IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

April 21, 2016 Session

ANDREA SCOTT ET AL. v. CARLTON J. DITTO ET AL.

Appeal from the Circuit Court for Hamilton County

No. 11C942 W. Jeffrey Hollingsworth, Judge

No. E2014-02390-COA-R3-CV-FILED-AUGUST 31, 2016

This action involves a dispute between the holders of conflicting claims to the ownership 

of a residential lot in Chattanooga. The City sold the property at a delinquent tax sale. 

Unbeknownst to those involved in the tax sale, the property had earlier been sold at a 

foreclosure sale conducted by the holder of a deed of trust on the property. After a 

dispute arose between Andrea Scott, who had bought the property from a successor to the 

purchaser at the foreclosure sale, and Carlton J. Ditto, who bought the property at the tax 

sale, Scott filed this action against Ditto and others to quiet title to the property. Ditto 

filed a counterclaim. He also filed a cross-claim against several of the defendants. The 

trial court granted Scott summary judgment based on its determination that she was a 

bona fide purchaser without notice of the tax sale to Ditto and that she had recorded her 

deed first. The trial court dismissed Ditto’s cross-claim. We affirm the trial court’s 

dismissal of the cross-claim against the lender and others, because Ditto does not have 

standing to challenge the foreclosure sale. With respect to the trial court’s grant of 

summary judgment to Scott, we hold that the evidence presented by Ditto in opposition to 

summary judgment establishes a genuine issue of material fact as to whether Scott had 

notice of Ditto’s interest in the property prior to her purchase of that property. 

Accordingly, we vacate the trial court’s grant of summary judgment and remand for 

further proceedings.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court

Vacated in Part and Affirmed in Part; Case Remanded for Further Proceedings

CHARLES D. SUSANO, JR., J., delivered the opinion of the court, in which JOHN W.

MCCLARTY and THOMAS R. FRIERSON, II, JJ., joined.

Carlton J. Ditto, Chattanooga, Tennessee, appellant, pro se.

Adam U. Holland and Everett L. Hixson, III, Chattanooga, Tennessee, for the appellees,

Andrea Scott and the Tennessee Housing and Development Authority.
2

David W. Houston, IV, and Charles N. Alden, Nashville, Tennessee, for the appellees, 

CitiMortgage, Inc., and Mortgage Electronic Registration Systems, Inc.

OPINION

I.

The property at issue is a residence located at 3904 Dixie Circle in Chattanooga. 

Tamara B. Taff owned the property in 2006. The property taxes due the City for 2006 

were not paid. On January 30, 2007, Taff sold the property to Joey R. Sapp, Shannon 

Elizabeth Sapp, and Ray F. Sapp. Defendant CitiMortgage, Inc. (Lender) financed the 

purchase, and the Sapps executed a deed of trust in favor of Lender and defendant 

Mortgage Electronic Registration Systems, Inc. (MERS), which latter entity acted solely 

as a nominee for Lender. In 2007, the City of Chattanooga filed suit to collect unpaid

taxes on the property. 

The Sapps defaulted on the deed of trust, and Lender initiated foreclosure 

proceedings in early 2010. On April 5, 2010, the foreclosure sale took place, and Lender 

was the high bidder. The same day, Lender and MERS conveyed their interest in the 

property to the Department of Housing and Urban Development (HUD), executing a 

trustee’s deed in HUD’s favor. This deed was executed on April 5, 2010; however, HUD 

did not record it until August 12, 2010. 

At an earlier time, on April 20 and 21, 2010, the City of Chattanooga served notice 

upon Lender and MERS respectively, notifying them of the pending tax sale of the 

property. The tax sale occurred on June 3, 2010. Ditto was the high bidder. The 

Hamilton County Chancery Court entered a decree confirming the tax sale on June 15, 

2010, nunc pro tunc to June 3, 2010. Ditto did not record the decree in the Hamilton 

County register of deeds until June 24, 2011.

On April 20, 2011, HUD sold the property to Scott. Scott recorded her deed on 

May 19, 2011, some thirty-six days before Ditto recorded the court’s tax sale decree. 

After Ditto sent Scott a letter informing her that it was his position he was the rightful 

owner of the property, Scott filed the instant lawsuit on July 28, 2011. Her action to quiet 

title named as defendants Ditto, Lender, MERS, the City of Chattanooga, Hamilton 

County, and Shaun Donovan, Secretary of HUD. Ditto answered and filed a 

counterclaim. He coupled it with a cross-claim against Lender, MERS, and the City of 

Chattanooga. The case was twice removed to federal court, which, on both occasions,

remanded the case back to the trial court. While this case was still pending in the federal 

court, that court entered an order granting Scott’s unopposed motion for a voluntary 
3

dismissal of her suit against the secretary of HUD. It does not appear that HUD has taken 

an active part in this litigation.

The trial court granted the motion to dismiss Ditto’s cross-claim against Lender 

and MERS, finding that Ditto had no standing to challenge the foreclosure sale because 

he was neither a party to, nor a third-party beneficiary of, the contracts underlying the 

foreclosure. The trial court granted Scott summary judgment on the following bases: that 

she recorded her deed before Ditto recorded his muniment of title, i.e., the decree 

confirming the tax sale, and that Scott was a bona fide purchaser of the property without 

notice of the tax sale or Ditto’s claim to the property. See Tenn. Code Ann. § 66-26-105 

(2015) (“Any instruments first registered or noted for registration shall have preference 

over one of earlier date, but noted for registration afterwards; unless it is proved in a 

court of equity . . . that the party claiming under the subsequent instrument had full notice 

of the previous instrument.”). In its final order, the trial court ordered that “to the extent 

the tax sale vesting title of the property located at 3904 Dixie Circle is invalidated or 

otherwise set aside by the Order of this Court, the Cross-Defendant City of Chattanooga 

shall reimburse Defendant Ditto [for monies paid by Ditto at the tax sale] as 

contemplated by [Tenn. Code Ann.] § 67-5-2504 (a).” Ditto timely filed a notice of 

appeal. 

II.

Ditto raises the following issues on appeal:

1. Whether the trial court erred in granting Scott summary 

judgment and declaring her the title holder of the property. 

2. Whether the trial court erred in dismissing Ditto’s crossclaim against Lender and MERS based upon an alleged lack

of standing to challenge the foreclosure sale. 

III.

Regarding our standard of review of a grant of summary judgment, the Supreme 

Court has recently opined:

Summary judgment is appropriate when “the pleadings, 

depositions, answers to interrogatories, and admissions on 

file, together with the affidavits, if any, show that there is no 

genuine issue as to any material fact and that the moving 

party is entitled to a judgment as a matter of law.” Tenn. R. 
4

Civ. P. 56.04. We review a trial court’s ruling on a motion 

for summary judgment de novo, without a presumption of 

correctness.

* * *

[I]n Tennessee, as in the federal system, when the moving 

party does not bear the burden of proof at trial, the moving 

party may satisfy its burden of production either (1) by 

affirmatively negating an essential element of the nonmoving 

party’s claim or (2) by demonstrating that the nonmoving 

party’s evidence at the summary judgment stage is 

insufficient to establish the nonmoving party’s claim or 

defense. . . . The nonmoving party must demonstrate the 

existence of specific facts in the record which could lead a 

rational trier of fact to find in favor of the nonmoving party.

Rye v. Women’s Care Ctr. of Memphis, MPLLC, 477 S.W.3d 235, 250, 264-65 (Tenn. 

2015) (emphasis in original). 

In determining whether summary judgment is appropriate,

[w]e must view all of the evidence in the light most favorable 

to the nonmoving party and resolve all factual inferences in 

the nonmoving party’s favor. Martin v. Norfolk S. Ry. Co., 

271 S.W.3d 76, 84 (Tenn. 2008); Luther v. Compton, 5 

S.W.3d 635, 639 (Tenn. 1999); Muhlheim v. Knox Cnty. Bd. 

of Educ., 2 S.W.3d 927, 929 (Tenn. 1999). If the undisputed 

facts support only one conclusion, then the court’s summary 

judgment will be upheld because the moving party was 

entitled to judgment as a matter of law. See White v. 

Lawrence, 975 S.W.2d 525, 529 (Tenn. 1998); McCall v. 

Wilder, 913 S.W.2d 150, 153 (Tenn. 1995). 

Wells Fargo Bank, N.A. v. Lockett, No. E2013-02186-COA-R3-CV, 2014 WL 1673745,

at *2 (Tenn. Ct. App., filed Apr. 24, 2014).

Our standard of review on the issue of whether the trial court correctly dismissed 

Ditto’s cross-claim under Tenn. R. Civ. P. 12.02(6) is as stated by the Supreme Court:
5

A Rule 12.02(6) motion challenges only the legal sufficiency 

of the complaint, not the strength of the plaintiff’s proof or 

evidence. The resolution of a 12.02(6) motion to dismiss is 

determined by an examination of the pleadings alone. A 

defendant who files a motion to dismiss admits the truth of all 

of the relevant and material allegations contained in the 

complaint, but asserts that the allegations fail to establish a 

cause of action. 

In considering a motion to dismiss, courts must construe the 

complaint liberally, presuming all factual allegations to be 

true and giving the plaintiff the benefit of all reasonable 

inferences. A trial court should grant a motion to dismiss 

only when it appears that the plaintiff can prove no set of 

facts in support of the claim that would entitle the plaintiff to 

relief. We review the trial court’s legal conclusions regarding 

the adequacy of the complaint de novo. 

Webb v. Nashville Area Habitat for Humanity, Inc., 346 S.W.3d 422, 426 (Tenn. 2011) 

(internal citations, quotation marks and ellipsis omitted). 

IV.

A.

At its core, this case presents the question of whose claim to title has priority. 

HUD bought the property first at the foreclosure sale on April 5, 2010, but did not record 

its deed until August 12, 2010; consequently, the City was unaware of HUD’s interest on 

June 3, when it sold the property at the tax sale to Ditto. Scott later bought the property 

from HUD on April 20, 2011, but she recorded her deed first, on May 19, 2011. Ditto 

did not record his judgment confirming the tax sale until June 24, 2011. 

Ditto argues that Scott’s lawsuit is barred by Tenn. Code Ann. § 67-5-2504(c), 

which provides that “[n]o suit shall be commenced in any court of the state to invalidate 

any tax title to land until the party suing shall have paid or tendered to the clerk of the 

court where the suit is brought the amount of the bid and all taxes subsequently accrued.” 

(Emphasis added.) Scott responds that her action is not a suit “to invalidate [a] tax title to 

land.” She has not challenged the validity of the tax sale. Scott’s position is that Ditto 

received valid title to the property at the tax sale, but lost priority by failing to record his 

interest first. We agree with Scott that, under the facts presented here, Tenn. Code Ann.

§ 67-5-2504 does not bar her action, because it is not a suit to invalidate a tax title. See 
6

State v. Delinquent Taxpayers, No. W2008-01296-COA-R3-CV, 2009 WL 1211332, at 

*5 (Tenn. Ct. App., filed May 5, 2009) (observing that “[Tenn. Code Ann. §] 67-5-2504, 

by its terms, applies to suits to ‘invalidate’ a tax title, not to every suit that simply affects 

a tax title”); Mortgage Elec. Registration Sys., Inc. v. Ditto, 488 S.W.3d 265, 276-79 

(Tenn. 2015) (holding section 67-5-2504(c) inapplicable to an action “to have the tax sale

of the property declared void ab initio based on lack of constitutionally-required notice”). 

The trial court held that Tennessee’s race notice statute governs the outcome of 

this case. In Milledgeville United Methodist Church v. Melton, 388 S.W.3d 280, 289 

(Tenn. Ct. App. 2012), we observed,

Our race notice statute states:

Any instruments first registered or noted for 

registration shall have preference over one of 

earlier date, but noted for registration 

afterwards; unless it is proved in a court of 

equity, according to the rules of the court, that 

the party claiming under the subsequent 

instrument had full notice of the previous 

instrument.

Tenn. Code Ann. § 66–26–105. Therefore, under 

Tennessee’s race notice statute, a first-filed instrument has 

preference over a later-filed document, even one that was 

executed first. Harris v. Buchignani, 199 Tenn. 105, 113, 

285 S.W.2d 108 (Tenn. 1955). This preference is not 

available, however, where the party claiming under the 

subsequent instrument had “full notice” of the prior 

unrecorded one. Tenn. Code Ann. § 66–26–105.

Under Milledgeville, Scott’s title claim has priority if she is a bona fide purchaser for 

value, without notice of Ditto’s title claim. The Supreme Court addressed the concept of 

notice in Blevins v. Johnson County, 746 S.W.2d 678, 682-83 (Tenn. 1988), stating:

Notice is generally said to take two forms, actual or 

constructive. Constructive notice is notice implied or 

imputed by operation of law and arises as a result of the legal 

act of recording an instrument under a statute by which 

recordation has the effect of constructive notice. “It has been 

well said that ‘constructive notice is the law’s substitute for 
7

actual notice, intended to protect innocent persons who are 

about to engage in lawful transactions. . . .’ ” Tucker v. 

American Aviation and General Insurance Co., 198 Tenn. 

160, 165, 278 S.W.2d 677, 679 (1955) (citation omitted). . . .

While “[i]t is true that recordation creates constructive notice 

as distinguished from actual notice, in that ordinarily actual 

notice is when one sees with his eyes that something is done,” 

Moore v. Cole, 200 Tenn. 43, 51, 289 S.W.2d 695, 698 

(1956), another kind of notice occupying what amounts to a 

middle ground between constructive notice and actual notice 

is recognized as inquiry notice. Some authorities classify 

inquiry notice as a type of constructive notice, but in 

Tennessee, it has come to be considered as a variant of actual 

notice. “ ‘The words “actual notice” do not always mean in 

law what in metaphysical strictness they import; they more 

often mean knowledge of facts and circumstances sufficiently 

pertinent in character to enable reasonably cautious and 

prudent persons to investigate and ascertain as to the ultimate 

facts.’ ” Texas Co. v. Aycock, 190 Tenn. 16, 27, 227 S.W.2d 

41, 46 (1950) (citation omitted). Even a good faith failure to 

undertake the inquiry is no defense. Id., 190 Tenn. at 28, 227 

S.W.2d at 46. Thus, “ ‘[w]hatever is sufficient to put a 

person upon inquiry, is notice of all the facts to which that 

inquiry will lead, when prosecuted with reasonable diligence 

and good faith.’ ” City Finance Co. v. Perry, 195 Tenn. 81, 

84, 257 S.W.2d 1, 2 (1953) (citation omitted).

See also Milledgeville United Methodist Church, 388 S.W.3d at 290 (“record notice is 

only one of many ways by which a subsequent purchaser may be put on notice of 

another’s interest in land . . . one cannot be a good-faith purchaser if a reasonable 

investigation of the property would have revealed the existence of a conflicting claim.”) 

(quoting 112 Am. Jur. Proof of Facts 3d 419, § 12 (2010)); Estate of Darnell v. Fenn, 

303 S.W.3d 269, 279 (Tenn. Ct. App. 2009); Holiday Hosp. Franchising, Inc. v. States 

Res., Inc., 232 S.W.3d 41, 48-49 (Tenn. Ct. App. 2006). 

Ditto argues that the trial court erred in granting Scott summary judgment because 

he presented evidence sufficient to raise a genuine issue of material fact as to whether 

Scott had notice of his claimed interest in the property before buying it from HUD. In his 

affidavit, Ditto states the following:
8

Pursuant to the hereinabove discovery [propounded by Ditto 

to Scott], Plaintiffs did produce a copy of the Hamilton

County Trustee website showing data for the Property as of 

December 23, 2010 (Exhibit “E”). This document clearly 

shows myself as the Assessed Owner and lists my deed of 

acquisition[.]

The exhibit is a printout of a page from the Hamilton County Trustee’s website, 

captioned “property tax inquiry.” Significantly, it bears the date of December 23, 2010. 

“Carlton J. Ditto” is the listed owner of the property. Ditto’s affidavit attests that the 

printout was provided by Scott herself, or someone on her behalf, in response to his 

discovery request. Although Scott testified that she did not have actual or constructive 

notice of Ditto’s alleged interest before she bought the property from HUD, she does not 

deny that she produced the subject document in response to Ditto’s discovery request. 

We are of the opinion that Ditto has identified a genuine issue of material fact regarding 

whether Scott had notice of his interest to preclude her status as a bona fide purchaser. A

trier of fact could reasonably conclude that, since Scott provided the County Trustee’s 

website printout to Ditto, she had actual knowledge that Ditto was listed as the owner of 

the property on December 23, 2010, well before she bought it on April 20, 2011. 

This Court addressed a similar situation in Washington Mutual Bank v. N.K.T. 

Land Acquisitions Inc., No. M2007-02040-COA-R3-CV, 2008 WL 2925299, at *9-10 

(Tenn. Ct. App., filed July 23, 2008), saying:

the next question is whether N.K.T. had actual or inquiry 

notice of the subordination agreement originally entered into 

between GMAC and NAMCO. . . .

The two letters sent in the first part of 2006 from N.K.T. to 

Wilson & Associates constitute a considerable hurdle for 

N.K.T.’s contention that there is no evidence to suggest actual 

notice of such an agreement. Indeed, the letters alone are 

sufficient to raise a material question of fact as to the 

existence of actual notice by N.K.T. at the time the loan was 

purchased. Although an affidavit from Ms. Tedeschi states 

that N.K.T. did not have notice of the subordination 

agreement, N.K.T.’s 2006 correspondence suggests 

otherwise. . . . [I]t is certainly possible for [the letters] to be 

understood as indicating that the unrecorded subordination 

agreement had been discovered prior to the time of the 

acquisition from GMAC. While these two letters might be 
9

explained away at trial, any such explanation could not be 

accepted by the court on summary judgment.

* * *

Upon remand, then, the finder of fact must determine whether 

N.K.T. was on notice, be it actual or inquiry, of the fact that 

the mortgage it was acquiring had been subordinated by a 

prior agreement. If N.K.T. was on inquiry notice only, then 

the finder of fact must determine what a reasonable inquiry 

would have revealed. A reasonable inquiry, however, would 

not necessarily be limited to what would have been 

discovered by examining the records of the county’s register 

of deeds. Inquiry notice is not merely constructive notice by 

another name. It covers those facts that would have been 

discovered under the circumstances by reasonably diligent 

actors regardless of whether that information is formally 

recorded. If the facts here would have reasonably suggested 

further inquiry and such an inquiry, when undertaken in good 

faith and with reasonable diligence, would have revealed the 

subordination of the mortgage to be acquired, then N.K.T. 

cannot avoid the effects of the subordination agreement 

simply by arguing that it would not have been found in the 

records of the register of deeds.

(Footnotes and internal citations omitted.) We similarly vacate summary judgment here 

and remand for further proceedings.

1

 

1 On appeal, Ditto also argues that recent amendments to the statutory scheme governing 

delinquent tax sales should apply retroactively to defeat Scott’s claim. Tenn. Code Ann. § 67-5-

2103 was amended effective July 1, 2014 to provide:

(c) The filing of a complaint for the purpose of enforcement of the 

first [property tax] lien provided for in § 67-5-2101, shall create a 

lien lis pendens as to each parcel which is included in the 

proceeding, during the pendency of the proceeding, affecting all 

subsequent owners, without the recording of any copy or abstract 

thereof in the office of the register of deeds.

This statute was amended again, effective May 8, 2015, to provide:

(b) All interested persons shall be deemed to have constructive 
10

B.

Ditto’s cross-claim against Lender and MERS alleged that:

It appears from the complaint that [Lender] and . . . MERS

were the owners and holders of a deed of trust executed by

Joey R. Sapp, wife Shannon Elizabeth Sapp and Ray F. 

Sapp[.]

[Lender] and MERS foreclosed this deed of trust on April 5, 

2010.

Ditto avers that [Lender] and MERS failed to:

a. properly accelerate the debt as required by paragraph 9 of 

said deed of trust;

b. properly notify debtors of the pending foreclosure pursuant 

to the terms of the deed of trust and T.C.A. 35-5-101 et. seq.;

c. properly advertise the foreclosure sale as required by 

T.C.A. 35-5-101 et. seq.;

d. comply with the terms of paragraph 18 of the deed of trust;

e. properly record an assignment to The Secretary of Housing 

and Urban Development (HUD);

 

notice of the proceedings by virtue of the seizure of the parcel 

occurring upon the filing of a complaint for the purpose of

enforcement of the first lien. However, interested persons who do 

not have an obligation to pay the taxes on the parcel, such as 

lienholders, need not be joined as parties nor served with process 

so long as a diligent effort to give actual notice of the proceedings, 

as defined in § 67-5-2502(c)(1), is made to such persons.

We do not find it appropriate or necessary for us to reach the interpretation or application of 

these provisions. In the event the trial court determines that Scott did not have notice of Ditto’s 

title, that court can proceed further and address Ditto’s position with respect to these statutory 

provisions.
11

f. tender the high bid in cash as required by the terms and 

conditions of the deed of trust, the advertised Notice of Sale 

and the Statute of Frauds;

g. convey the property to the highest and best bidder in that 

HUD was not present at the foreclosure sale, could not have 

tendered the highest and best bid and did not tender the high 

bid in cash as required by the terms and conditions of the 

deed of trust, the advertised Notice of Sale and the Statute of 

Frauds.

Ditto avers that these failures violate the terms and conditions 

of the deed of trust and T.C.A. 35-5-101 et, seq., rendering

the foreclosure sale voidable.

(Numbering in original omitted.) The trial court dismissed the cross-claim against 

Lender and MERS, on the following grounds:

The foreclosure sale took place pursuant to the terms of a note 

and deed of trust between [Lender] and the three (3) members 

of the Sapp family. Mr. Ditto was not a party to those 

contracts. Also, there is nothing [in] Mr. Ditto’s cross-claim 

indicating he was or could be a third party beneficiary to

those contracts. As a result, Mr. Ditto has no standing to 

complain about whether the sale complied with the terms of 

the contract.

In regard to Mr. Ditto’s claim that the sale did not comply 

with the Tennessee statutes he cites[,] T.C.A. § 35-5-106 

provides that: “Should the officer, or other person making the 

sale proceed to sell without pursuing the provisions of this 

chapter, the sale shall not, on that account, be either void or 

voidable.” As a result, even if all of the allegations in Mr. 

Ditto’s cross-claim were true, relief could not be granted to 

him as a matter of law.

We agree with the trial court’s judgment, on the grounds stated by the court. 

Ditto, who was not a party to nor a third-party beneficiary of the contracts between the 

Sapps and Lender, does not cite any authority supporting a conclusion that he has 

standing to challenge the foreclosure sale, which took place before he had any 

involvement with the property. 
12

V.

The judgment of the trial court is vacated in part and affirmed in part. This case is 

remanded to the trial court for further proceedings, consistent with this opinion. Costs on 

appeal are assessed one-half to the appellant, Carlton J. Ditto, and one-half to the 

appellee, Andrea Scott. 

 _______________________________

 CHARLES D. SUSANO, JR., JUDGE