Shutze v. Credithrift of America, Inc.
607 So. 2d 55, 1992 WL 223924, 1992 Miss. LEXIS 443 (1992)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A properly recorded deed of trust containing a future advance clause maintains its priority for subsequent, optional advances made under its terms, even if made after an intervening judgment lien has been perfected, as long as the original deed of trust has not been cancelled of record.
Facts:
- Hobart W. Gentry, Jr., and Georgia C. Gentry owned a residence at 1105 North 34th Avenue in Hattiesburg, Mississippi.
- On April 8, 1981, the Gentrys negotiated a second mortgage, home equity loan with Credithrift of America, Inc., securing it with a second deed of trust containing a future advance (dragnet) clause, which was duly recorded.
- On July 12, 1983, the Gentrys refinanced their Credithrift loan, giving a new note, but the original April 8, 1981, deed of trust was not cancelled of record.
- On September 20, 1984, the County Court of Forrest County entered a judgment in favor of Thomas E. Shutze against Hobart W. Gentry, Jr., for $4,541.78.
- On October 23, 1984, Shutze's judgment was duly enrolled in Forrest County.
- On August 23, 1985, the Gentrys again refinanced their loan with Credithrift, executing a new note and receiving a future advance of $2,784.13, but the 1981 deed of trust was again not cancelled.
- The Gentrys later struggled financially, abandoned their residence, and moved to the West Coast.
- Credithrift appointed a substituted trustee under the original April 1, 1981, deed of trust and foreclosed on the Gentrys' property on July 12, 1988.
Procedural Posture:
- Thomas E. Shutze obtained a judgment against Hobart W. Gentry, Jr. in the County Court of Forrest County on September 20, 1984.
- Shutze enrolled this judgment in Forrest County on October 23, 1984.
- Credithrift of America, Inc. initiated foreclosure proceedings on the Gentrys' property under its 1981 deed of trust in the Summer of 1988.
- Shutze filed an action in the Chancery Court of Forrest County, seeking to adjudge the rights and interests of the parties and particularly the priority of his judgment lien versus Credithrift's lien regarding the 1985 future advance.
- The Chancery Court ruled in favor of Credithrift, holding that its 1981 deed of trust contained a valid dragnet clause securing all refinancing, renewals, and future advances (including the August 1985 advance) and that Shutze's judgment lien was wholly junior and subordinate to Credithrift's lien, which was found to have extinguished Shutze's lien via foreclosure.
- Shutze appealed the Chancery Court's decision to the Supreme Court of Mississippi.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a properly recorded deed of trust containing a future advance clause maintain its priority for subsequent, optional advances made after an intervening judgment lien has been perfected, if the original deed of trust has not been cancelled of record?
Opinions:
Majority - Justice Sullivan
Yes, a properly recorded deed of trust containing a future advance clause maintains its priority for subsequent, optional advances made after an intervening judgment lien has been perfected, if the original deed of trust has not been cancelled of record. The Court affirmed that future advance (dragnet) clauses are enforceable and, for over a century, have been held to establish priority for all advances made under them, relating back to the date the original deed of trust was recorded. This principle, as established in cases like Witczinski v. Everman, holds that a recorded mortgage securing future advances gives sufficient notice to junior creditors, obligating them to inquire about the extent of the encumbrance. The Court rejected the argument that the 1983 and 1985 refinancings constituted 'full payment' that would extinguish the 1981 deed of trust under Miss. Code Ann. §§ 89-5-21 or 89-1-49, treating them instead as renewals or future advances secured by the original deed of trust. Furthermore, the Court found that the senior lender's actual knowledge of an intervening lien is irrelevant, as the recorded dragnet clause provides constructive notice to third parties, placing the burden of diligent inquiry on those junior parties. The Court also implicitly rejected the 'obligatory vs. voluntary' distinction for future advances, finding it unworkable and inconsistent with prior caselaw.
Dissenting - Presiding Justice Hawkins
No, the 1981 deed of trust did not maintain its priority because, by operation of Miss. Code Ann. § 89-5-19, its lien had ceased to have effect. Presiding Justice Hawkins argued that because the 1981 deed of trust did not specify the due date of any installments, the final maturity date was unascertainable from the public record. Under § 89-5-19, if the final maturity date cannot be ascertained from the record, the indebtedness is deemed due one year from the date of the instrument for statute of limitations purposes. Applying this rule, the 1981 deed of trust's debt would be deemed due on April 8, 1982, and the six-year statute of limitations would have run by April 7, 1988. Since Credithrift's complaint to establish its lien was filed on July 15, 1988, Credithrift had no enforceable lien under its 1981 deed of trust at that time. Creditors are obligated to protect their priority by either making an entry on the margin of the record acknowledging renewal or extension or by filing a new deed of trust noting the renewal or extension.
Dissenting - Presiding Justice Dan M. Lee
No, the 1981 deed of trust did not maintain its priority for the 1985 advance because it had been extinguished by the prior payments and renewals, and the new 1985 deed of trust should have been junior to Shutze's judgment lien. Presiding Justice Lee argued that under Miss. Code Ann. § 89-1-49, payment of money secured by a deed of trust automatically extinguishes it, and title revests in the mortgagor. He contended that when the Gentrys secured new loans in 1983 and 1985, the proceeds were used to pay off the prior loans, thereby extinguishing the 1981 and 1983 deeds of trust, including their dragnet clauses. Miss. Code Ann. § 89-5-21 further mandates that such payment bars all actions on the deed of trust. Thus, the 1981 deed of trust was extinguished before Shutze's judgment lien was enrolled in October 1984. Therefore, the 1985 deed of trust, recorded after Shutze's judgment, should be junior under statutory priority rules (§§ 11-7-191, 89-5-1). The dissent asserted that Credithrift's own actions (taking new notes and deeds of trust, and its manager's testimony) indicated they treated these as new loans, not mere renewals under the 1981 dragnet clause. He also argued that Witczinski v. Everman was implicitly overruled by North v. J.W. McClintock, Inc., which held that optional advances made after notice of subsequent interests do not take priority, and highlighted that the UCC explicitly excludes real estate from its coverage, making analogies inappropriate.
Analysis:
This case significantly solidifies the broad application and strong priority of future advance clauses in Mississippi real estate law, favoring the senior lender. It places a substantial burden of diligent inquiry on all subsequent creditors, who are now clearly charged with constructive notice of any recorded dragnet clauses. The ruling reaffirms the 'relation back' doctrine for future advances and largely dismisses the distinction between obligatory and optional advances, as well as the senior lender's actual knowledge of intervening liens, for priority purposes. This may streamline real estate financing, but it also increases the risk for junior creditors who do not conduct exhaustive due diligence into the full potential reach of prior, uncancelled dragnet clauses.
