Civis Bank v. The Willows At Twin Cove Marina Condominium And Home Owners Association, Inc.

Citation: Not availableDocket: E2016-00140-COA-R3-CV

Court: Court of Appeals of Tennessee; December 27, 2016; Tennessee; State Appellate Court

Original Court Document: View Document

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Civis Bank is involved in a legal dispute over the status of "Declarant" for The Willows at Twin Cove Marina, a residential development on Norris Lake. The Declaration of Covenants, Conditions and Restrictions grants specific rights to the "Declarant," including exemptions from maintenance assessments under certain conditions. After the original developer, Twin Cove Acquisition Company, Inc. (TCAC), defaulted on loans, Civis Bank, as the successor owner of the property post-foreclosure, sought a declaration from the court to be recognized as the "Declarant" and therefore exempt from assessments from the homeowners’ association (HOA). Both parties filed for summary judgment, but the trial court ruled that Civis Bank did not meet the definition of "Declarant" as outlined in the Declaration. The Court of Appeals affirmed this ruling, upholding the trial court’s decision in favor of the HOA and remanding the case. The development includes multiple residential and recreational features, and financing and security interests were established between TCAC and Civis Bank through various deeds of trust.

Civis Bank, previously known as Citizens Bank of East Tennessee until December 15, 2013, is the defendant in this case. The property in question comprises eight tracts, all subject to a 2007 deed of trust. On August 25, 2008, TCAC recorded a Declaration of Covenants, Conditions and Restrictions (CCR) for the Willows at Twin Cove Marina, defining "Declarant" as TWIN COVE ACQUISITION COMPANY, INC. and its successors, excluding mortgagees unless they acquire the entire interest through foreclosure and assume the Declarant role. The CCR grants the Declarant exemption from certain maintenance fund assessments for unoccupied lots, with obligations to pay assessments for occupied units. TCAC defaulted on its loans to BankEast, which had released some tracts from the deeds of trust before foreclosing on January 13, 2012. At the foreclosure, BankEast acquired the remaining property and TCAC’s personal property through a Substitute Trustee’s Deed and a bill of sale, which included all rights and interests related to TCAC's operations and assets associated with the development project.

On January 27, 2012, the Tennessee Department of Financial Institutions closed BankEast and appointed the FDIC as receiver. The FDIC sold nearly all of BankEast's assets, including the foreclosed property, to U.S. Bank, though specific details of the sale are not documented. Starting February 1, 2012, the Homeowners' Association (HOA) assessed monthly dues totaling $1,350 for ten lots owned by U.S. Bank, which led to a lien notice filed by the HOA for unpaid assessments on March 21, 2013. On March 28, 2013, Civis acquired U.S. Bank's interest in the foreclosed property through a purchase agreement and various legal documents, which encompassed all rights related to the loan and collateral involved in the foreclosure. On June 10, 2013, TCAC assigned certain rights under the Declaration of Covenants, Conditions, and Restrictions (CCR) to Twin Cove Resort and Marina, LLC. Although the term "homeowner's dues" is not explicitly defined in the governing documents, it is understood to refer to authorized monthly assessments for common expenses. On May 21, 2014, Civis executed a "Second Amendment to Covenants, Conditions, and Restrictions," stating that it had purchased specific tracts and, as the Declarant, amended the Declaration to exclude "Willows Court" and "The Pointe" from its provisions, reflecting a change in community plans.

Civis Bank executed a document on May 20, 2014, terminating the Declaration of Covenants, Conditions, and Restrictions (CCR) related to Tract 7, known as Willows Court, and recorded it on May 27, 2014. On February 5, 2015, Civis filed a complaint seeking a court declaration that (1) its rights under the Willows Master Deed and Declaration of CCR passed to it through foreclosure; (2) a lien from the Homeowners Association (HOA) for delinquent assessments is invalid; and (3) the HOA lacks authority to assess dues against Civis. In response, the HOA counterclaimed, asserting Civis is not the Declarant and is liable for $51,300 in past due assessments, plus interest and late fees. The trial court found that Civis could not prove it was the Declarant, noting it had not expressly assumed that role and that the Declarant's rights had been assigned to another entity. The court concluded that Civis, as a banking institution, did not fit the definition of Declarant, especially since foreclosure proceedings by other lenders had occurred within the development. The trial court ruled in favor of the HOA, awarding it $68,113.41 and invalidating Civis's termination of the CCR and subsequent amendments. Civis filed an appeal, questioning whether the trial court erred in ruling it was not the Declarant and thereby subject to the HOA's assessments. The summary judgment was reviewed de novo, without a presumption of correctness, based on the absence of genuine material fact disputes.

In Tennessee, when the moving party does not have the burden of proof at trial, it can meet its burden of production by either negating an essential element of the nonmoving party’s claim or showing that the nonmoving party’s evidence is insufficient to support its claim or defense. The nonmoving party must identify specific facts that could lead a rational trier of fact to find in its favor. In the context of this case, the material facts are undisputed, and the issue is a legal question concerning the interpretation of contractual provisions related to the transfer of Declarant's rights under a master deed and declaration of covenants for a residential development. These rights, typically held by a real estate developer, can be encumbered by a mortgage or deed of trust. 

The Supreme Court, in Hughes v. New Life Dev. Corp., clarified that the language of the Purchase and Sale Agreement indicated the parties' intent for New Life to acquire the rights and interests of the initial developer, Raoul Land Development, as the Developer of Cooley’s Rift. The agreement included the sale of related Work Product Documents and the name “Cooley’s Rift,” reflecting a broader intent than merely transferring real property ownership. The deed also supported this intent, showing limited language consistent with the transfer of developer rights. 

The court concluded that the intent to transfer developer rights was evident, countering the Homeowners' argument that such rights were personal and did not run with the land, which requires specific intent for conveyance. The Hughes decision underscores that developer's rights can be transferred through general language in agreements.

Specific and precise language in property conveyance is preferred, yet general transfers can still effectively convey rights if intent is clear from the documents and party conduct. The HOA's argument against Civis being the Declarant due to the absence of "declarant's rights" in the title transfer documents is unconvincing. The Supreme Court in Hughes indicates that declarant rights are personal interests that can be transferred but do not automatically run with the land. Other jurisdictions have supported this view. In the current case, the language in the Declaration suggests that Declarant rights were not intended to run with the land, as transfers must be documented in writing, signed, and recorded without changing the Declarant's obligations or rights. The definition of "Declarant" implies that successors can only hold these rights under specific conditions. The trial court ruled that TCAC assigned Declarant rights to Twin Cove Resort and Marina, LLC after the foreclosure. This assignment is contested, as TCAC’s document clearly states it was assigning rights only if it retained any. Following the foreclosure, TCAC sold all its interests in the property, indicating it had no rights left to assign to Twin Cove Resort and Marina, LLC.

The term "Declarant" is defined as TWIN COVE ACQUISITION COMPANY, INC. (TCAC) and any successor in title, excluding mortgagees unless they acquire the entire interest of the Declarant through foreclosure and expressly assume the Declarant position. The trial court found that Civis did not expressly assume this position, a conclusion the appellate court disagrees with. Evidence from two documents dated May 21, 2014, indicates that Civis acted as Declarant. The definition of "Mortgagee" is clarified as the grantor or holder of a mortgage, and it is established that both Civis Bank and BankEast acted as mortgagees. However, it is noted that BankEast did not acquire TCAC’s entire interest at the foreclosure sale, thus it cannot be considered a Declarant. The court emphasizes that allowing multiple Declarants could lead to chaos, given their extensive rights, including unilateral amendment of the declaration. Consequently, the trial court's ruling that Civis is not exempt from maintenance assessments for its property lots is upheld. The appellate court affirms the summary judgment in favor of the HOA and remands for enforcement and cost collection.