Mike's Furniture Barn, Inc. v. Smith

• Decision Date: 10 August 2017
• Docket Number: A17A1162.
• Citation: 803 S.E.2d 800
• Parties: MIKE'S FURNITURE BARN, INC. et al. v. SMITH.
• Court: Georgia Court of Appeals

342 Ga.App. 558

803 S.E.2d 800

MIKE'S FURNITURE BARN, INC. et al.

v.SMITH.

A17A1162.

Court of Appeals of Georgia.

August 10, 2017

Kerry S. Doolittle, Watkinsville, William Thomas Mitchell, Jessica Fern Hubbartt, for Appellants.

Edward Janes Boswell, Greensboro, John David Hadden, Atlanta, Ben F. Windham, for Appellee.

Miller, Presiding Judge.

More than seven years after appellee Cheryl Smith failed to repay a loan, appellant Mike's Furniture Barn ("MFB") foreclosed on a security deed for Smith's home. Smith filed a complaint seeking to set aside the foreclosure sale and enjoin defendants MFB, Michael Miller, Richard Plymale, and Kristine R. Moore Tarrer (collectively "the MFB Appellants")¹ from taking any further dispossessory action. The trial court found that the security deed at issue was subject to a statutory seven-year reversionary period and, therefore, title to the property had already reverted back to Smith prior to the foreclosure sale. Accordingly, the trial court set aside the foreclosure sale and enjoined the MFB Appellants from taking further action.² The MFB Appellants now appeal, and, for the reasons that follow, we affirm.

The limited record before us shows that, in October 2002, Smith borrowed $2,154.22 from MFB. Smith executed a promissory note ("the Note"), which identified the collateral merely as "[t]he goods or property being purchased," and further indicated that Smith was giving MFB a security interest in a "loan on property." The Note provided for payment in 22 installments with a maturity date of August 5, 2003. That same day, Smith executed a deed to secure a debt of $2,100 ("the Deed") in favor of "Michael G. Miller." The Deed included a description of the real property at issue and indicated that final payment on the secured debt was due on September 30, 2005.³ Additionally, the Deed granted Miller the power of sale upon default.

Smith failed to make all of the payments owed. In 2016, more than seven years after the loan maturity date identified in either the Note or the Deed, MFB commenced a non-judicial foreclosure on the property identified in the Deed and purchased the property at the foreclosure sale.

Smith filed this wrongful foreclosure action, arguing that (1) MFB was not the holder of the Deed, and (2) prior to the foreclosure, title to the property statutorily reverted to her seven years after the loan maturity date listed on the Deed. The trial court agreed, set aside the foreclosure sale, and granted Smith's request for an injunction preventing the MFB Appellants from any further attempts to foreclose on the property. This appeal followed.⁴

In three related enumerations of error, the MFB Appellants contend that the trial court erred in setting aside the foreclosure sale and granting injunctive relief to Smith because (1) the language in the Note and the Deed should be viewed together; (2) these documents show that the parties intended to extend the statutory reversionary period to 20 years; and (3) the trial court erred by limiting the ability of "open-end clauses" to extend the reversionary period to 20 years only in arrangements involving revolving lines of credit.

1. We first consider whether the trial court properly set aside the foreclosure sale.⁵ Under Georgia law, only the holder of the deed may initiate foreclosure proceedings. Ames v. JP Morgan Chase Bank , 298 Ga. 732, 741 (3) (e), n. 7, 783 S.E.2d 614 (2016) ; You v. JP Morgan Chase Bank , 293 Ga. 67, 69–71 (1), 743 S.E.2d 428 (2013). Here, Miller, and not MFB, was the holder of the Deed. Thus, MFB had no authority to initiate the foreclosure sale. Ames , supra, 298 Ga. at 741 (3) (e), n. 7, 783 S.E.2d 614 ; You , supra, 293 Ga. at 69–71 (1), 743 S.E.2d 428. Although a security deed can be transferred by assignment, see OCGA § 44–14–64, the record is devoid of any evidence that Miller, individually, transferred the deed to MFB. Thus, because MFB was not the holder of the Deed, it had no right to foreclose on the property, and the trial court properly set aside the foreclosure sale.

2. We next turn to the issue of injunctive relief. The trial court issued the permanent injunction after finding that title to the property reverted back to Smith after seven years because the Deed did not indicate an intent to extend this statutory reversionary period. We agree with the trial court's analysis.

Georgia law provides that title to property used as collateral for a debt will revert to the grantor

at the expiration of seven years from the maturity of the debt or debts or the maturity of the last installment thereof as stated or fixed in the record of the conveyance ...; provided, however, that where the parties by affirmative statement contained in the record of conveyance intend to establish a perpetual or indefinite security interest in the real property conveyed to secure a debt or debts, the title shall revert at the expiration of the later of (A) seven years from the maturity of the debt or debts or the maturity of the last installment thereof as stated or fixed in the record of conveyance ...; or (B) 20 years from the date of the conveyance as stated in the record....

OCGA § 44–14–80 (a) (1). Under the plain language of this statute, any intent to create a perpetual and indefinite security interest must appear by an "affirmative statement " in the deed. (Emphasis supplied.) Id. If title has reverted to the grantor under this statute, all actions to foreclose upon and to recover the property are barred. OCGA § 44–14–83. Thus, the question before us is whether the Deed contained a sufficient "affirmative statement" showing the parties' intent to apply the 20–year reversionary period.

The construction of a deed, like any other contract, is a question of law that we review de novo. Vineville Capital Group, LLC v. McCook , 329 Ga. App. 790, 794 (1) (b), 766 S.E.2d 156 (2014).

The cardinal rule of construction of deeds, as well as other contracts, is to ascertain the intention of the parties. If that intention be clear from the deed and circumstances of the transaction and contravenes no rule of law, it should be enforced. The whole instrument is to be construed together so as to give effect, if possible, to the entire deed[,] and the construction which will uphold a deed in whole and in every part is to be preferred.

(Citations and punctuation omitted.) Id. at 794–795 (1) (b), 766 S.E.2d 156 ; see also United Bank v. West Central Ga. Bank , 275 Ga. App. 418, 420, 620 S.E.2d 654 (2005) (this Court interprets a deed like any other contract, subject to the rules of contract interpretation).

The parties agree that the Note and Deed were executed contemporaneously and that the Deed provides the secured collateral for the Note. We point out, however, that these documents are vague and at times inconsistent, and the discrepancies between the Note and Deed may be read to suggest that the two documents do not refer to the same loan.⁶ Assuming, as all parties to this appeal and the trial court appear to do, that the two documents concern the same loan and security interest, neither the language in the Deed nor the Note, viewed independently or together, contain an affirmative statement that extends the reversionary period beyond the default seven-year term.

An "open-end" or "dragnet" clause is a clause in a security deed that provides "that, in addition to securing the debt named or described in the instrument," the deed "shall also secure any other debt or obligation that may be or become owing by the mortgagor or grantor." OCGA § 44–14–1 (b) ; Clark v. AgGeorgia Farm Credit ACA , 333 Ga. App. 73, 78 (1), 775 S.E.2d 557 (2015) (referring to "open-end" and "dragnet" clauses interchangeably). If the security deed includes an "open-end" or "dragnet" clause, then the security interest conveyed by the deed is generally effective as long as any debt between the grantor and grantee remains unsatisfied. Martin v. Fairburn Banking Co. , 218 Ga. App. 803, 804 (3), 463 S.E.2d 507 (1995) Such a clause is an exception to "the general rule ... regarding instantaneous extinction of the deed and reconveyance to the grantor" upon satisfaction of a debt. (Citation and punctuation omitted.). Id.⁷

In some cases, this Court has held that an open-end clause may constitute an affirmative statement of a perpetual or indefinite security interest that would create the 20–year reversionary period under OCGA § 44–14–80. See, e.g., Stearns Bank, N.A. v. Mullins , 333 Ga. App. 369, 371, 776 S.E.2d 485 (2015) (finding affirmative statement in the deed). But we have never held that it must . Cf. Matson v. Bayview Loan Servicing, LLC , 339 Ga. App. 890, 892–893 (1), 795 S.E.2d 195 (2016) (concluding that security deed with open-end clause and certain maturity date did not contain affirmative statement).

The MFB Appellants contend that the Note and Deed contain dragnet clauses and establish the necessary affirmative statement to create an indefinite interest. Specifically, they point to the Note's provision explaining that the security interest in the collateral remains in existence until the debt is discharged in writing. Further, they argue that the Deed contains the following two provisions that constitute the required affirmative statement: (a) "any and all other indebtedness now owing or which may hereafter be owing by Grantor to Grantee"; and (b) "all renewal or renewals and extension or extensions of the Note or other indebtedness."

Here, although the Deed contained a dragnet clause, it also identified a fixed maturity date for the secured debt. Few cases have addressed what language is required to constitute an affirmative statement that would extend the reversionary period under OCGA § 44–14–80. In Stearns Bank , supra, this Court held that the security deed at issue contained an affirmative statement serving to extend the reversionary period to 20 years. 333 Ga. App. at 373–374 (1), 776 S.E.2d 485. That case involved an open-ended line of credit, and the deed...