May 7, 2013
by Steven J. Flynn
McCalla Raymer, LLC – USFN Member (Georgia)
The Georgia Court of Appeals took a major step towards resolving some of the legal uncertainty and confusion that has plagued Georgia’s nonjudicial foreclosure process in recent months. [Montgomery v. Bank of America, No. A12A0514, __ S.E.2d __, 2013 WL 1277830 (Ga. Ct. App. Mar. 29, 2013)].
Decisions out of the U.S. District Court for the Northern District of Georgia have resulted in a split of authority in that court on the question of whether Georgia law requires the holder of a security deed containing a power of sale provision to also possess the borrower’s underlying promissory note in order to carry out a nonjudicial foreclosure sale. Compare, e.g., Stubbs v. Bank of America, 844 F. Supp. 2d 1267 (N.D. Ga. 2012) with LaCosta v. McCalla Raymer, LLC, No. 1:10–CV–1171–RWS, 2011 WL 166902 (N.D. Ga. Jan. 18, 2011).
In Montgomery, the plaintiff-borrower obtained a loan from the National Bank of Kansas City and, in connection therewith, executed a promissory note and security deed. The security deed named Mortgage Electronic Registration Systems, Inc. (MERS) as the nominee of the lender and grantee under the terms of the security instrument. The security deed conveyed to MERS, and its successors and assigns, inter alia, the right to foreclose and sell the property in the event the borrower defaulted on the loan. MERS assigned all of its rights, title, and interests in the security deed to BAC Home Loans Servicing, LP (BACHLS) in 2010 and this assignment was thereafter filed of record.
After the borrower defaulted on his loan, BACHLS retained the law firm of McCalla Raymer, LLC (McCalla) to assist in the initiation of nonjudicial foreclosure proceedings. After nonjudicial foreclosure proceedings were started, the borrower filed suit against BACHLS, Bank of America, N.A., MERS, McCalla, and McCalla’s third-party document-processor, Prommis Solutions, LLC. The plaintiff-borrower contended that: (1) MERS had no legal interest in the underlying promissory note or the security deed and, therefore, had no interests to assign to BACHLS; and (2) the McCalla attorney who executed the assignment of the security deed from MERS to BACHLS did so improperly or without the appropriate authority. The trial court granted the defendants’ motion for judgment on the pleadings and the plaintiff appealed.
On appeal, the Georgia Court of Appeals concluded: (1) that “the security deed expressly conveyed title to the interests in the security deed to MERS, gave MERS the right to invoke the power of sale, and authorized MERS to assign its rights and interests in the security deed to BAC[HLS];” (2) that “[t]here is no statutory authority or case law from Georgia courts” to support the proposition that “one must possess both the promissory note and the security deed in order to carry out a non-judicial foreclosure;” and (3) that the plaintiff, as a non-party to the assignment of the security deed from MERS to BACHLS, had “no basis to contest the validity of the assignment.”
In dissent, the presiding judge stated her belief that the Georgia Court of Appeals should withhold deciding the issue of whether a party seeking to foreclose pursuant to a power of sale contained in a security deed must also possess the promissory note until such time as the Georgia Supreme Court issued its decision in You v. JPMorgan Chase Bank, N.A., No. 1:12-cv-202-JEC-AJB, 2012 U.S. Dist. LEXIS 127461, at *17 (III)(C) (N.D. Ga. Sept. 7, 2012), wherein the U.S. District Court for the Northern District of Georgia had previously certified that very question to the Georgia Supreme Court.
The Montgomery decision marks a major step by the Georgia Court of Appeals in clarifying some of the legal issues surrounding the nonjudicial foreclosure process in Georgia that have arisen lately. While the Georgia Supreme Court’s decision in You will ultimately decide these issues, the decision of the Georgia Court of Appeals in Montgomery is a positive development for all lenders and servicers pursuing foreclosures in Georgia.
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