Case $16G0646 Filed 09/26/2016 Page 1 of 21 IN THE SUPREME COURT STATE OF GEORGIA DESIGN AQUISITION, LLC, Appellant, v. M7VEN SUPPORTIVE HOUSING & DEVELOPMENT GROUP, Appellee. Case Number $16C0646 BRIEF OF APPELLANT John C. Clark Georgia Bar No. 127347 Clark Law Group, LLC 17 Executive Park Dr., Suite 480 Atlanta, GA 30329 (404) 760-0070 Attorney for Appellant Design Acquisition, LLCCase $16G0646 Filed 09/26/2016 Page 2 of 21 JUDGMENT APPEALED FROM This appeal is based on a writ of certiorari to review the Court of Appeals decision, which overruled Wester v. United Capital Fin. of Atlanta, LLC; and all cases decided under it? Wester first confirmed that, by virtue of the first priority lien granted to redeeming parties under O.C.G.A. § 48-4- 43, a tax deed redeemer is entitled to collect the excess funds to offset the amount spent to redeem the tax deed. JURISDICTIONAL STATEMENT This Court has granted a writ of certiorari in this case. STATEMENT OF THE CASE None of the facts are in dispute. This is an interpleader action brought by Vickie Bearden, the Tax Commissioner of Carroll County (the “Tax Commissioner”), to disburse excess tax sale funds from two tax sales to the correct party (R- 13-17). Both properties were owned by Appellee M7ven Supportive Housing and Development Group (“M7”), which were separately sold to satisfy delinquent property taxes owed by M7(R- 13-15). DLT List, ' Wester v. United Capital Fin. of Atlanta, LLC, 282 Ga. App. 392, 394, 638 S.E.2d 779, 781 (2006). 2 United Capital Fin. of Atlanta, LLC v. Am. Inv. Associates, Inc., 302 Ga. App. 400, 400, 691 S.E.2d 272, 273 (2010).Case S16G0646 Filed 09/26/2016 Page 3 of 21 LLC (“DLT”) purchased both parcels at the tax sale (R- 14, 15). Both sales resulted in excess funds (R- 15). Design Acquisition, LLC (“Design”), as a lienholder against both properties, and a creditor of M7, redeemed the tax deeds from DLT by paying the statutory redemption amount (R- 262 and 263) and DLT executed quitclaim deeds of redemption in favor of Design. Design then made a claim on the excess tax sale funds for both properties in this interpleader action. Shortly after the tax sale, M7 made a claim to the excess funds. At that time, Design had not yet redeemed the tax deed. By the time this interpleader was filed, Design had redeemed the tax deed, and made its claim as the first priority lienholder. M7 opposed Design’s claim on the grounds that when M7 made its claim on the funds, Design did not yet have a redemption lien. M7 urged the trial court to measure the interest at the time the first claim on the money was made. The trial court agreed and interpreted O.C.G.A. § 48-4-5 to require the priority of interests to be decided on the date the first claim to the money is made, even though nothing in the statute would suggest that is the time to measure the claims.Case S16G0646 Filed 09/26/2016 Page 4 of 21 Design pointed out that Wester v. United Capital Fin. of Atlanta’ clearly awarded the excess funds to the redeeming party, and showed that timing of liens was specifically analyzed in Wester and resolved in favor of the redeeming party: If the only interests of Wester and United Capital were as judgment lienholders, then the timing of the obtaining and recording of those liens would be dispositive in determining their relative rights to the funds...United Capital's primary interest in this matter is its status as the redeemer of the property...Accordingly, the trial court properly held that United Capital's interest as the redeeming creditor took priority over Wester's and the property owner's interests [in the excess funds].4 Notably, M7 did not argue that Wester should be overruled to the Trial Court. Design appealed the decision to the Court of Appeals relying heavily on the Wester opinion to support its claim to the excess funds. M7 did not argue that Wester was wrongly decided, and never once mentions the case in its brief on appeal. Even though neither party argued that Wester was improperly decided, the Court of Appeals decided to announce a new law — that the time to measure priority claims to excess funds is the date of the tax sale - which excludes redeeming parties. The decision overruled Wester and all cases decided under it. > Wester v. United Capital Fin. of Atlanta, LLC, 282 Ga. App. 392, 638 S.E.2d 779 (2006). 4 Id. at 780.Case S16G0646 Filed 09/26/2016 Page 5 of 21 QUESTION POSED BY THIS COURT Did the Court of Appeals err in its determination that a redeeming creditor after a tax sale does not have a first priority claim on excess funds? ARGUMENT AND CITATION OF AUTHORITY 1. A general overview of tax deed redemptions, the resulting super liens and their relationship to claims to excess funds. O.C.G.A. § 48-4-5 governs the payment of excess tax sale funds. The funds are personal property. “[TJhe taxpayer's interest in the excess funds was not even an interest in real property, but rather an interest in money.”* But they are paid out in order of priority of interests in the real property sold for taxes. Under 0.C.G.A. § 48-4-40, whenever property is sold at a tax sale to satisfy delinquent taxes, “any person having any right, title, or interest in or lien upon such property may redeem the property from the sale by the payment of the redemption price” as fixed by 0.C.G.A. § 48-4-42. O.C.G.A. § 48-4-42 states that if the property is redeemed within the first year following the tax sale, the redeeming party must pay the tax deed purchaser the principal amount of the tax deed plus a 20% premium. 5 Georgia Lien Servs., Inc. v. Barrett, 272 Ga. App. 656, 658, 613 S.E.2d 180, 183 (2005). 5 O.C.G.A. § 48-4-5.Case $16G0646 Filed 09/26/2016 Page 6 of 21 ‘The legal effect of a tax deed redemption is twofold. First, “the effect of the redemption shall be to put the title conveyed by the tax sale back into the defendant in fi. fa., subject to all liens existing at the time of the tax sale.” And in certain cases a special lien arises in favor of the redeeming party. “If the redemption has been made by any creditor of the defendant or by any person having any interest in the property, the amount expended by the creditor or person interested shall constitute a first lien on the property.”” This Court coined the term for such a lien as a “super-lien” in the case of Nat'l Tax Funding, L.P. v. Harpagon Co., LLC: If a creditor of the original taxpayer redeems the property, the amount paid by the redeeming creditor becomes a first lien on the property. The redeeming creditor then has first priority to repayment-a “super-lien” for the redemption price-and may proceed to foreclose against the property based upon that lien.* Under 0.C.G.A. § 48-4-5(b), “excess funds shall be distributed by the superior court to the intended parties, including the owner, as their interests appear and in the order of priority in which their interests exist.” Historically, courts have held that because the excess funds are paid out in order of priority claims on the property, and because a redeeming 70.C.G.A. § 48-4-43. ® Nat'l Tax Funding, L.P. v. Harpagon Co., LLC., 277 Ga. 41, 42-43, 586 S.E.2d 235, 238 (2003).Case $16G0646 Filed 09/26/2016 Page 7 of 21 party has the super — or first priority - lien, then the super lien holder has the first claim to the excess funds. The first decision confirming this concept was issued by the Court of Appeals in Wester. There the Court of Appeals affirmed what all tax deed practitioners knew, that a redeeming party first can claim the funds, and foreclose the balance of its lien. “Wester's assertion that United Capital [the redeeming party] is only entitled to priority on the real property per se and not on the excess funds is without foundation. United Capital's right to repayment, whether from the excess tax sale funds or from any foreclosure it may pursue on the property, takes priority over any other claims on the property.”® Nearly ten years later the Court of Appeals would simply decide that it got this issue wrong, without the issue being before the Court. Four years after Wester, the Court of Appeals confirmed that redeeming creditors, even without a recorded lien on the property, are entitled to a super lien in United Capital Fin. of Atlanta, LLC v, Am. Inv. Associates, Inc., 302 Ga. App. 400, 691 S.E.2d 272 (2010). “Laws of this state governing the right to redeem are to be construed liberally and most favorably to persons allowed by the statute to redeem.”!? ° Wester v. United Capital Fin. of Atlanta, LLC, 282 Ga. App. 392, 394, 638 S.E.2d 779, 781 (2006). 10 Dixon v. Conway, 262 Ga. 709, 709, 425 S.E.2d 651, 652 (1993). 7Case $16G0646 Filed 09/26/2016 Page 8 of 21 For the five years after United Capital, and for the nine years after Wester, a redeeming creditor of the defendant in fifa, with or without a lien, knew that it could recover the majority of the redemption price from the excess funds. Thousands of redemptions therefore occurred and the party who spent the money to save the property from the tax sale was the first to receive payment. The public policy favoring redemptions was advanced. Until the Court of Appeals decided otherwise. 2. The new law announced by the Court of Appeals disfavors redemptions and misinterprets the distribution statute. The Court of Appeals turned the certainty of the rights of a redeeming party on its head when it announced the new law that, “after a tax sale occurs, the officer holding the excess funds provides notice within 30 days of the sale to the recorded owners and interest holders, and then distributes those excess funds to the persons holding interests in the property at the time of the tax sale (emphasis supplied).” The Court of Appeals erred by limiting claimants of excess tax sale funds to only interest holders at the time of the tax sale, instead of the prior law allowing any interest holders, regardless of the timing their interest arose, to claim the funds. This error will result in the disastrous consequence of denying valid claimants their legal ability toCase $16G0646 Filed 09/26/2016 Page 9 of 21 collect money rightfully owed to them, while simultaneously creating windfalls to those who should not otherwise receive the funds. O.C.G.A. § 48-4-5, the excess funds disbursal statute, does not set out a specific date that the claims are measured against the others. Traditionally, the claims were measured at the time the money was ordered to be disbursed, which is the only interpretation that will not lead to inequity or unjustified windfalls. For instance, if a lien is expired or has otherwise been satisfied, then it should not be paid when excess funds are disbursed. After its opinion here, the Court of Appeals was forced into the absurd result that the holder of a reverted security deed was permitted to claim excess funds from a tax sale because the deed had not yet reverted at the time of the tax sale. “The fact that the mortgage title reversion date, under 0.C.G.A. § 44-14-80, occurred after the tax sale did not affect the right of WI [mortgage holder whose title reverted back to the owner] to recover the excess funds.”"! Under the current law, whether a security deed or other lien has expired, reverted or been paid does not prohibit such lienholders from claiming excess funds. So ong as the lien existed on the date of the tax sale, itis to be paid regardless | Worthwhile Investments, LLC v. Higgins, 337 Ga. App. 183, 186, 787 S.E.2d 245, 247 (2016), reconsideration denied (May 24, 2016). 9Case $16G0646 Filed 09/26/2016 Page 10 of 21 of whether the result is an inequitable windfall to the exclusion of bona fide lienholders. If an interest or lien only materialized after the tax sale — so long as it is valid when the funds are disbursed, such claim should share in the excess funds. But the Court of Appeals’ new law specifically prohibits parties who redeem a tax deed from enforcing their redemption lien against the excess funds simply because redemption liens cannot arise until after the tax sale. 3. The Court of Appeals misinterpreted Nat. Tax Funding v. Harpagon in overturning Wester. The Court of Appeals announced its new law on the grounds that it simply misapplied 0.C.G.A. § 48-4-5 in Wester. “Wester and its progeny, however, without explanation incorrectly expanded the holding of Nat. Tax Funding to mean that the redeeming creditor could both redeem the property and receive excess funds from the tax sale to pay for the priority lien created by the redemption.”"? The Court of Appeals focused on the following language in NTF: following a tax sale, the holder of a ... lien has two options—it may either file a claim to collect against any proceeds from the sale, or it may assert its rights following the tax sale via a statutory claim for redemption, in which case it obtains a first 2 DLT List, LLC v. M7ven Supportive Hous. & Dev. Grp., 335 Ga. App. 318, 779 S.B.2d 436, 440 (2015). 10Case $16G0648 Filed 09/26/2016 Page 11 of 21 priority lien on the property, which it may then enforce by levy and sale (emphasis original),!? There was no new statute or indication from this Court that a new law should be announced relative to Wester. The Court of Appeals just decided out of the blue that it was wrong. In NTF, this Court did not prohibit a super lien holder from also enforcing its lien against the excess, and in fact stated, “any excess proceeds may be claimed by the parties entitled to receive them, including those who hold other liens against the property.”" Tellingly, NZF does not impose a time qualifier on when such an interest must have accrued. Nothing in NTF suggests a super lienholder cannot make such a claim. In fact, NTF does not directly deal with a claim to excess funds. Instead, it offers an overview of the tax lien and deed law, and explains that if a party does nothing to protect its interests after a tax sale, that interest will be divested by barment proceedings. Specifically, the holding is that even tax liens can be divested by barment. The language quoted above and seized upon by the Court of Appeals was not intended to be a declaration of the sole and exclusive remedies of a lien holder after a tax sale, but merely shows examples of ways the lien Big. \ Nat'l Tax Funding, L.P. v. Harpagon Co., LLC., 277 Ga. 41, 42, 586 S.E.2d 235, 237-38 (2003). 1Case $16G0646 Filed 09/26/2016 Page 12 of 21 holder could have protected itself from divestment after a tax sale (claim the excess or foreclose). Since a super lien was not at issue in NTF, the issue of whether a redeeming party can claim the excess and foreclose was not before this Court. “[S]tatements and comments in an opinion concerning some rule of law or legal proposition not necessarily involved nor essential to determination of the case in hand are obiter dicta, and lack the force of an adjudication.”!5 Wester did not expand NTF. It merely quoted N7F for the fact that a redeemer obtains a “super lien” for the exception to the general rule that lien rights are based first in time first in right. Concluding that the redeemer had the first priority claim, Wester applied the plain language of O.C.G.A. § 48- 4-5 and awarded the redeemer the excess funds. ‘The fallacy of the Court of Appeals holding that NF forces an election of remedies of either claiming the excess funds, or foreclosure, is shown by simple math. The super lien is always going to be more than the tax deed sales price because of the redemption premium set out in 0.C.G.A. § 48-4-42. The excess tax sale funds are always going to be less than what the property sold for because the underlying delinquent taxes are paid out of the sales price, and the balance is the excess funds. 18 McLeod v. Clements, 297 Ga. 371, 374-75 (2015). 12Case $16G0646 Filed 09/26/2016 Page 13 of 21 Mathematically a super lien holder can never be paid in full by the excess funds. This is why the Court of Appeals basing its reasoning on the word “or” in NFT should be rejected. The excess funds will never fully pay the super lien. The super lienholder must be permitted to claim the funds, and if not paid off by other parties, also foreclose the balance. Otherwise the redeeming party cannot be made whole. The ability to claim the excess funds to offset much of the redemption cost is essential to encouraging redemptions. Otherwise, the redeeming party is simply out of luck if the foreclosure of the super lien does not bring enough to pay 1) the redemption payment, 2) all liens senior to the redeeming party, and 3) the redeeming party’s underlying lien, The chance that the redeeming party will not be made whole discourages redemptions. 4. There is no express statutory limit on excess funds claimants to only those with a recorded interest on the date of the tax sale. The Court of Appeals analysis in Wester focused entirely on subsection (a) of O.C.G.A. § 48-4-5. This subsection directs the levying officer to notify those with an interest in the property on the date of the tax sale that there are excess funds available: [T]he officer selling the property shall give written notice of such excess funds to the record owner of the property at the time of the tax sale and to the record owner of each security deed affecting the 2BCase $16G0646 Filed 09/26/2016 Page 14 of 21 property and to all other parties having any recorded equity interest or claim in such property at the time of the tax sale. The class of those entitled to notice of the existence of the funds is qualified to those with an interest on the date of the tax sale. This time qualifier is only found in this single subsection and applies only to describe those entitled to an actual written notice of the excess funds. Importantly, this same qualifier is not found when subsection (a) goes on to state which persons have priority to the funds. “The notice shall state that the excess funds are available for distribution to the owner or owners as their interests appear in the order of priority in which their interests exist.” The qualifier “at the time of the tax sale” is plainly missing from the description of those who can claim the funds, and the Court of Appeals incorrectly applied the qualifier to the entire statute. “Where a qualifying word or phrase is found in one provision and not in some other provision, the presumption is that the other provision was not intended to have such qualification.”'® The legislative intent was not to limit the class of claimants only to those with an interest on the date of the tax sale, but instead measures the interests among themselves in the present tense. The use of the present tense illustrates that the interests are measured at the present time the money is distributed (“as their interests appear in the 6 Imagawa v. Fayette Cty., 291 Ga. 715, 717, 732 S.E.2d 421, 423 (2012). “4Case $16G0646 Filed 09/26/2016 Page 15 of 21 order of priority in which their interests exist”). In order for the Court of Appeals’ new interpretation to be valid, the use of past tense would be required — as their interests appeared on the date of the tax sale in the order of priority in which those interests existed. The underlined text here is not actually found in the statute. “[T]he courts may not interpret 0.C.G.A. § [48-4-5] to provide what the Legislature chose to omit.”"” 5. The fact that claimants are not limited to those solely existing at the time of the tax sale is underscored by subsection (b) of 48-4-5. No time qualifier is found anywhere in O.C.G.A. § 48-4-5(b). This subsection enables a levying officer to interplead the excess funds in cases of uncertainty of the priority of the claims. The sole reason this case was filed was because the tax commissioner was uncertain who to pay. Subsection (b) gives the authority to the tax commissioner to file such a case and spells out who the court should award the money. The phrase “at the time of the tax sale” is not found anywhere in this subsection. Instead, the language mirrors subsection (a) and does not qualify who can claim the funds. “Such excess funds shall be distributed by the superior court to the intended parties, including the owner, as their interests appear and in the order of priority in which their interests exist.” 17 Innovative Clinical & Consulting Servs., LLC v. First Nat. Bank of Ames, 279 Ga. 672, 675, 620 S.E.2d 352, 355 (2005). 15Case $16G0646 Filed 09/26/2016 Page 16 of 21 As in subsection (a), the interests are referenced in the present tense. Given that the “time of the tax sale” qualifier is not found anywhere in subpart (b), “the presumption is that the other provision was not intended to have such qualification.”"* The present tense language in the fourth sentence in subsection (a) and the same language in subsection (b) indicate a legislative intent to determine entitlement to the excess proceeds as of the time of disbursement,'? and the conspicuous absence of the phrase “as of the time of the tax sale,” further supports that conclusion. Also, given that present tense also includes future tense, 0.C.G.A. § 1-3-1(d)(7), the notice provision in the fourth sentence of subsection (a) is also construed to state that the excess proceeds are available to owners as their interests may appear in the future, after the notice is given, and subsection (b) is construed to mean that the proceeds will be disbursed to owners as their interests may appear in the future after the interpleader is filed and when a determination is made as to entitlement to the proceeds. The limiting clause found in subsection (a) is to provide certainty to the levying officer in knowing who, exactly, to send a notice. And the absence of the limitation elsewhere contemplates that other interests could 18 Id. See Readd v. State, 164 Ga. App. at 98, 296 S.E.2d at 403 (1982) (present tense language in statute allows killing dog only at the time that injury or damage is “being caused” by dog or dog is observed “causing” injury). 16Case S16G0646 Filed 09/26/2016 Page 17 of 21 arise or be transferred post-sale without affecting the ability to collect the excess. Even the Court of Appeals recognized in this case that the excess may be claimed by folks without an interest on the date of the sale if they were “proper post-sale assignees.” This concept seems directly contrary to the holding itself. Post-sale assignees would not be entitled to a notice under O.C.G.A. § 48-4-5(a) because they did not hold an interest on the date of the sale. Yet no explanation was given why those acquiring a post-sale right in the property as an assignee are to be treated differently than a super lien holder. Neither had an interest before the sale. Both made a decision to acquire a right in the property after the sale, Yet the one who decides to redeem is prohibited from collecting the excess, and the one who does nothing to protect the property is able to collect the excess. This is a distinction that O.C.G.A. § 48-4-5 does not make. 6. Public policy favors redemptions but the Court of Appeals decision does not. The policy in Georgia has always favored tax deed redemptions. “Provisions permitting the owner to redeem his property are liberally construed to accomplish their objectives.”?° “Laws of this state governing 2° Wallace v. President St., L.P., 263 Ga. 239, 240, 430 S.E.2d 1, 2 (1993). 7Case $16G0646 Filed 09/26/2016 Page 18 of 21 the right to redeem are to be construed liberally and most favorably to persons allowed by the statute to redeem.”?! “These laws are to be construed liberally and most favorably to persons allowed by the statute to redeem.” By limiting the application of 0.C.G.A. § 48-4-5 to a time that does not appear in the statute, the Court of Appeals has removed the ability to claim excess funds, which is an essential incentive and benefit of redemption. In making redemptions less beneficial to the interested parties, there will be less redemptions, contrary to the policy of this State. 7. Leathers v. McLain and Wester decided the timing issue exactly the same. This Court has interpreted a nearly identical timing issue relative to tax sales in the 1986 opinion of Leathers v. McClain.» The tax deed redemption statute allows redemption by, “any person having any right, title, or interest in or lien upon such property (emphasis added).”** The statute, just like O.C.G.A. § 48-4-5(b), contains no explicit limitation on the timing in which that interest must exist. 21 Dixon v. Conway, 262 Ga. 709, 709, 425 S.E.2d 651, 652 (1993). 2 Union Cent. Life Ins. Co. v. Bank of Tignall, 182 Ga. 233, 185 S.E. 108, 109 (1936) % Leathers v, McClain, 255 Ga. 378, 379, 338 S.E.2d 666 (1986). 24 O.C.G.A. § 48-4-40. 18Case $16G0646 Filed 09/26/2016 Page 19 of 21 The issue before the court in Leathers, as here, was one of timing. Specifically, the issue tuned whether only those parties having an interest in the property at the time of the tax sale could redeem, which would prohibit one acquiring an interest after the tax sale from redemption. Consistent with the policy favoring redemptions, this Court held that the timing of the acquisition of one’s interest before or after a tax sale was irrelevant, and allowed redemption even though the interest was only acquired by the redeemer post tax sale. In Leathers, this Court found that “lienholders, including the appellant, are not barred from the right of redemption by reason of having acquired their interest subsequent to the tax sale.””> Finding no basis in the redemption statute for imposing an arbitrary time limitation on the date of the tax sale, the redemption by a lienholder acquired post-tax sale was authorized. There is no logical reason in allowing one to redeem a tax deed from an interest acquired after the sale, acknowledging that redeemer’s first priority lien, but not allowing a post-sale-first-priority lienholder to make a claim on the excess funds solely because its interest arose after the tax sale. Redemption liens under O.C.G.A. § 48-4-43 will always arise after the tax 25 Id. at 667. 19Case $16G0646 Filed 09/26/2016 Page 20 of 21 sale, But they only arise because the redeeming party spent money to save all interested parties from being divested by the tax deed. This payment benefits every interested party equally. It is inequitable to allow all interested parties to benefit from the payment, but deny the redeeming party ‘the right to collect excess funds simply because their redemption lien arose after the tax sale. Submitted this 26" day of September, 2016. s:4John C, Clark John C. Clark Georgia Bar No. 127347 Attorney for Appellant Clark Law Group, LLC 17 Executive Park Drive, Suite 480 Atlanta, Georgia 30329 (404) 760-0070 jclark@jclarklawgroup.com 20Case $16G0646 Filed 09/26/2016 Page 21 of 21 CERTIFICATE OF SERVICE The undersigned hereby certifies he has served opposing counsel with the foregoing BRIEF OF APPELLANT by U.S. Mail at the below address: Donald L. Cook, Jr. Smith & Liss, LLP Five Concourse Parkway Suite 2600 Atlanta, GA 30328 This 26" day of September, 2016. s:Mohn C. Clark John C. Clark Georgia Bar No. 127347 Attorney for Appellant Clark Law Group, LLC 17 Executive Park Drive, Suite 480 Atlanta, Georgia 30329 (404) 760-0070 jclark@jclarklawgroup.com 2