Wrongful Foreclosure, New Possibilities? Print E-mail
Written by Kerry S. Doolittle   
Thursday, 06 December 2012

[See Update at End of Article]

The lingering economic crisis results in a tremendous number of foreclosure sales.  Homeowners attempting to save their home launched numerous complaints, which have slammed the courts.  A few of the recent cases may have found a weak spot or two in the armor of foreclosure law protecting creditors.

Some interesting developments are occurring in Georgia foreclosure law.  As discussed in a previous article, most of the arguments made in an attempt to set aside or prevent a foreclosure simply do not hold water.  With so many foreclosures taking place, and so many lawsuits filed against creditors, perhaps it is inevitable that someone will find a weak spot, a claim that will survive a motion to dismiss.

Here are a few recent developments.

O.C.G.A. Sec. 44-14-162.2(a), which governs notices of foreclosure sales, requires that the notice "shall be given to the debtor by the secured creditor . . ." 

That language has not changed, but this language has now been interpreted by the Georgia Court of Appeal to mean that (1) the notice must properly identify the true secured creditor (not the loan servicer, for example) and (2) must reflect that the notice is being sent by the secured creditor or by an entity with the secured creditor's authority.  Reese v. Provident Funding Associates, 730 S.E.2d 551, No. A12A0619, 2012 WL 2849700 (Ga.App. July 12, 2012).

This decision caused an enormous impact.  Many times one entity is acting solely as a loan servicer (the one to whom payments are made) but the loan is actually owned by another entity.  This is particularly true for Freddie Mac and Fannie Mae loans.  In light of this case, foreclosing attorneys need to insure that the notice provides the name of the actual secured creditor and holder of the note in addition to the loan servicer.   

O.C.G.A. Sec. 44-14-162.2(a), which governs notices of foreclosure sales, requires in part that the 30 day notice include "the name, address, and telephone number of the individual or entity who shall have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor."

That language has not changed, but it likewise has been interpreted.  In one case the 30 day notice letter identified the closing attorney as that person.  The Georgia Court of Appeals ruled that the statute requires that the notice identify the person or entity with "full authority."  The attorney did not have full authority to modify the loan terms.  Rather the attorney 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.  The Court said, "Although [the attorney] may have had apparent authority to act on the bank's behalf, the plain terms of O.C.G.A. Sec. 44-14-162.2(a) require the notice to 'include the name, address, and telephone number of the individual or entity who [has] full authority.' "  Stowers v. Branch Banking & Trust Co., 731 S.E.2d 367, No. A12A1176 (Ga.App. August 23, 2012.

Side note for attorneys, your notice letter can also include a statement that Georgia law does not require a secured creditor to negotiate, amend, or modify the terms of a mortgage instrument, or quote that language from the code section.

Another Side note for attorneys, a conflict appears to be developing as to whether a notice that does not comply with the requirements set forth in Reese may nevertheless "substantially comply." The federal court has certified the question to the Georgia Supreme Court, the developing conflict holding up decisions in several pending federal cases.

Going forward, the notice should not identify the attorney as the person with authority (unless the firm does have full authority to modify the loan), but name a specific individual with the bank who does have full authority.  

One of the pending federal cases awaiting resolution on the strict vs. substantial compliance issue, Shae Yi You v. JPMorgan Chase Bank, 2012 WL 3904363 (N.D. Ga. Sept. 7, 2012, focuses on another pivotal question:  Whether the holder of the security deed containing the power of sale may properly foreclose if it is not also the holder of the underlying promissory note.

Judge Carnes recognized that most judges in this district rejected the argument that a deed holder cannot validly enforce its security interest under Georgia law without also holding the note.  However, Judge Totenberg in another case stated that "Although the separation of the note and the security deed does not render either instrument void, it does create a substantial questiong of what entity has the right to foreclose when the borrower defaults on the loan. . ."  Morgan v. Ocwen Loan Serv., 795 F. Supp. 2d 1370 (N.D. Ga. 2011).  Judge Totenberg concluded that Georgia law requires the holder of the loan to carry out the foreclosure and to identify itself as the secured creditor of public record prior to the foreclosure sale.  Because of the split of authority, Judge Carnes likewise certified to the Georgia Supreme Court the question of whether a security deed holder who does not also possess the note can validly institute foreclosure proceedings under Georgia law.

Until these questions are resolved, it will be prudent for attorneys to be sure the notice identifies the holder of the note, the holder of the security deed, the loan servicer and the role each plays, perhaps document the file with a power of attorney from the holder of the note to the holder of the security deed providing authority to collect the note through foreclosure.  

Originally, O.C.G.A. Sec. 44-14-162,2 only required the thirty day notice be given on residential loans.  Under the new version of the law, all foreclosures occurring after July 1, 2012, must give the 30 day notice regardless of whether the loan is residential or commercial.

O.C.G.A. Sec. 44-14-162(b) now requires that any assignment vesting the secured creditor with title to the security instrument "shall be filed prior to the time of sale . . ."  In some cases you will find that the execution and recording of the assignment has been held up and is not recorded until after the foreclosure sale.  While this only requires that it be recorded prior to the time of sale, i.e. 10:00 a.m. on the first Tuesday of the month, a better practice will be to make sure the assignment has been recorded prior to sending the 30 day notice.  

A recent federal court of appeal decided that the attorney's 30 notice of foreclosure letter is an attempt to collect a debt.  The debtor in that case sued the law firm contending that the notice letter contained false, deceptive and misleading representations, namely the statement that the owner of the real property after the foreclosure sale "will be entitled to immediate possession of the real property," and that any tenants on the property would also have to vacate after the sale.  A dismissal by the district court was reversed and the case remanded.  This case provides a cautionary tale to attorneys.  Not only identify everyone properly, but cya by adding language that a tenant occupying the property may have certain rights pursuant to the Protecting Tenant at Foreclosure Act.  Also be sure to add the magic language "This is an effort to collect a debt, and any information obtained will be used for that purpose."

Kerry Doolittle


The Georgia Supreme Court answered the three questions certified by the federal courts in You v. JP Morgan Chase Bank, N.A., S13Q0040, Supreme Court of Georgia, May 20, 2013.  

 (1) Can the holder of a security deed be considered 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?    Answer   -   YES.

(2) Does OCGA 44-14-162.2 (a) require that the secured creditor be identified in the notice described by that statute?     Answer   -   NO.

(3) If the answer to the preceding question is "yes," (a) will substantial compliance with this requirement suffice, and (b) did defendant Chase substantially comply in the notice it provided in this case?      Answer   -   MOOT.

I also received the following question on this topic:

 Per O.C/G.A. 44-14-162{b} if all the assignments/deeds/transfers etc. have not been recorded as of the foreclosure sale date (10:00 on the 1st Tuesday), can a lender validate the foreclosure sale by coming back later and filing the missing instruments to complete the chain of title and not have to cry the property a 2nd time, with the title chain complete, for the foreclosure to be valid, with marketable title?  

 In my opinion the answer to this question is governed by the language:

"shall be filed prior to the time of sale . . ."

 The plain language of this statute requires that those transfers be "filed" prior to the time of sale.  The term "filed" is well understood by attorneys to mean handed to the clerk of the superior court.  Therefore, filing the transfers afterwards will not validate a foreclosure sale.  These statutes tend to require strict compliance by creditors because the right of non-judicial foreclosure provides so little protection to debtors.  Creditors have the right to a quick and easy foreclosure process, but also have the burden of doing it right.  When the creditor cannot get the assignment recorded prior to the sale, that creditor will need to start over with the 30 day notice of intent to foreclose.  That is why I recommend obtaining and recording the transfer prior to sending the thirty day notice.  Make sure the creditor holds the legal right to foreclose before commencing the process in order to avoid wasted time and expense when the transfer gets delayed.

Kerry Doolittle


Last Updated ( Monday, 08 July 2013 )
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