Real Property - Linda S. Finley, Scott H. Michalove, and James S. Trieschmann, Jr.

• Publication year: 2003

Real Propertyby Linda S. Finley^*

Scott H. Michalove^** and

James S. Trieschmann, Jr.^***

I. Introduction

This Article discusses case law and legislative developments in Georgia real property law during the current survey period. Since the last survey period, a stringent predatory lending law has come and gone, and the courts have decided numerous cases with real property issues. Not every case decided nor every statute enacted can be discussed. The cases and legislation discussed below were chosen for their significance to real property law and their significance to any attorney who either regularly, or from time to time, practices in the field of real property.

II. Legislation

A. The Fair Lending Act once again predatory lending proved to be a contentious issue for the Georgia General Assembly. Despite the charged nature of the debate, the general assembly passed significant amendments to the Georgia Fair Lending Act.¹ The most important of these amendments removed assignees from the Act's definition of "creditor" and thus limited the potential liability of assignees of loans governed by the Act.² The damages available to a borrower on a high cost home loan from an assignee were capped at "the amount of all remaining indebtedness of the borrower under such loan"³ plus the attorney fees incurred by the borrower.⁴ The amendments eliminated the ability of borrowers to bring class actions against assignees.⁵ The amendments also created a safe harbor for assignees who can demonstrate that they exercised due diligence in an effort not to purchase high-cost home loans.⁶

The amendments make the "anti-flipping" provisions of the Fair Lending Act applicable only when the new loan is a high-cost home loan.⁷ The amendments also significantly modified the Act's definition of "points and fees" by removing fees paid to governmental agencies for mortgage insurance from the definition.⁸ The amendments also added a parity provision to the Fair Lending Act, exempting state chartered depository institutions from compliance with the Act if similar federally chartered institutions are exempt due to federal preemption.⁹

B. Limitation of Damages When Foreclosure Sale of Property is Rescinded

Prior to the 2003 legislative session there was a "gray area" regarding rescission of foreclosure sales that should not have taken place because of bankruptcy or reinstatement or satisfaction of the loan. To correct this problem (and as a part of consumer-friendly legislation), the Georgia legislature enacted a statute that allows a seller to rescind a foreclosure sale within thirty days after that sale but before the deed or deed under power is delivered to the purchaser.¹⁰ The statute does not address whether the deed is recorded; it speaks only to delivery of the deed.¹¹

For an eligible sale to be rescinded, the seller must return all bid funds paid by the purchaser within five days of the sale.¹² The statute also provides for a limitation on damages recoverable by purchasers.¹³

If the sale is rescinded because the borrower filed for bankruptcy protection, the buyer's damages are limited to the amount of the bid funds tendered at the sale.¹⁴ If the sale is rescinded because (1) the statutory requirements were not fulfilled; (2) the default leading to the sale was cured prior to the sale; or (3) the lender and the borrower agreed prior to the sale to cancel the sale based upon an enforceable promise by the borrower to cure the default, then the damages that can be awarded to a purchaser are limited to the amount of the bid funds plus interest on the funds at the rate of eighteen percent annually, calculated daily.¹⁵ Specific performance, that is, requiring the lender to conclude the sale, is specifically excluded by the statute as a remedy available to a third party purchaser.¹⁶

C. Title to Mobile Homes

In Georgia, until May 2003, manufactured (mobile) homes were considered personal property; no formal procedure was available to convert the title to mobile homes into title to real property. Mobile homes were treated as personal property for security purposes even though they may have served as collateral for deeds secured by real property.¹⁷ By statute enacted in May 2003, a procedure was created to convert mobile homes from personal to real property.¹⁸ Conversion of mobile home collateral from chattel to realty status was problematic for lenders because mortgage investor guidelines required that loan collateral be comprised of realty and not chattel.¹⁹

The statute provides that a mobile home as personal property shall convert to real property if the mobile home is or is to be permanently affixed to realty, and persons with ownership in the mobile home also have an ownership interest in the realty.²⁰ The owner of the mobile home and all holders of security interests must execute and file a Certificate of Permanent Location in the real estate records of the county where the land is located and with the commissioner of motor vehicle safety.²¹ The clerk of court records the certificate in the same manner as other instruments that affect real property and indexes the certificate under the name of the owner in the grantor and grantee indexes.²² The clerk must provide the owner with a certified copy of the certificate upon the payment of fees typically charged for such copies.²³

The Certificate of Permanent Location, when properly completed, includes the names and addresses of the owner of the mobile home and any lienholders.²⁴ The certificate also contains the title number of the home (vehicle identification number), a legal description of the land, and any other data the Department of Motor Vehicles (DMV) may require.²⁵

Upon receipt of a certified copy of Certificate of Permanent Location and the certificate of title, the commissioner of the DMV must file and retain a copy of the certificates together with all other prior title records.²⁶ The statute requires no other filing of the title. When the Certificate of Permanent Location is filed, the DMV must issue confirmation to the superior court clerk that the certificate has been filed and the certificate of title has been surrendered.²⁷ The clerk then provides a copy of the Certificate of Permanent Location to the county tax assessors or other entity responsible for tax valuation, and the property should then be taxed as part of the realty.²⁸ The statute does not distinguish mobile homes used for rental from mobile homes used as homestead property.²⁹

Once the preceding steps are completed, for all legal purposes, the mobile home is treated as a part of the realty where it is located.³⁰ Completion of these steps should satisfy the mortgage investor requirements of Fannie Mae and Freddie Mac.³¹

III. Title to Land

In Bonner v. Norwest Bank Minnesota N.A.,³² Gertrude Paige, a widow, executed a warranty deed in 1990 conveying one hundred acres to her niece, Laura Bonner, creating a joint tenancy with a right of survivorship. At about the same time, the Phillips, who occupied the land (the occupants), became interested in purchasing a one-acre tract. The occupants contacted Alvin Paige, Ms. Paige's brother-in-law, and asked him to negotiate with his sister-in-law on their behalf. According to the occupants, an agreement was reached to purchase the acre for $1000, after which the occupants sought financing to build a house on the property. The sale of the property went forward, and Mr. Paige attended the closing, claiming he had authority to execute all documents on behalf of Ms. Paige and his deceased brother to convey the one-acre tract. The deed of transfer was notarized and recorded. Actually, Mr. Paige had no such authority, and the transaction was made without the knowledge of either Ms. Paige or Ms. Bonner. In February 1992 Ms. Paige and Ms. Bonner discovered that the occupants had built a home and were residing on the property. Neither, however, took action at the time of the discovery. Ms. Paige died in 1994.³³

In 1998 the occupants refinanced the loan secured by the one-acre tract and executed a security deed in favor of Norwest Bank and Ameriquest Mortgage Company (the lenders). The loan went into default, and the lenders foreclosed in September 1999. The lenders obtained title to the property pursuant to the power of sale provision in the security deed and recorded a deed under power to evidence the foreclosure and transfer of title. Subsequently, Ms. Bonner informed the lenders that she claimed the property, and she brought suit to quiet title. After a hearing, the trial court granted summary judgment in favor of the lenders.³⁴

The supreme court's analysis of the transaction determined that the fact that the original conveyance to the occupants was fraudulent was immaterial.³⁵ Instead, the court focused on the legitimacy of the transaction by the lenders and the deed after foreclosure, which transferred title to the lenders.³⁶ The court held that the foreclosure deed (as opposed to the original deed purportedly from Ms. Paige and her late husband to the occupants) was not fraudulent or forged, noting that it was undisputed that the lenders were bona fide purchasers for value.³⁷ Accordingly, "'[a] grantee in a security deed who acts in good faith stands in the attitude of a bona fide purchaser, and is entitled to the same protection.'"³⁸ The analysis of bona fide purchasers continued with the court holding that "'[w]here a purchaser of land from one in possession, who holds a deed thereto that is absolute on its face, has paid the purchase-price and taken possession, parties claiming an equity therein of which the purchaser had no notice are not entitled to have the purchaser's deed cancel[l]ed.'"³⁹ Therefore, the court concluded that in this matter, whether the occupants' deed was fraudulent was irrele-vant.⁴⁰ Further, whether the occupants themselves had knowledge of the fraud was of little consequence because the "'general rule is that a bona fide purchaser for value at a...