Real Property - Linda S. Finley

• Publication year: 2011

Real Property

by Linda S. Finley*

I. Introduction

The survey period, June 1, 2010 through May 31, 2011,¹ saw continued dire economic times for Georgia and the entire United States, which were marked with a record-breaking number of foreclosures.² Georgia courts and the Georgia General Assembly began to pay attention to the foreclosure process, the diminution of property values, and how these issues affect Georgia families.³ Although the purpose of this Article is not to specifically address these serious issues, judicial and legislative trends indicate that these issues will be around for some time.

* Shareholder in the law firm of Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., Atlanta, Georgia. Mercer University (B.A., 1978); Mercer University, Walter F. George School of Law (J.D., 1981). Member, State and Federal Bars of Georgia and Florida, the United States Court of Appeals for the Eleventh Circuit and the United States Supreme Court.

The Author wishes to give special thanks to Kitty S. Davis, who, year after year, has graciously handled the administrative tasks in bringing this Article to print. Additional thanks goes to Robert A. "Andy" Weathers, Esq. (Mercer University, Walter F. George School of Law, J.D., 1966) whose constant guidance is reflected in the Article; and Carol V. Clark, Esq. (University of Georgia, J.D., 1976) for her assistance, research, and analysis. Particularly, the Author directs the reader to Carol V. Clark, 2011 Judicial Update, 2011 REAL PROPERTY LAW INSTITUTE MATERIALS (Institute of Continuing Legal Education in

Georgia 2010).

1. For analysis of Georgia real property during the prior survey period, see Linda S. Finley, Real Property, Annual Survey of Georgia Law, 62 MERCER L. REV. 283 (2010).

2. John Prior, Foreclosures in 2011 to Break Last Year's Record: RealtyTrac, HOUSING WIRE (Jan. 12, 2011, 11:01 PM), http://www.housingwire.com/2011/01/12/foreclosures-reach-record-high-in-2010-realtytrac.

3. See generally Understand Why Foreclosures Matter, FORECLOSURE-RESPONSE.ORG (Aug. 4, 2011, 8:21 AM), http://www.foreclosure-response.org/policy_guide/why_fore closures_matter.html?tierid=263.

II. Legislation

Even though legislation affecting real property was perhaps overshadowed by legislation regarding tax reform,⁴ immigration,⁵ and Sunday alcohol sales,⁶ legislation regarding real property was, albeit more quietly, enacted. House Bill 117⁷ amended section 48-7-128 of the official Code of Georgia Annotated (o.C.G.A),⁸ adding language requiring that a party identified as the seller on a settlement statement be treated as the seller for all purposes ofassessing withholding or other tax.⁹ The amendment further burdens the identified seller with "executing and delivering to the buyer or transferee all forms or other documents incident to determining the appropriate amount of tax to be withheld or the appropriate amount exempt from withholding require-ments."¹⁰

Apparently in response to the fear of "robo-signing,"¹¹ the legislature enacted Senate Bill 64.¹² This bill, along with changing the fees and penalties for reinstatement of defunct corporations,¹³ amended provisions relating to the execution of those instruments, defined in O.C.G.A. § 14-5-7,¹⁴ which convey interests in real property or release security agreements.¹⁵ The amendment specifies when an executed document lacking a corporate seal may be conclusive evidence that the person signing the instrument is a proper signatory and that the signature is

4. Ga. H.R. Bill 388, Reg. Sess. (2011) (unenacted).

5. Illegal Immigration Reform and Enforcement Act, Ga. H.R. Bill 87, Reg. Sess., 2011 Ga. Laws 794 (to be codified in scattered sections of O.C.G.A. tits. 13, 16, 17, 35, 36, 42, 45, 50).

6. Ga. S. Bill 10, Reg. Sess., 2011 Ga. Laws 49 (codified at O.C.G.A. § 3-3-7 (Supp.

2011)).

7. Ga. H.R. Bill 117, Reg. Sess., 2011 Ga. Laws 674 (codified in scattered sections of O.C.G.A. tits. 31 & 49).

8. O.C.G.A. § 48-7-128 (Supp. 2011).

9. O.C.G.A. § 48-7-128(b) (Supp. 2011).

10. O.C.G.A. § 48-7-128(b)(3).

11. Robo-signing is defined as when "[a]n employee of a mortgage servicing company [] signs foreclosure documents without reviewing them. Rather than actually reviewing the individual details of each case, robo-signers assume the paperwork to be correct and sign it automatically" without personal knowledge. Robo-Signer, INVESTOPEDIA, www.investo pedia.com/term/r/robo-signer.asp (last visited Sept. 11, 2011).

12. Ga. S. Bill 64, Reg. Sess., 2011 Ga. Laws 430 (codified in scattered sections of O.C.G.A. tit. 14).

13. Id. § 1.

14. O.C.G.A. § 14-5-7 (Supp. 2011).

15. Id.

genuine.¹⁶ Under the amendment, only the signature of the president, vice president, secretary, or assistant secretary of the corporation will be considered conclusive evidence.¹⁷ The signatures of any other officers or individuals designated by corporate officers to execute such documents are no longer conclusive evidence that such documents are properly executed.¹⁸

III. Title to Real Property

In Brock v. Yale Mortgage Corp.,¹⁹ the ex-husband (Brock) brought an action against his ex-wife and Yale Mortgage to quiet title in the residence that the Brocks once shared. The Brocks purchased the residence in 1987 with funds from a mortgage loan, repayment ofwhich was secured by the residence. The couple held title to the property jointly. Over the years, the Brocks' mortgage loan went into default several times, but each time Mrs. Brock was either able to cure the default or work out a payment plan. In January 2001, the loan went into default again, and the bank threatened foreclosure. Mrs. Brock did not inform Mr. Brock of the default but worked with a mortgage broker to refinance the loan solely in her name. The mortgage broker informed Mrs. Brock that Mr. Brock had to convey his interest in the residence to her in order to complete the transaction, and Mrs. Brock obtained a blank quitclaim deed from the closing attorney for her husband to sign. At the closing, Yale Mortgage paid off the previous mortgage loan and paid additional cash to Mrs. Brock, and she presented an executed, unrecorded quitclaim deed featuring Mr. Brock's signature, which was later recorded. Yale Mortgage recorded a security deed evidencing the loan against the property. In 2004, Mr. Brock filed for divorce, having discovered that his wife had spent over $200,000 from his checking account and had forged his signature on the quitclaim deed used at the loan closing. In the divorce decree, Mrs. Brock transferred her interest in the residence to Mr. Brock.²⁰

In January 2005, Mr. Brock commenced a quiet title action against his ex-wife and Yale Mortgage.²¹ Although Yale Mortgage did not dispute that Mrs. Brock forged the quitclaim deed, Yale Mortgage answered, asserted counterclaims and cross claims, and sought a court declaration that it held a valid security interest in an undivided one-half interest in

16. Id.

17. Id.

18. Id.

19. 287 Ga. 849, 700 S.E.2d 583 (2010).

20. Id. at 849-51, 700 S.E.2d at 584-86.

21. Id. at 849, 851, 700 S.E.2d at 585-86.

the property.²² In 2006, Yale Mortgage amended its claims seeking "a declaration that its security interest extended to the entire property."²³ The trial court granted Yale Mortgage's motion for summary judgment, finding that it held a one-half, undivided interest in the property. Upon filing its subsequent claim to the entirety of the property, Yale Mortgage moved for clarification. After reconsideration, the trial court declared that Yale Mortgage's interest in the property extended to the entire property.²⁴

The Georgia Supreme Court affirmed the trial court's order that Yale Mortgage's security interest in the property extended to at least a one-half, undivided interest in the property.²⁵ The supreme court did not, however, hold that Yale Mortgage's interest extended to the entire property.²⁶ In its opinion, the court discussed the difference between cancelling a deed and setting aside a security interest on account of forgery.²⁷ Georgia law provides that a forged deed may be cancelled,²⁸ but forgery does not invalidate a subsequent security deed.²⁹ Because a tenant in common may encumber his own interest without consent of a cotenant, if that tenant in common then conveys an interest in the entirety, the transferring deed will affect his interest, but not the interest of the nonconsenting cotenant.³⁰

Importantly, the supreme court, in Brock, overruled Bonner v. Norwest Bank,³¹ which held that lenders who had foreclosed a security interest and purchased the collateral property out offoreclosure held proper title to the property even though the deed purporting to convey the property to the borrowers was a forgery.³² Specifically, the court, in Brock, held that the cases relied upon in Bonner could not support the holding "that a bona fide purchaser for value, or a security deed holder occupying such position, obtains good title notwithstanding a forgery in the chain of

22. Id. at 850-51, 700 S.E.2d at 585-86.

23. Id. at 851, 700 S.E.2d at 586.

24. Id.

25. Id.

26. Id. at 851-52, 700 S.E.2d at 586.

27. Id. at 852, 700 S.E.2d at 586-87.

28. O.C.G.A. § 23-3-40 (1982).

29. Brock, 287 Ga. at 851, 700 S.E.2d at 586.

30. Id.

31. 275 Ga. 620, 571 S.E.2d 387 (2002).

32. Brock, 287 Ga. at 853, 700 S.E.2d at 587 (citing Bonner, 275 Ga. at 621, 571 S.E.2d

at 388).

title."³³ With this ruling, the supreme court also overruled Mabra v. Deutsche Bank,³⁴ which had followed the Bonner precedent.³⁵

Further, the court disagreed with Yale Mortgage's argument that Mr. Brock had ratified the loan agreement by the terms of the divorce decree because Mr. Brock was not a party to the loan agreement and, therefore, could not ratify the terms therein.³⁶ The court also held that even though Mr. Brock received a benefit from the payoff of the previous mortgage, accepting the benefits of the payoff would act to ratify the agreement only if he had full knowledge of the material facts.³⁷ The...