IN THE SUPREME COURT STATE OF GEORGIA DESIGN ACQUISITION, LLC Appellant, v. M7VEN SUPPORTIVE HOUSING & DEVELOPMENT GROUP, INC. Appellee. Case Number $16C0646 BRIEF OF APPELLEE M7VEN SUPPORTIVE HOUSING & DEVELOPMENT GROUP, INC. Donald L. Cook, Jr. Mark A. Thompson Georgia Bar Number 183865 Georgia Bar Number 709025 Smith & Liss, LLC Mark A. Thompson, Attomey at Law Of Counsel Building 14, Suite 200 Five Concourse Parkway, Suite 2600 2900 Chamblee Tucker Road Atlanta, Georgia 30328 Atlanta, Georgia 30341 404-760-6000 404-596-8667 Attorneys for AppelleeIntroduction The Georgia Court of Appeals, in an en banc decision, affirmed the trial court’s decision which ordered that Appellee M7VEN Supportive Housing & Development Group, Inc. (“M7”)! was entitled to the excess tax sale funds resulting from the sales of its properties. ‘The trial court correctly concluded that Vickie Bearden, in her official capacity as Tax Commissioner of Carroll County (“Bearden”), failed in her statutory obligation to pay the excess tax sale funds to M7 upon its making a proper written demand for the funds when no other claimant had made a similar demand, and more importantly, when no other known claimant existed. Part I - Statement of Material Facts Appellee agrees that the essential facts are not disputed, though the Appellee believes that some facts that were omitted in the Appellant’s brief are essential to understanding why the Court of Appeals overtumed Wester v. United Capital Financial of Atlanta, LLC 282 GA. App. 392, 638 S.E. 2d 779 (2006) and United Capital Financial of Atlanta v. American Investment Assoc., 302 Ga. App. 400, 691 S.E. 2d 272 (2010). ‘MT is a Georgia non-profit corporation in the business of developing and rehabilitating affordable housing for low income, “credit challenged” buyers in order stabilize communities adversely impacted by foreclosures. -M7 acquired the subject real properties in September, 2012. (R- 46, 54.) Bearden held a tax sale of the properties in June 3, 2014, due to unpaid ad valorem property taxes. (R - 48.) The properties were sold in the tax sale to DLT List, LLC (hereinafter “DLT List”), with DLT List acquiring a defeasible ownership interest in the properties by virtue of the tax deeds from Bearden that were filed of record on July 28, 2014. Id. These tax sales, after the appropriate ad valorem taxes had been satisfied, generated excess funds in the amount of $105,188.91. Id. On June 6, 2014, Bearden mailed notices to all entities who had an interest of record in these properties at the time of the tax sales. The notice stated that she was holding excess funds from these tax sales (R— 48, 95, 96.) On July 14, 2014, M7 hand delivered to Bearden its Certificate of Authorization to Receive Excess Tax Funds and demanded immediate payment of the excess funds. (R — 29, 33, 48.) At the time of M7’s demand for the excess funds, there were no outstanding mortgages, liens or judgments of record against the property, and no other party had filed a valid claim for the excess funds. In other words, there were no other known claimants at the time of M7’s demand, which was made in accordance with O.C.G.A. § 15-13-3 (the “money rule” statute). Bearden,notwithstanding that no other party claimed any interest in the excess funds, and besides the fact that there were no lienholders of record, failed and refused to distribute the excess funds to M7. Nearly two months after M7 made its demand for the excess funds, Appellant Design Acquisition, LLC (hereinafter “Design”) purchased a Fulton County fieri facias against M7 from Investor Services of Georgia for $1,395.55 on September 10, 2014. DLT List, LLC, et. al. v. M7VEN ‘Supportive Housing & Development Group, Inc., A15A1485, 779 S.E. 2d 436, 437, 438 (2015). Design apparently did not record the Fulton County fieri facias on the Carroll County general execution docket. Id. Asa tax lien holder against M7, Design redeemed the properties on September 22, 2014, for the statutory redemption amounts of $66,000. Id. Subsequently, DLT List then issued quitclaims of redemption to M7 for both properties in October 2014 as required pursuant to O.C.G.A. § 48-4- 44. Id. On October 27, 2014, Design filed a declaratory judgment action claiming entitlement to the excess funds based upon its redemption of the properties. (R - 237.)Bearden filed her Petition for Equitable Interpleader on November 14, 2013, four months after she received M7’s demand for payment of the excess funds. (R — 237.) In December 2014, M7 responded to the action. M7 contended that Bearden should have released the excess funds to it on July 14, 2014, because there was no lienholder at the time of the tax sale and at the time of the demand; thus, DLT List, as the tax sale purchaser, was not entitled to the excess funds. (R—45, 53.) The trial court issued an order finding that: M7 issued a proper written demand for the excess funds on June 14, 2104; at the time of the tax sale there were no liens against the subject properties; no one else except M7 had made a written demand for the excess funds on or around July 14, 2014; and the only other claim for the excess funds was made by Design by filing a complaint against the tax commissioner on October 27, 2014. (R-299, 301.) The trial court, after citing O.C.G.A. § 15-13-3 (the money rule statute), concluded that Bearden should have issued the funds to M7 within a reasonable time after submission of its claim. Jd. The Court of Appeals, in an en banc decision, affirmed the decision of the trial court.Part II — Jurisdictional Statement This Court granted a Writ of Certiorari on September 6, 2006. Question Presented 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 tax funds? Part III - Argument and Citation of Authority Answer: No, the Court of Appeals did not err, it merely followed the Supreme Court’s previous decision. In the case below, a regular panel of the Court of Appeals could have simply affirmed the verdict of the trial court by holding that M7 was entitled to the excess funds generated from the tax sale based upon M7’s demand under the money rule statute. Instead, the entire Court of Appeals, in a unanimous decision, re-examined and overturned the Wester and United cases, finding that those cases were wrongly decided. This Court has effectively ruled on this issue in Nat. Tax Funding, LP. v. Harpagon Co., 277 Ga. 41, 586 S.E. 2d 235 (2003). In that case, the tax lienholder, just like in the case at bar, had a choice:[FJollowing a tax sale, the holder of a competing tax 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 priority lien on the property, which it may then enforce by levy and sale. Nat, Tax Funding, 277 Ga. at p. 44. In the case at bar, Design was the holder of a tax lien. It was given a binary choice by this Court in Nat. Tax Funding: redeem or seek the excess funds. The Court of Appeals expanded the choice in the Wester and United cases, allowing the creditor to redeem and seek the excess funds. Seeing its effect, the Court of Appeals overturned those decisions. In doing so, it returned its interpretation of these statutes back in line with this Court’s decision in Nat. Tax Funding. In Nat. Tax Funding, this Court ruled that a redeeming creditor has a “first priority to repayment—a ‘super-lien’ for the redemption price— and may proceed to foreclose against the property based upon that lien,” citing O.C.G.A §48-4-43, 277 Ga. at pp. 42-43. The rights of the redeeming creditor were expanded by the Court of Appeals in the Westerand United cases to allow it to also take the excess funds. 282 Ga. App. at 393-394; 302 Ga. App. at pp. 402-403. This allowed the redeeming creditor to immediately seek a judicial foreclosure and take the excess funds. This also left the defendant in fi. fa., or otherwise known as the taxpayer, empty handed. By expanding the rights of the redeeming creditor, the taxpayer’s avenues for relief are practically ineffectual. If tax commissioners can refuse to pay the excess funds to the taxpayer (as happened here) while seemingly waiting for the redeeming creditor to claim the excess funds— even when no liens existed of record in the county records against the property or the taxpayer—means that the taxpayer loses his best chance to redeem his property by obtaining the excess funds to apply towards the cost of redemption. But worse, allowing the redeeming creditor to take the excess funds effectively means that the taxpayer will not receive any money as a result of the tax sale. As the Appellant correctly states, “The excess funds will never fully pay the super lien.” (Br. 13) In the case at bar, Design, as the owner of the Fulton County tax lien, could have satisfied the debt by seeking the excess funds if Bearden still possessed the funds, which were $105,188.91. The tax lien was only$1,395.55. Design would have been fully made whole, and M7 would have received $103,793.36, the remaining equity in the properties.” Why didn’t Design make an immediate demand for the excess funds after purchasing the Fulton County tax lien? Because it sought to seize both the land and the excess funds. The law under Wester and United allowed the redeeming creditor to have its cake and eat it too, effectively getting the land and enough cash back from the excess funds so that it has only paid a few thousand dollars for the “super lien” on the property. Unfortunately, the cases allowing the redeeming creditor to also take the excess funds has provided incentives that work to harm the taxpayer and any other legitimate creditor, such as the first mortgage holder. There are a multitude of reasons that demonstrate the unfairness that results from the rule originated in the Wester and United cases. There are others that are more logically organized below. The Court of Appeals did not err in its determination that a redeeming creditor after a tax sale * It is interesting to note that Design and DLT List are corporations having the same registered agent and organizer, John C. Clark, Clark Caskey, and the companies are represented by said law firm in this litigation. Thus, it is highly likely that these companies are related entities that were working together to confiscate all of the equity in the taxpayer’s property. 8does not have a first priority claim on excess tax funds. It recognized that this case conflicted with this Court’s earlier ruling, that a creditor had a binary choice as stated in Nat. Tax Funding: redeem or seek the excess funds. The choice was not “all of the above.” (1) M7 was entitled to the excess funds resulting from the tax sale upon its written demand for the same. In accordance with 0.C.G.A. § 48-4-1, if a property owner fails to pay county property taxes, the county may conduct a sale of the property to satisfy the unpaid taxes. The tax sale deed vests the purchaser with a defeasible fee interest in the property which continues for a twelve-month period during which time “the delinquent tax payer or any other party holding an interest in or lien on the property may redeem the property by paying to the tax sale purchaser the purchase price plus any taxes paid plus interest.” Nat. Tax Funding, LP v. Harpagon Co., 277 Ga. 41, 42-43, 586 S.E. 2d 235 (2003). In cases where a tax sale generates additional funds that are necessary to satisfy the tax lien for which the property was levied and sold, O.C.G.A. § 48-4-5 addresses such instances of excess funds being generated from a tax sale. After proper notice of the excess funds hasbeen forwarded to the defendant in fi.fa., the current record property owner, and all other parties having any recorded equity interest or claim in such property at the time of the tax sale, the statute provides that the notice shall state that the excess funds are available for distribution to the owner or owners as their interest appear in the order of priority in which their interest exists. 0.C.G.A. § 48-4-5(a). Such notice shall be sent by first class mail within thirty days after the tax sale. Id. As noted by the Court of Appeals, this statute looks to the owner and lienholders prior to the tax sale, and tax sale purchasers have no claim to the excess funds based upon their post-sale ownership. DLT List, LLC, et. al. v. M7VEN Supportive Housing & Development Group, Inc., A1SA1485, 779 8.E. 2d 436, 439 (2015); Barrett v. Marathon Investment Corp., 268 Ga. App. 196, 601 S.E. 2d 516 (2004). Thus, after a tax sale occurs, the tax commissioner provides the requisite thirty day notice of the sale to the recorded owners and interest holders, and then distributes those excess funds to the persons holding interest in the property in existence from the time of the tax sale. O.C.G.A. § 48-4-5(a). This Court has held that the governmental official in holding the excess funds generated from a tax sale, acts as a fiduciary for the propertyowner. Alexander Investment Group, Inc. v. Jarvis, 263 Ga. 489, 435 S.E. 2d 609 (1993); Morrison v. Slaton, 148 Ga. 294, 96 S.E. 2d 422 (1918). To ensure that the fiduciary is followed, O.C.G.A. § 15-13-3(a) provides that government officials, upon proper demand, are required to pay the proper persons funds he may have in his hands which have been collected by virtue of his office. The statute imposes a severe penalty for a government official’s failure to pay said funds to the property party from the date of the demand, unless good cause is shown to the contrary. Accordingly, the tax commissioner has a fiduciary duty to the property ‘owner regarding the excess funds. There is no question that at the time of the tax sale, M7 was the owner and there were no recorded liens on the property. There were no claimants entitled to the excess funds other than M7? M7VEN, 779 SE. 2d at p.440. Thus, the Court of Appeals confirmed that the trial court properly determined that Bearden should have disbursed the excess funds to M7 upon its demand. ° The Court of Appeals notes that Design was also a claimant for these excess funds at the time of the tax sales on June 6, 2014. The Appellee points out, however, that Design did not acquire the Fulton County tax lien until September 10, 2014.(2) Design, as a redeeming creditor, does not have a first priority claim on the excess funds. After the tax sales to DLT List in June 2014, Design purchased a Fulton County tax lien against M7 from Investor Services of Georgia for $1,395.55 on September 10, 2014. M7VEN, 779 S.E. 2d at pp. 437, 438. This tax lien was not recorded in the Carroll County general execution docket. Jd. As the holder of the tax lien, Design redeemed from DLT List the properties on September 22, 2014. Jd. Design, as the redeeming creditor, claims that its first priority lien entitles it to the excess tax funds for the redemption price of the properties (not the amount of its original lien or interest) pursuant to the Wester and United Capital decisions. O.C.G.A. § 48-4-43 defines the effect of a redemption. “When property has been redeemed, the effect of a 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.” O.C.G.A. § 48-4-43. “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 and, if the quit claim deed provided for in Code Section 48-4-44 isrecorded, as required by law, shall be repaid prior to any other claims upon the property.” (Emphasis supplied.) Jd. As described by this Court in Nat. Tax Funding, the redeeming creditor then has first priority to repayment — a “super-lien” for the redemption price — and may proceed to foreclosure against the property based upon that lien. 277 Ga. at pp. 42-43. Neither O.C.G.A. § 48-4-43 nor the decision in Nat. Tax Funding provide that such a first priority claim applies to the excess funds in a tax sale, Instead, the first priority “super-lien” for the redemption price applies only against the property based upon that lien. 277 Ga. at p. 42- 43. The Court of Appeals held that its decision in 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.” 779 S.E. 2d at p. 440. The Court of Appeals opined that “to the extent that Wester and its progeny hold that the redeeming creditor has a first priority claim on the excess tax funds for the payment paid to redeem the property, they are hereby overruled.” Jd. In the case at bar, Design was entitled to make a claimagainst the excess tax funds in the amount of its purchased Fulton County tax lien (at least $1,395.55) with the remainder of the excess funds going to M7 (the only other claimant for the funds). Id. The Court held that the redemption price is not recoverable from the excess funds, but, under O.C.G.A. § 48-4-43, would be the first priority lien (in this case the only lien) against the property going forward. Id. Thus, Design could foreclose against the properties in order to satisfy its first priority lien. The Court of Appeals’ decision is consistent with the express wording of 0.C.G.A. § 48-4-43 and the holdings of this Court in Nat. Tax Funding, 277 Ga. 41. It is also consistent with the money rule which provides that government officials must immediately pay to proper parties any sums in their hands collected through their office. O.C.G.A. § 15-13- 3(c). A determination that the redeeming creditor after a tax sale has a first priority claim on excess tax funds would require this Court to create a judicial exception to the money rule statute. Specifically, it would require tax commissioners to wait twelve months, and, after the redemption period is over, only then allow them to pay the excess funds to the taxpayer. This procedure would directly contradict the money rule.‘A good example of how the Court of Appeals has previously applied a money rule demand for excess funds by the record owner of the property versus a creditor redeemer under O.C.G.A. § 48-4-43 is found in the decision in Brina Bay Holdings, LLC v. Echols, et al., 314 Ga. App. 342, 723 S.E. 2d 533 (2012). The facts in the Brina Bay decision are almost identical to the facts in this case. 314 Ga. App. 242. In Brina Bay, December, 2009, the tax commissioner sold certain real property at a tax sale to satisfy an outstanding ad valorem property tax lien against the property. Id. The tax sale generated excess funds. Id. The tax commissioner mailed notice of excess funds to the record owner of the property and to the record holder of liens affecting the property, which, at that time, did not include Brina Bay. Id. The record owner of the property promptly submitted to the tax commissioner its claim for the excess tax sale funds. Id. No other party submitted a claim. Id. Approximately one week later, the tax commissioner issued a check for the excess funds to the record owner of the property. Jd, Subsequently, Brina Bay acquired two liens involving the subject property and exercised a right of redemption under O.C.G.A. § 48-4-43. Id. Thereafter, Brina Bay submitted claims to the taxcommissioner pursuant to O.C.G.A. § 15-13-3 for the excess tax sale funds. Jd. Brina Bay contended that by virtue of its redemption of the property, it acquired a first priority lien against the property and a first priority claim to the excess tax sale funds pursuant to O.C.G.A. § 48-4-43. 314 Ga. App. at p. 244. The trial court held that the tax commissioner had properly fulfilled his obligation to notify the interested parties of the tax sale funds and to distribute to record owner of the property these excess tax sale funds since it was the only party making a claim for the funds. Id. at p. 243. The court found that Brina Bay had no interest in the property at the time of the tax sale or at the time the notice was sent. Jd. The court added that since the excess funds had been properly disbursed prior to the time Brina Bay acquired liens on the property, Brina Bay only took the rights to the property to collect on the lien and not on the excess funds generated from the tax sale. Id. The appellate court affirmed, finding that it was uncontroverted that at the time of the tax sale, at the time the tax commissioner notified the record owner of the property and record lien holder of the excess tax sales funds, and at the time the owner of the property demanded and, was paid, the excess tax sale funds, Brina Bayhad no recorded lien or interest in the property. Id. at p. 245. Accordingly, the tax commissioner acted in accordance with his statutory obligation to distribute the excess tax sale funds to the property owner. Id. The only distinguishing factor in this case is that Bearden failed and refused to fulfill her statutory obligation to pay the excess tax sale funds to M7 upon written demand in accordance with O.C.G.A. § 15-13-3(a). Since there was no other lien holder at the time of the tax sale, at the time the notice of excess funds was sent, and at the time M7 made its written demand for the excess funds, Bearden violated her obligation to pay the proper person the funds that she had in her hands which were collected by virtue of her office. (3) The Court of Appeals’ decision is good law and favors Georgia public policy. The public policy of this State favors taxpayers (and their creditors and lienholders) when their real property is sold to pay unpaid property taxes. O.C.G.A. § 48-4-40 ef seg. allows the taxpayers and that creditors and lienholders to redeem the property from the sale by payment of the redemption price within twelve months from the date of the tax sale. Ifthere are excess funds resulting from the sale, O.C.G.A. § 48-4-5 allows the owner (and creditors according to their priority) to receive the excess funds after the property has been sold and the taxes have been fully paid. Design correctly cited case law (Br. 7) that supports redemption: “Laws of this state governing the right to redeem are to be construed liberally an most favorably to persons allowed by statute to redeem.” Dixon v. Conway, 262 Ga. 709, 709 (1993). But that case, and those cited in it, support redemption that favors the taxpayer (or their creditors) reacquiring his property. Except for Wester and United, the caselaw does not allow the redeeming creditors to obtain the excess funds, only the other creditors. In this case, allowing the redeeming creditor the incentive to take a super lien on the property and the excess funds, disfavors the taxpayer and all other creditors, particularly first mortgage holders. Allowing a creditor such as Design, who could have been fully satisfied by taking 1.33% of the excess funds, redeem the property and take all the excess funds, is unfair to the taxpayer who had a great deal of equity in the property. The Court of Appeals was correct in seeking to end this practice by taking away this irregular incentive.While public policy favors redemption on the part of the taxpayer in reacquiring his property, it should not favor a redeeming creditor by allowing that creditor the opportunity to grab both the property owner's excess funds (personal property) and his interest in the real property. If there are excess funds resulting from the sale of property, the taxpayer can use the excess funds generated from the sale to apply towards the redemption of his property. This position, which is consistent with Georgia public policy, is more reasonable than allowing the redeeming creditor to obtain the excess funds, then seek immediately judicial foreclosure based upon its first priority lien against the real property. The redemption statute was designed to allow the taxpayer a full twelve months to redeem his property and Georgia law ought to be construed with that goal in mind. A troubling aspect of the Wester and United decisions was to allow the super lienholder to deny the taxpayer’s chance to redeem the property within twelve months. The legislature certainly intended for this to be an option under 0.C.G.A §§ 48-4-42 and 48-4-44, The Court of Appeals’ earlier interpretation of the statutes that allowed the super-lien holder to also take excess funds creates incentives for a creditor to redeem with the prospect of obtaining the excess funds,but also, by redeeming the property, effectively shortens the redemption period and curtailing the taxpayer’s chances of redeeming the property within twelve months. In the case at bar, a taxpayer whose only known debt was a tax lien in Fulton County for $1,395.55, not only would lose $105,188.91 in equity, but also lose the chance to redeem the property in just three months. The loss of equity is inequitable to the taxpayer; allowing this to happen in three months (or shorter) expedites the inequity. Accordingly, the Court of Appeals’ unanimous decision to reverse the erroneous Wester decision and return to Nat. Tax Funding and its progeny is not only sound law, but sound public policy. While tax sales are necessary to ensure that unpaid property taxes are paid, in recent years professional investors have moved in to begin investing in unpaid property taxes which has sparked a second “foreclosure crisis” according to a report from the National Consumer Law Center.* “It is for this reason, that tax lien sales are often promoted ‘on websites and late-night television advertisements as ‘get rich quick schemes,” the Report indicates. Id. What the Wester decision allowed was for professional investors to find other liens against the property *“The Other Foreclosure Crisis: Losing a Home Over $400 in Back Taxes” July 12, 2012 CNN Money Report. 20owner in order to acquire its “super-lien” thereby allowing it to confiscate not only the owner’s excess tax sale proceeds, but also allow it to foreclose on the property in order to satisfy payment of an insignificant lien. The redeeming creditor still has the statutory protections afforded it under 0.C.G.A. § 48-4-43, If there are excess funds resulting from a tax sale, the redeeming creditor is authorized to seek the excess funds to pay offits lien. In the case at bar, there were more than sufficient excess funds generated from the tax sale to satisfy the Fulton County fieri facias of $1,395.55. If the funds from the tax sale are not sufficient to pay the creditor, the creditor can redeem the property and obtain a first priority “super-lien” against the property in order to satisfy the debt through a levy and foreclosure sale. These are sufficient protections, authorized by statute, for the redeeming creditor. The Court of Appeals was correct in overruling Wester and its progeny since those cases incorrectly expanded “without explanation” the holding of Nat, Tax Funding to allow the redeeming creditor to redeem the property and receive the excess tax sale funds. M7VEN, 779 S.E. 2d at p. 440. 21Part IV — Conclusion Based upon the above and foregoing, Appellee M7 respectfully requests that this Court deny Appellant’s appeal and affirm the trial court and the Court of Appeal’s decisions. Respectfully submitted, Smith & Liss, LLC By: Donald L. Cook, Jr. Of Counsel Georgia Bar Number 183865 Five Concourse Parkway Suite 2600 Atlanta, Georgia 30328 404-760-6000 (Signatures Continued) 22Mark A. Thompson Georgia Bar Number 709025 Mark A. Thompson, Attomey at Law Building 14, Suite 200 2900 Chamblee Tucker Road Atlanta, Georgia 30341 404-596-8667 Attorneys for Appellee 23CERTIFICATE OF SERVICE Thereby certify that I have this day served counsel for the opposing party in the foregoing matter with a copy of this pleading by depositing in the United States Mail a copy of same, with adequate postage thereon, addressed as follows: John C. Clark Clark Caskey, LLC 17 Executive Park Drive, Suite 480 Atlanta, Georgia 30329 This day of October, 2016.