| ICSC Legal Database - Cases | Monday, February 22, 1999 05:01 PM |
| Citation: |
| Aetna Cas. & Sur. Co. v. Valdosta Fed. Sav., 175 Ga.App. 614, 333 S.E.2d 849 (1985). |
| Issue: |
| Whether a purchase-money security deed or mortgage has priority over liens against the purchaser of a property |
| who simultaneously executes a security deed mortgage for the purchase money. |
| Facts: |
| On April 1, 1981, Dahl executed a note in favor of Valdosta Federal; to secure the repayment of indebtedness |
| evidenced by the note, Dahl executed a deed to secure the debt in favor of Valdosta Federal, thereby conveying, |
| with power of sale, certain proper ty. The deed to secure debt was recorded and provided that in the event that |
| the property or any interest in it was sold at anytime and lender waived the provisions of the due on sale clause, |
| lender would release the borrower from all obligations under th e deed and the note, provided that borrower's |
| successor in interest execute a written assumption agreement. The deed to secure debt also provided that the |
| release of the borrower pursuant to these provisions would not constitute a novation. Subsequent to April 1, |
| Aetna obtained a judgment against Jerome J. Klein which was entered on the general execution docket in |
| August 1981. On February 1, 1982, Dahl conveyed the property to Jerome Klein under a warranty deed which |
| was expressly made subject to th e April 1, 1981 deed to secure debt. The Kleins intended to use the |
| purchased property as their primary residence. Conveyance by Dahl to the Kleins was made in conjunction with |
| an assumption agreement made among Dahl, the Kleins and Valdosta Federal. Vald osta released Dahl from |
| the obligations of the April 1, 1981 note and deed to secure debt. The terms of that note were modified by |
| increasing the rate of interest. |
| Subsequently, the Kleins went into default under terms of the note and the deed to secure d ebt. Dahl in March |
| of 1984 transferred to Valdosta Federal the February 1, 1982 note and loan deed which had been executed by |
| Kleins to Valdosta. Valdosta commenced foreclosure proceedings. Aetna brought this Declaratory Judgment |
| action against Valdosta, Dahl and Klein, seeking a determination of the prime priority of its claims against the |
| property and a stay of the foreclosure proceedings. The trial court determined that the claims of the party should |
| rank according to date, the oldest having priority. The order of priority was: 1. Balance owing to Valdosta |
| Federal under the April 1981 note; 2. Aetna's Judgment against Klein; 3. The balance owing on the February 1, |
| transferred to Valdosta Federel; 4. Any balance to Klein. Both Aetna end Valdosta filed cross appeals. |
| Holding: |
| Reversed. The assumption of the loan by the Kleins did not constitute a novation but rather was a modification |
| of the original note which merely changed the terms of the indebtendess. The purchase-money security deed or |
| mortgage has priority over loans ag ainst the purchaser of the property who simultaneously executes a security |
| deed or mortgage for the purchase-money. A mortgage or deed to lender securing its purchase-money and |
| executed as part of the same transaction in which the purchaser acquires title will exclude or take precedence |
| over any prior lien against the property arising through or against the purchaser. When the contracts are |
| simultaneously made, so as to constitute one transaction, it makes no difference that the purchase-money |
| may be made to a third person who advances the purchase-money at the time the purchaser receives his |
| Classification 1: |
| Mortgages |
| 00112 - Legal Update - Winter 1985 |
|
