her affidavit, "Based on the representation of First Union that they had no outstanding mortgage on Lot 111, Whiterock Subdivision, that a power of attorney would be forwarded to us by First Union, the loan was closed without paying money to First Union." Herring goes on to state in her affidavit:
This office still closes loans for First Union and based on my dealings with First Union and other lenders, it is common practice in this area to take the word of mortgage companies. When you call a lender and they give you a payoff or tell you that money is owed or is not owed on a piece of property where there is an unsatisfied mortgage, it is customary that as manageable lenders, you can believe what they say regarding what is owed them. It is common and customary that you can rely upon the word of a lending institution, such as First Union, when they tell you they will send you a power of attorney to satisfy a certain mortgage on which they claim no debt. This Donaldson case is the only time that any lending institution has ever failed to send me a power of attorney when they told me that they would do so.
Graham closed the transaction on the Russell County property, Lot 111, Whiterock Subdivision, between Donaldson and the Williams in January 1996.
In March 1996, First Union sent Chuck Christian, a Phenix City real estate appraiser, to Donaldson's home in Lee County, 148 Lee Road, to inspect it as a prelude to foreclosure. He was not sent to inspect the property at Lot 111, Whiterock Subdivision, which was the property subject to First Union's mortgage. Donaldson told Christian at the time of inspection that First Union did not have a mortgage on the Lee County property and told him to contact the plaintiff. Christian was again asked to inspect Donaldson's home in Lee County and did so on June 29, 1996. Prior to the inspection, Christian was informed by First Union that it had a mortgage on the Lee County property.8
On September 30, 1996, First Union sent a letter to Donaldson by certified mail at his address in Lee County telling him that he was behind in his mortgage payments. The letter reads in pertinent part:
As a result of the breach of the Note and Security Instrument, please be advised of the following:
1. The breach of the aforementioned Note and Security Instrument was a result of the failure on your part to pay the monthly installments.
2. To cure this breach, you must pay the past due installments and late charges. The current amount due is $3,155.50. Additional amounts such as upcoming payments and late charges must be included as they become due. These funds must be certified and in our office on or before 30 days from the date of this letter.
3. The failure on your part to cure this breach on or before 30 days from the date of this letter will result in the loan maturity being accelerated and payment of the total indebtedness will be required in order to avoid disclosure.9
Sometime after he received the foreclosure letter, Donaldson contacted Graham. Donaldson told Graham that First Union was going to foreclose on his Lee County house. Graham told Donaldson that he had not closed the loan on his Lee County house. As a precaution, however, Graham told Herring to pull the Donaldson file. It was then that he discovered the title work showing an outstanding mortgage to First Union on Lot 111, Whiterock Subdivision, the Russell County property that Donaldson sold to the Williams. Graham also pulled the payoff statement from First Union which incorrectly showed that the loan was on the Lee County property, not Lot 111 Whiterock Subdivision, the Russell County property.10 Graham then told Herring to call First Union and ask them about the...
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