November 25, 2014
by T. Matthew Mashburn
Aldridge Connors, LLP – USFN Member (Georgia)
In a recent decision, Peters v. CertusBank National Association, A14A1274 (Sept. 8, 2014), the Georgia Court of Appeals ended two years of confusion in Georgia foreclosure law. The uncertainty began on July 12, 2012, with the appellate court’s decision in Reese v. Provident Funding Associates, LLP, 317 Ga. App. 353, 730 S.E.2d 551 (2012).
In light of Georgia foreclosure practice at the time, the facts in Reese were completely unremarkable. It may be that the majority in Reese believed that their decision would be as unremarkable. “No one disputes that a bank must be able to foreclose on its properties for non-payment of the mortgage per the contract, and our conclusion today does not impede this process.” Reese, 317 Ga. App. at 355, 730 S.E.2d at 559. However, the results were anything but unremarkable.
The basis of the Reese decision was that in 2008, the Georgia General Assembly had required that the secured creditor be identified in the 30-day Notice of Foreclosure (Notice), even though there was no such requirement in the statute. The Reeses successfully argued that the originating lender, and current servicer, was no longer the “secured creditor” because ownership of the note or the deed to secure debt (or both) had been transferred.
As to whether O.C.G.A. § 44-14-162.2 required the Notice to reflect both the identity of the secured creditor, as well as the person or entity with the full authority to negotiate, amend, and modify the mortgage, the appellate court’s majority was persuaded that the legislature considered it material that the secured creditor be identified during the foreclosure process. However, the Georgia General Assembly had already required that the secured creditor be identified by compelling that the document vesting title in the secured creditor be of record prior to the foreclosure.
The direct ideological parent of Reese was the opinion in Stubbs v. Bank of America, 844 F. Supp. 2d 1267, 1271, 2012 U.S. Dist. LEXIS 19846, at *1, 13, 2012 WL 516972, at *1, 5 (N. D. Ga. 2012). The Reese majority stated as much: “The Northern District’s analysis in Stubbs is compelling and, although not controlling, is persuasive authority in analyzing the very same Georgia statute that we interpret in this case.” Reese, 317 Ga. App. at 358, 730 S.E.2d at 554.
As a result of the decisions in Stubbs and Reese requiring that the Notice state the name of the secured creditor, Georgia foreclosure law was now required to directly address questions that had previously been largely ignored. (Among those questions: Who exactly is the secured creditor? Is the secured creditor the holder of the note? Is the secured creditor the holder of the deed to secure debt? What if the holder of the note and the deed to secure debt are different? Indeed, is it possible for those holders to be different?)
The Georgia Supreme Court provided the final answer to the “secured creditor” question in a unanimous opinion, which vacated the Georgia Court of Appeals. See, You v. JP Morgan Chase Bank, 293 Ga. 67, 743 S.E.2d 428 (2013).
Recognizing that the district courts were splitting on whether the secured creditor was required to be named in the Notice, the federal District Court chief judge requested that the Georgia Supreme Court provide an interpretation of Georgia law to resolve the split. This request came in the form of three certified questions to the Georgia Supreme Court in You. The Georgia Supreme Court answered that the holder of the deed to secure debt (according to the public records) is the secured creditor and is therefore authorized to conduct the foreclosure, regardless of whether the note has been assigned (beneficially or otherwise). Further, the Supreme Court responded that there was no requirement in the statute that the secured creditor be specifically identified in the Notice.
While Reese and You were dealing with the “secured creditor” issue, another thread of cases grappled with the requirement that the Notice identify the “individual or entity who shall have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor.”
Second Thread of Cases
In TKW Partners, LLC v. Archer Capital Fund, L.P. Crossing Park Properties, LLC, 302 Ga. App. 443, 691 S.E.2d 300 (2010), the Court of Appeals was thought to have settled this second question by holding that “OCGA Section 44-14-162.2 does not require the individual or entity to be expressly identified as having ‘full authority to negotiate, amend, and modify all terms of the mortgage,’ and we cannot conclude that ... [the] … notice was legally deficient for failure to do so.”
In TKW, the lender’s attorney sent the Notice and provided her contact information, but did not state that she or any other person had “full authority to negotiate, amend, and modify all terms of the mortgage.” The Court of Appeals ruled that this was of no consequence because the lender was identified, and the trial court found that “a person of reasonable intelligence would have construed that … [the lender’s attorney] … was the proper agent for … [the lender] … in this case.” The Court of Appeals found that substantial compliance was all that was needed.
The next case in the series, Stowers v. Branch Banking & Trust Co., 317 Ga. App. 893 (2012), was based on an unusual set of facts. In Stowers, the Notice was sent by the lender’s attorney and listed the lender’s attorney as the person with full authority to negotiate, amend, and modify all terms of the mortgage. The undisputed evidence, however, was that the attorney only was authorized to receive communications from the debtor, to convey them to the bank, to make recommendations, and to convey the bank’s position to the debtor. Accordingly, while the correct words were used, in fact, there was no authority to negotiate or modify — and, certainly, full authority was absent.
While TKW was being litigated, the lender in Stowers became worried that substantial compliance might not be sufficient (since that was the exact issue being litigated in TKW). The lender then sought to rescind its own foreclosure sale, so as to avoid the risk that substantial compliance would be insufficient. In Stowers, the plaintiff was the purchaser at the foreclosure sale and sought to prevent the lender from setting aside its own foreclosure sale.
In the meantime, Reese v. Provident Funding Associates (cited above) was decided. There, the Court of Appeals rejected a trial court’s ruling that substantial compliance was sufficient, and found that OCGA Section 44-14-162.2 required that the secured creditor with the authority to foreclose be identified in the Notice. In essence, the Court of Appeals appeared to be taking mutually exclusive positions. In TKW, the Court of Appeals found that substantial compliance was sufficient as to the full authority question. In Reese, the Court of Appeals determined that substantial compliance was not sufficient as to the secured creditor question.
Specifically, in Stowers, the Court of Appeals ruled that: (1) the Notice did not fully comply with the statute (so the notice was bad); however, (2) the notice did not have to fully comply with the statute, in that substantial compliance was sufficient (so the notice was fine). Ultimately, the appellate court found that the bank was justified in rescinding the foreclosure, based on doubts as to whether strict compliance or substantial compliance with the statute was required (TKW decided that substantial compliance was sufficient three weeks after the foreclosure rescission in Stowers).
Following Stowers and Reese, lenders in Georgia wondered whether TKW had been overruled by either of those cases. On the other hand, debtors’ counsel contended that TKW had been obliterated by both of the cases.
In Peters v. CertusBank National Association (cited above), the Georgia Court of Appeals has affirmed its prior rulings in TKW and Stowers.
Georgia law has now been clarified. The secured creditor need not be identified in the Notice, and substantial compliance is all that is required in identifying the person (or entity) with full authority to negotiate the loan terms.
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