Vinings Bank v. Homeland Community Bank, Et Al.

The key issue on appeal is the scope of a dragnet clause under Georgia law. Mortgagors refinanced debt secured by their real property with a new lender. Although the new lender sent the original mortgagee the requested payoff amount, the original mortgagee refused to release its deed of trust. The original mortgagee claimed that the real property was also security for other debts by virtue of an unrecorded instrument signed by one of the mortgagors that contained a dragnet clause. The mortgagee sought a declaratory judgment that its unrecorded instrument had priority over the deed of trust recorded by the new lender. The new lender counterclaimed, seeking the statutory penalty for the mortgagee’s failure to release its deed of trust and recovery of attorney’s fees and expenses. The trial court concluded that the unrecorded instrument was unenforceable and not effective as to the new lender due to a lack of actual notice. The court also ordered the original mortgagee to release its deed of trust and awarded the new lender the statutory penalty and attorney’s fees. On appeal by the original mortgagee, we conclude that the unrecorded instrument was enforceable, but under Georgia law, the dragnet clause was limited to the debts of the mortgagor who signed the instrument. Because of the lack of actual notice, the unrecorded instrument was not effective as to the new lender. Despite the new lender being a defendant in the declaratory judgment action, the new lender’s counterclaim for the statutory penalty entitled it to an award of attorney’s fees. We affirm the decision of the trial court as modified.