February 6, 2013
by Kimberly Wright and Adam Silver
McCalla Raymer, LLC
USFN Member (Georgia)
In Georgia, the foreclosure sale of real property must be conducted by the “secured creditor,” in accordance with O.C.G.A. § 44-14-162, 44-14-162.1, and 44-14-162.2. Although the term “secured creditor” appears in multiple places in the foreclosure-related statutes of the Georgia Code, it is not defined in these statutes. Consequently, the definition of the term “secured creditor” has been interpreted in various ways by the Georgia Court of Appeals and the federal district courts in Georgia.
The majority of federal courts in Georgia addressing the question of defining “secured creditor” under this state’s law have held that an assignee of the security instrument containing a power of sale provision is the “secured creditor” and may initiate nonjudicial foreclosure proceedings against the property, even without also holding the subject promissory note evidencing the underlying indebtedness. See, e.g., LaCosta v. McCalla Raymer, LLC, No. 1:10-CV-1171-RWS, 2011 U.S. Dist. LEXIS 5168 (N.D. Ga. 2011). The reasoning behind this analysis is that under Georgia law a security instrument that includes express language granting the holder of the security instrument an assignable power of sale is a contract and the provisions under the security instrument are controlling as to the rights of the parties and their privies. Moreover, O.C.G.A. § 44-14-64(b) expressly provides that the underlying indebtedness follows the transfer of the security instrument.
The minority of federal courts in Georgia have held that in order to conduct a nonjudicial foreclosure pursuant to a power of sale contained in a security instrument, the “secured creditor” must be the holder of the promissory note and/or possess an interest in the underlying debt in addition to being the holder of the security instrument. See Stubbs v. Bank of America, 844 F. Supp. 2d 1267, 1273, n.3 (N.D. Ga. 2012).
Recently, in Reese v. Provident Funding Associates, LLP, 730 S.E.2d 551, 553 (Ga. Ct. App. July 12, 2012), the majority opinion, in dicta, appeared to equate the term “secured creditor” with “owner” of the loan without explicitly defining the term “secured creditor” as part of its holding and found that the servicer of the loan did not qualify as a “secured creditor” under Georgia foreclosure law.
As a result of the split of authority on this issue, the Chief Judge of the U.S. District Court for the Northern District of Georgia, in You v. JPMorgan Chase Bank, N.A., No. 1:12-CV-00202-JEC, Doc. 16 (N.D. Ga. Sept. 7, 2012), certified three questions to the Supreme Court of Georgia, asking the court to provide guidance and clarity on the legal issues pertaining to Georgia foreclosure law. The relevant question states: “Can the holder of a security deed be considered to be a secured creditor, such that the deed holder can initiate foreclosure proceedings on residential property even if it does not also hold the note or otherwise have any beneficial interest in the debt obligation underlying the deed?”
The certified questions were docketed in the Georgia Supreme Court on September 13, 2012 and oral arguments were held on January 7, 2013. During oral arguments, the justices addressed certain cases in the parties’ briefs and the applicability of those cases to the facts in You. Specifically, the court requested additional briefing on Milani v. One West Bank FSB, No. 11-15378, 2012 U.S. App. LEXIS 21559 (11th Cir. 2012) (unpublished opinion).
As of the time that this article went to print, the Supreme Court of Georgia has been briefed on the Milani case by counsel on both sides, and a holding is expected in the near future. For the time being, many investors and servicers have chosen to err on the side of caution when foreclosing in Georgia by: (1) recording assignments prior to the initiation of the foreclosure action; and (2) naming the loan investor in addition to the note holder in statutory foreclosure notices.
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Winter 2013 USFN Report