Real Property - Linda S. Finley and Scott H. Michalove

• Publication year: 2002

Real Propertyby Linda S. Finley^* and Scott H. Michalove^**

I. Introduction

This Article discusses case law and legislative developments in Georgia real property law during the current survey period. Obviously not every case decided nor every statute enacted can be discussed. The cases and legislation discussed below were chosen for their significance to Georgia's practicing attorneys. Of particular note is one piece of legislation enacted in the 2002 session—the Georgia Fair Lending Act.¹ This statute is far broader than similar legislation enacted in other states and is sure to be the subject of extensive litigation in the coming years.

II. Fair Lending Act

On April 22, 2002, former Governor Roy Barnes signed the Georgia Fair Lending Act into law.² The Act applies to most loans that are secured by an interest in the borrower's principal residence.³ The Act establishes the following three categories of loans: home loans,⁴ covered home loans,⁵ and high-cost home loans.⁶ The first category, home loans, is the broadest category established by the Act, encompassing every loan that is subject to the Act.⁷ The covered home loan and high-cost home loan categories are subsets of the home loan category, encompassing home loans that exceed thresholds⁸ for either the points and fees⁹ charged in originating the loan or the annual percentage rate¹⁰ of the loan.¹¹

The Act contains provisions that establish different rights and duties for each category of loan. All home loans are subject to restrictions on the financing of certain types of insurance, and lenders are banned from encouraging the borrower to default on his or her existing debts.¹² Home loans are also subject to restrictions on late payment charges and on the fee that may be charged for responding to a request for payoff quotation.¹³ In addition to the restrictions placed on all home loans, covered home loans are also subject to additional restrictions on the "flipping" of home loans.¹⁴ Covered loans are also subject to a provision that allows borrowers who receive a notice of acceleration or foreclosure, or who have been in default for more than sixty days, to assert violations of the Act against the creditor as an offset in an original action or as a defense or counterclaim in an action to collect the amount owed.¹⁵

The high-cost home loan category is subject to the most restrictions under the Act.¹⁶ High-cost home loans are subject to restrictions on prepayment penalties,¹⁷ balloon payments,¹⁸ and negative amortiza- tion.¹⁹ High-cost home loans cannot contain provisions that call for an increase in the interest rate of the loan after default²⁰ or contain provisions that require a borrower to prepay more than two payments from the loan proceeds.²¹ High-cost home loans are subject to restrictions on arbitration²² and on the methods by which home improvement loans may be disbursed.²³ Lenders may not make high-cost home loans unless a reasonable creditor would believe the borrower could repay the loan.²⁴ Borrowers cannot receive high-cost home loans unless they have participated in an approved counseling program.²⁵ High-cost home loans are subject to requirements concerning notices of default,²⁶ notices of foreclosure,²⁷ restrictions on attorney fees that may be charged to the borrower,²⁸ and restrictions on the amounts necessary to cure defaults.²⁹ A creditor cannot charge a borrower a fee to modify or defer payment on a high-cost home loan.³⁰ High-cost home loans cannot contain provisions that allow the creditor to accelerate the indebtedness at its discretion.³¹ The note and security deed establishing a high-cost home loan must contain a statutorily mandated notice to purchasers or assignees of potential liability.³²

The Fair Lending Act establishes a private right of action in favor of borrowers.³³ A successful plaintiff may receive actual damages, statutory damages for certain violations, punitive damages, and the costs and attorney fees incurred in bringing the action.³⁴ The Act also establishes a right of rescission for borrowers of high-cost home loans.³⁵ The Act establishes criminal penalties for violations made knowingly.³⁶ The Act explicitly preempts local ordinances concerning home loans and bars ordinances that make eligibility to do business with a local government dependent on the terms of home loans originated by a lender.³⁷ The Act applies to all home loans made or entered into after October 1, 2002.³⁸

III. Title to Land

In the last twelve months, the court has addressed several cases that should serve to remind practicing attorneys that clarity of agreements involving real property is important, even if those agreements only tangentially involve the property.

In Andrews v. Boykin,³⁹ Raymond and Naomi Boykin purchased property in DeKalb County as tenants in common. Thereafter they divorced, and Raymond remained on the property with his mother, Birdie Mae Boykin.⁴⁰ The divorce decree did not mention the real or personal property, but stated, "'[E]ach party shall retain and have sole right to those properties now in his or her possession.'"⁴¹ The agreement was recorded in Fulton County.⁴²

Naomi later married James Andrews, and, upon her death, Andrews became administrator of her estate. Andrews quitclaimed any interest he might have in the real property to Naomi's other heirs.⁴³

Following the divorce, Raymond and his mother continued to reside on the property and did so until his death. Following his death, Raymond's son and daughter quitclaimed their interest in the property to Raymond's mother. Mrs. Boykin paid taxes, insurance, and the mortgage on the property. Later, another of her sons, Melvin Boykin, assisted with the payments. Upon Mrs. Boykin's death, Melvin was named administrator, and he deeded the property to himself. Melvin brought an action to quiet title to the real property. Adopting the Special Master's Report, the trial court declared that Melvin alone had fee simple title to the property.⁴⁴

On appeal, the Georgia Supreme Court found that because the real property was not specifically referenced in the divorce decree (or a preliminary settlement agreement), the divorce decree did not convey the property to Raymond.⁴⁵ After their divorce, Raymond and NaomiBoykin continued to hold the property as tenants in common.⁴⁶ The court found that filing the divorce decree in the Fulton County Real Estate Records did not evidence an intent by the parties to convey the real property because the property was located in DeKalb County.⁴⁷ The court found that the Special Master's finding for Melvin was based solely upon the settlement agreement and divorce decree and remanded the case to the trial court to consider Melvin's claim of adverse possession.⁴⁸

In Mitchell v. Mitchell,⁴⁹ four siblings filed suit against the fifth sibling. The suit arose because of their late father's attempt to provide some antecedent estate planning (without benefit of counsel).

Gene Mitchell owned acreage in Lamar County. Seven years before his death, he drew a diagram of the property showing how he intended to divide the property equally among his five children. Pursuant to that diagram, Gene deeded five-acre parcels of land to each of his children. Gene then showed his son Richard where on the land he wanted Richard to build a house. Richard, with the help of his siblings, built a house on the parcel of land that his father showed him. During the construction, no one told Richard that the construction was on the wrong lot. Gene Mitchell died in 1991. A few months later, Richard's siblings claimed that Richard had constructed the house on the wrong lot. The siblings filed suit in 1997, seeking declaratory and equitable relief. Defendants counterclaimed for damages.⁵⁰

At trial, plaintiffs established that the house was not built on the land that was actually deeded to Richard. The jury returned a verdict for defendants, giving defendants the property upon which the house was built and a money award of one thousand dollars or the amount of taxes that had been paid by defendants, whichever was greater. Plaintiffs appealed.⁵¹

The supreme court looked to the equities of the situation and affirmed in part and reversed in part.⁵² Regarding the construction of the home on the wrong parcel, the court found that plaintiffs were not prevented at the time of construction from determining that an error had been made.⁵³ They participated in its construction and made no complaint about its location until their father died.⁵⁴ Then, plaintiffs waited another six years before filing suit.⁵⁵ Therefore, the court ruled that the trial court properly exercised its inherent equity power.⁵⁶ However, the court reversed the money judgment award on the ground that the award was not supported by the evidence, but was based on guess-work.⁵⁷

Justice Carley concurred in part and dissented in part, stating that a judgment based on equity was inappropriate when there was an applicable rule of law.⁵⁸ Defendants had relied upon theories of adverse possession and equitable estoppel, and the trial court charged the jury with respect to those theories.⁵⁹ Justice Carley analyzed the law of adverse possession, finding that "'[t]he same certainty of description which is requisite to constitute an instrument a conveyance of title is required in an instrument which is relied on as color of title.'"⁶⁰ Because the disputed property was not described in the deed to defendants, Justice Carley opined that defendants could not successfully claim title by adverse possession under color oftitle.⁶¹ Defendants would have had to rely on a claim of prescriptive title by adverse possession for twenty years; therefore, Justice Carley believed that the trial court improperly extended the description in the deed to embrace the theory of a claim by color of title.⁶²

Dodd v. Scott⁶³ is another case that demonstrates why it is dangerous to transfer real property as a means of estate planning without...