320 Ga. App. 170 739 S.E.2d 477

A12A2568.

CITIFINANCIAL SERVICES, INC. v. VARNER et al.

(739 SE2d 477)

MILLER, Presiding Judge.

Nancy Ann Varner sued Ronald and Rachel Burris for equitable partition and sale of real property. Citifinancial Services, Inc. (“the Bank”) intervened in the action, asserting that it had a lien on the property that was the subject of the dispute. The Bank thereafter filed a motion for summary judgment, claiming that it was entitled to a first priority lien on the property under the doctrine of equitable subrogation. The trial court denied the Bank’s motion. We granted the Bank’s application for interlocutory appeal to review the trial court’s decision. The Bank contends that the trial court erred in denying its motion for summary judgment since the uncontested facts established that it was entitled to be subrogated to the rights of the first lienholder.1 For the reasons that follow, we reverse the denial of summary judgment as to the equitable subrogation claim.

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. OCGA § 9-11-56 (c). We review a grant or denial of summary judgment de novo and construe the evidence in the light most favorable to the nonmovant.

(Citation and footnote omitted.) Secured Equity Financial v. Washington Mut. Bank, 293 Ga. App. 50 (666 SE2d 554) (2008).

So viewed, the record shows that on December 21, 2004, Varner conveyed the subject property to her son, Mr. Burris, via a warranty deed recorded on December 22, 2004. Thereafter, on March 5, 2005, Mr. Burris conveyed the property via warranty deed to himself and his wife, Mrs. Burris, as joint tenants with rights of survivorship. On October 12, 2005, Mr. Burris allegedly executed a quitclaim deed conveying his property interest back to Varner. The deeds conveying the property jointly to the Burrises and subsequently to Varner were not recorded at the time of their alleged executions.

*171On October 3, 2008, Mr. Burris obtained a loan in the amount of $15,823.34 from the Bank. In connection with the loan transaction, Mr. Burris executed a promissory note and a security deed pledging the property as collateral.

Following the loan transaction between the Bank and Mr. Burris, Varner’s quitclaim deed and the Burrises’ warranty deed were recorded. The quitclaim deed conveying the property to Varner was recorded on August 10, 2009. The warranty deed conveying the property to the Burrises as joint tenants was recorded thereafter on September 24, 2009.

Immediately after Varner recorded her quitclaim deed, she filed a dispossessory action against the Burrises, claiming that she was the owner of the property and that the Burrises were tenants holding over beyond the lease term. As a part of their defenses, the Burrises challenged the validity of Varner’s quitclaim deed and filed a counterclaim seeking to have the quitclaim deed declared as fraudulent and void.2

Thereafter, Mr. Burris and Mrs. Burris refinanced the original loan with the Bank. On October 23, 2009, the Burrises executed a promissory note in the amount of $32,471.72 in favor of the Bank. A portion of the loan proceeds from the refinance transaction was used to pay off the original loan to the Bank. In connection with the refinance transaction, the Burrises executed another security deed pledging the property as collateral, which was recorded on October 28, 2009.

Varner subsequently filed a complaint for equitable partition and sale of the property, asserting that the property was owned by Varner and Mrs. Burris as tenants in common. The Bank filed a motion to intervene in order to protect its security interest in the property. The trial court granted the Bank’s motion to intervene.

The Bank served discovery requests, including requests for admissions, separately to Varner and the Burrises. In Varner’s responses to the Bank’s requests for admissions, she denied having any knowledge of the Bank’s loan and refinance transactions that encumbered the property and further denied that the Bank had a valid first priority lien on the entire property. The Burrises, however, did not file responses to the Bank’s requests for admissions.

The Bank filed a motion for summary judgment, arguing that the evidence, including the facts deemed admitted by the Burrises’ failure to respond to the requests for admissions, established its *172entitlement to equitable subrogation to the first priority lienholder position. The trial court denied the Bank’s summary judgment motion, but certified the ruling for immediate appellate review under OCGA § 5-6-34 (b). The Bank filed an application for interlocutory review, which this Court granted. This appeal ensued.

The Bank contends that the trial court’s decision was erroneous since the relevant undisputed evidence established its claim for equitable subrogation. We agree.

The doctrine of equitable subrogation has been consistently described as follows:

Where 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 punctuation omitted.) Byers v. McGuire Properties, 285 Ga. 530, 536-537 (4) (679 SE2d 1) (2009). Essentially, the doctrine means 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.... 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, supra, 293 Ga. App. at 52. “[E]quitable subrogation applies even where a senior encumbrance is satisfied out of purchase money.... Moreover, *173the equities are substantially similar in refinancing and sales transactions [.]” (Citations and punctuation omitted.) Byers, supra, 285 Ga. at 537 (4). The doctrine “is of equitable origin, being founded upon the dictates of refined justice, and its basis is the doing of complete, essential, and perfect justice between the parties, and its object is the prevention of injustice.” (Punctuation and footnote omitted.) Bankers Trust Co. v. Hardy, 281 Ga. 561, 562 (640 SE2d 18) (2007). Accordingly,

[t]he courts incline rather to extend than restrict the principle. The doctrine has been steadily growing and expanding in importance, and becoming general in its application to various subjects and classes of persons, the principle being modified to meet the circumstances of cases as they have arisen.

(Citations and punctuation omitted.) Byers, supra, 285 Ga. at 538 (4).

Here, the uncontroverted evidence established that the Bank advanced loan proceeds to the Burrises in the loan transactions. Significantly, the Burrises do not contest the Bank’s claim for equitable subrogation and did not respond to the Bank’s statement of facts supporting the motion for summary judgment. No evidence has been presented to controvert the Bank’s claims that

• when the Burrises submitted the loan applications, they swore and affirmed that they owned the property;
• the Burrises executed the refinance security deed;
• it was the intent of the Burrises to use the refinance loan proceeds to pay off the original loan;
• the refinance loan proceeds were used to pay off the original loan; and
• the Bank did not have actual notice of Varner’s 2005 quitclaim deed.

The foregoing uncontested facts reflected that the Bank advanced the refinance loan proceeds to pay off the original loan encumbrance on the property with an implied understanding that the Bank would remain the senior lienholder. See Byers, supra, 285 Ga. at 538 (4).

Although the Burrises have not challenged the Bank’s claim for equitable subrogation, Varner has challenged the Bank’s claim. Varner asserts that equitable subrogation should not be applied since the Bank engaged in inexcusable neglect by failing to perform a title examination, which would have revealed the existence of her quitclaim deed and interest in the property. The record evidence shows *174that although Varner’s quitclaim deed had not been recorded in the county’s index at the time of the original loan in October 2008, it had been recorded by the time of the Bank’s subsequent refinance transaction in October 2009. Contrary to Varner’s argument, however, the Bank’s constructive knowledge of the quitclaim deed is not fatal to its claim.

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 punctuation omitted.) Baxter v. Bayview Loan Servicing, 301 Ga. App. 577, 587 (1) (c) (688 SE2d 363) (2009). Even if the Bank erred in overlooking the quitclaim deed in a title examination, such error would not be egregious enough to defeat a claim for equitable subrogation.3 See, e.g., Byers, supra, 285 Ga. at 539 (4) (ruling that even if the intervening lienholder’s deed had been indexed by the county and overlooked by the claimants, “this error would not be egregious enough to defeat the claim for equitable subrogation”) (citations and punctuation omitted).

The evidence further fails to reflect that Varner would be prejudiced by the grant of equitable subrogation in favor of the Bank. Varner’s purported acquisition of the property was a part of an intra-familial transaction whereby her son, Mr. Burris, allegedly executed a quitclaim deed conveying the property to her in consideration of “LOVE AND AFFECTION.”4 In response to the Bank’s *175request for admissions, Varner admitted that she was attempting to maintain the property for the benefit of the Burrises.5 The Burrises obtained the benefits of the loan proceeds and encumbered the property with the liens in favor of the Bank. In addition, at the time Varner recorded the quitclaim deed, the Bank’s original senior security deed was still of record. Under these circumstances, the gratuitous intra-familial conveyance to Varner does not allow her and the Burrises to avoid the Bank’s first priority lien interest in the amount of the original indebtedness. See, e.g., Davis v. Johnson, 241 Ga. 436 (246 SE2d 297) (1978) (allowing a bank to be subrogated to its own rights, and noting that the intervening judgment creditor would not be prejudiced by the bank’s restoration to its priority rights since the bank’s senior security deed was still of record when the intervening judgment was recorded).

Decided March 7, 2013.

Joseph K. Grodzicki, for appellant.

Beck, Owen & Murray, Charles D. Jones, for appellee.

Since the evidence conclusively established that the Bank was entitled to prevail on its claim for equitable subrogation, the trial court’s decision must be reversed.

Judgment reversed.

Ray and Branch, JJ., concur.

Citifinancial Services Inc. v. Varner
320 Ga. App. 170 739 S.E.2d 477

Case Details

Name
Citifinancial Services Inc. v. Varner
Decision Date
Mar 7, 2013
Citations

320 Ga. App. 170

739 S.E.2d 477

Jurisdiction
Georgia

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