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U.S. Bank N.A. v. State Bank & Trust Co.

United States District Court, S.D. Mississippi, Northern Division

July 15, 2014

U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR TBW MORTGAGE-BACKED TRUST SERIES 2006-5, MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-5, PLAINTIFF
v.
STATE BANK & TRUST COMPANY, CROSS KEYS BANK AND HOLLY R. LOGUE, DEFENDANT

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For U.S. Bank National Association, as Trustee for TBW Mortgage -Backed Trust Series 2006-5, Mortgage Pass-Through Certificates, Series 2006-5 (hereafter, U.S. Bank), Plaintiff: J. Kelsey Grodzicki - PHV, LEAD ATTORNEY, PRO HAC VICE, Peter L. Lublin, LEAD ATTORNEY, Amanda M. Beckett, RUBIN LUBLIN, LLC, Peachtree Corners, GA.

For State Bank & Trust Company, Defendant: G. Todd Burwell, G. TODD BURWELL, PA, Ridgeland, MS.

For Cross Keys Bank, Holly R. Logue, Defendants: R. Keith Foreman, LEAD ATTORNEY, MCKAY, LAWLER, FRANKLIN & FOREMAN, PLLC, Ridgeland, MS.

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MEMORANDUM OPINION AND ORDER

Tom S. Lee, UNITED STATES DISTRICT JUDGE.

This cause is before the court on cross-motions of plaintiff U.S. Bank National Association (U.S. Bank) and of defendants State Bank & Trust Company (State Bank), Cross Keyes Bank and Holly R. Logue for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. The motions have been fully briefed and the court, having considered the memoranda of authorities, together with attachments, submitted by the parties, concludes that defendants' motions should be granted and plaintiff's motion should be denied.

The present litigation concerns a dispute between the parties as to the priority of certain deeds of trust in favor of U.S. Bank and State Bank on residential property located at 27 Twelve Oaks Place, Madison, Mississippi. As gleaned from the record, the following facts are not disputed. In 1993, Larry and Donna Shaffer obtained a $250,000 purchase money mortgage for the subject property from Troy & Nichols, Inc., a predecessor to Chase Manhattan Mortgage Corporation (Chase), secured by a deed of trust lien on the property. Several years later, in 2000, the Shaffers opened a home equity line of credit (HELOC) account with State Bank in the amount of $385,000, also secured by a deed of trust on the property. It is undisputed that at the time the Shaffers obtained the HELOC, State Bank and the Shaffers knew and intended the State Bank deed of trust lien would be second in priority to the Chase deed of trust lien.

In 2006, after the death of his wife, Larry Shaffer refinanced the Chase loan with a $450,000 loan from Hurricane Mortgage Company, Inc., alleged predecessor in interest to U.S. Bank.[1] The loan was secured by a deed of trust on the Shaffers' home in Madison. Proceeds of the loan were used both to pay off the outstanding balance of $ 129,686.82 on the Chase mortgage and to pay the then-outstanding balance of $253,391.44 on the State Bank HELOC. Upon receipt of payment, Chase executed and recorded a cancellation of its deed of trust. However, the 2000 State Bank HELOC was not closed and no request was made to cancel the State Bank deed of trust. Mr. Shaffer thereafter continued to obtain advances on the HELOC by using credit line checks issued by State Bank, and over time, he ran the balance up to nearly $380,000.

By its terms, the HELOC had a ten-year term and matured on September 14, 2010. After the HELOC matured, Mr. Shaffer executed a promissory note to State Bank covering the balance then owing, along with a new deed of trust securing the loan. Both instruments referenced

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the 2000 State Bank deed of trust and described the new deed of trust as a " renewal" of the 2000 deed of trust. The promissory note recited:

I acknowledge this Note is secured by Deed of Trust on Residential Home and Property located at 27 Twelve Oaks Place, Madison, MS, being more particularly described in Renewal and Extension Deed of Trust, dated this date, and Deed of Trust dated 09/14/2000....

The deed of trust similarly recited that it was " an extension and renewal of that certain Deed of Trust dated 09/14/2000...."

Mr. Shaffer defaulted on his note to State Bank in November 2011. State Bank gave notice of default, and upon Mr. Shaffer's failure to cure the default, State Bank substituted Marc McKay as trustee on both the 2000 and 2010 deeds of trust and commenced foreclosure proceedings pursuant to both deeds of trust. The property was sold at foreclosure on March 6, 2012 to SBT Properties Corp., a wholly-owned subsidiary of State Bank, for $381,293.48. The following day, SBT Properties sold the property to Harry and Holly Logue for $382,000. The Logues financed their purchase through Cross Keys Bank. Harry Logue then conveyed his interest in the property to Holly Logue.

U.S. Bank, as successor in interest to Hurricane Mortgage, filed the present action on March 5, 2013 against State Bank, Holly Logue and Cross Keys Bank, claiming that the foreclosure did not extinguish its interest. In support of its claims for relief, U.S. Bank offers two principal theories: novation and equitable estoppel. First, it claims that at the time of the foreclosure sale, the 2000 State Bank deed of trust was void, having been extinguished by virtue of a novation effected by the 2010 State Bank note and deed of trust. It claims, alternatively, that under the doctrine of equitable subrogation, its 2006 deed of trust had, or should have had priority over the 2000 State Bank deed of trust based on Hurricane Mortgage's having paid off the State Bank HELOC in 2006. In the court's opinion, based on the undisputed facts of record, neither of these theories is sustainable.

By statute in Mississippi, a deed of trust, once properly filed for record, is entitled to priority according to date of filing. Peoples Bank and Trust Co. and Bank of Mississippi v. L& T Developers, 434 So.2d 699, 708 (Miss. 1983); Miss. Code Ann. § 89-5-5 (providing that " [e]very ... deed of trust shall take effect, as to all creditors and subsequent purchasers for a valuable consideration without notice, only from the time when delivered to the clerk to be recorded; and ... with reference to all instruments which may be filed for record under this section, the priority thereof shall be governed by the priority in time of the filing of the several instruments, in the absence of actual notice" ). While generally speaking, payment of the money secured by a mortgage or deed of trust will extinguish it, Miss. Code Ann. § 89-1-49, a deed of trust securing a line of credit is extinguished only upon

(a) the termination or maturity of the line of credit and the payment of all sums owing in connection with the line of credit, or (b) the payment of all sums owing in connection with the line of credit and a written request by the debtor to cancel the line of credit and the mortgage or deed of trust securing the line of credit.... [T]he requirement of a written request by the debtor may be satisfied by a prospective creditor's delivery of a document, signed by ...

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