Real Property - Linda S. Finley

• Publication year: 2009

Real Propertyby Linda S. Finley^*

I. Introduction

The survey period, from June 1, 2008 to May 31, 2009,¹ has been a volatile period for attorneys who regularly practice in areas involving real estate. Each day the media is replete with stories involving the country's historic economic crisis, and the effects can be seen in Georgia neighborhoods and in resulting legislation. Given our point in history, the cases and legislation discussed in this Survey were chosen for their significance to real property law and to update attorneys who regularly or occasionally practice or render opinions regarding real estate law.

II. Legislation

The Georgia General Assembly used its 2009 session to consider and enact legislation designed to lessen the impact of the economic decline upon Georgia citizens. Notable legislation enacted during the 2009 session includes Senate Bill 55,² which, among other things, amended and expanded the factors to be used to determine the value of real property for ad valorem taxation assessment.³ Specifically, the Bill amended section 48-5-2 of the Official Code of Georgia Annotated (O.C.G.A.)⁴ to specify six factors to be used in determining the tax value of real property.⁵ The criteria the county tax assessor must now use to determine tax values are: (1) the "[e]xisting zoning of [the] property;"⁶ (2) the "[e]xisting use of [the] property, including any restrictions or limitations on the use of [the] property" on account of state or federal laws, rules, or regulations that may limit the use of the property;⁷ (3) existing covenants or deed restrictions that dedicate the property to a particular use;⁸ (4) foreclosures of comparable property;⁹ (5) decrease in value because the property is subject to a conservation easement;¹⁰ and (6) "[a]ny other existing factors deemed pertinent in arriving at fair market value."¹¹

Again looking at Georgia ad valorem taxation and reacting to what it defined as "a crisis in the reduction of value of tangible property of unprecedented magnitude,"¹² the General Assembly passed House Bill 233¹³ to freeze assessed property values for all taxable real property—including residential, commercial, and industrial—at the 2008 assessment values.¹⁴ The Bill, effective May 5, 2009, amended Title 48 ofthe Georgia Code and created Chapter 5B, the "Moratorium Period for Valuation Increases in Property."¹⁵ Specifically, O.C.G.A. Sec. 48-5B-1¹⁶ freezes an assessed property value at the 2008 value for the tax years 2009, 2010, and 2011.¹⁷ The freeze applies retroactively and covers even those properties assessed at higher values for the 2009 tax year.¹⁸ Property values can be lowered during the three-year period but cannot be raised.¹⁹ However, the statute sets forth certain exceptions to the moratorium. First, the statute recognizes that the assessed value should be based on the true nature of the property; therefore, if there is a significant change or if the prior assessment was based on "manifest, factual error or omission," the property can be reassessed.²⁰ Similarly, if improvements are made to the property during the freeze, then the assessed value can be adjusted.²¹ Finally, the statute sets the start date of the moratorium for those Georgia counties that have recently undertaken to reassess all of their properties and those counties that have enacted measures to limit ad valorem tax amounts pursuant to local constitutional amendment.²² Any county that performed a county-wide reassessment of property in 2008 is exempt from the moratorium until January 2010, at which point the property values are frozen at the then-current levels.²³ The freeze will also be stayed until January 1, 2010, for any county that contracted for a comprehensive revaluation prior to February 28, 2009.²⁴

Other legislation of note includes Senate Bill 141,²⁵ which amended O.C.G.A. Sec. 44-14-160²⁶ and O.C.G.A. Sec. 44-14-162.3.²⁷ Prior to the revisions, O.C.G.A. Sec. 44-14-160 merely provided directions to the clerk of the superior court to "write in the margin of the page where the deed to secure debt or mortgage foreclosed upon is recorded the word 'foreclosed' and the deed book and page number on which is recorded the deed under power conveying the real property."²⁸ Although the scrivener's duties of the clerk to make a notation upon the deed to secure debt remain, the amendment imposes a duty upon the holder of the security instrument to record the security instrument "[w]ithin [ninety] days of a foreclosure sale."²⁹ Prior to the amendment, there was no such duty placed upon the lien holder.³⁰

The amendment also provided some housekeeping of the provisions of O.C.G.A. Sec. 44-14-162.3 by eliminating subsection (b) of the previous codification and clarifying that O.C.G.A. Sec. 44-14-162.2³¹ applies only to the foreclosure of residential and not commercial properties.³²

At long last recognizing electronic and computer mediums, the General Assembly passed the Uniform Real Property Electronic Recording Act,³³ which sets forth in detail the methods to record deeds and other instruments by electronic means.³⁴ Specifically, the clerks of all superior courts are to record "electronic documents" that comply with the statute in the county real estate records.³⁵ The statute defines electronic documents as those "received by the clerk of superior court in an electronic form"³⁶ and electronic signatures as "electronic sound, symbol, or process attached to or logically associated with a document and executed or adopted by a person with the intent to sign the docu-ment."³⁷ Now, a document that is prepared and transmitted in compliance with the statute satisfies the recording requirement that "a document be an original, on paper . . ., or in writing."³⁸

III. Title to Real Property

Title examinations often reveal the existence of a recorded notice of lis pendens—an instrument designed to give notice to potential interest holders that real property is involved in a legal action.³⁹ In Boca Petroco, Inc. v. Petroleum Realty II,⁴⁰ the Georgia Supreme Court addressed the issue of "whether a lis pendens may be filed in Georgia to give notice of litigation pending outside of Georgia that involves the Georgia property."⁴¹

The underlying litigation arose in Florida when Boca Petroco, Inc., Trico V Petroleum, Inc., and Trico VII, Inc. (collectively, Boca) filed suit against Petroleum Realty II, LLC and Petroleum Realty V, LLC (collectively, PR) over lease contracts for properties located in Georgia. At the time it filed its Florida suit, Boca also filed notices of lis pendens in the various Georgia counties where the properties subject to the litigated leases were located. PR sought cancellation of the lis pendens in each of the Georgia counties where they were filed and achieved varying degrees of success. Boca appealed the decision of the Gwinnett County Superior Court cancelling the lis pendens in that county.⁴² The Georgia Court of Appeals held that the notices of lis pendens filed in Georgia "were invalid because the Florida court lacked subject matter jurisdiction over the properties located in Georgia."⁴³

In affirming the court of appeals, the Georgia Supreme Court performed an exhaustive review of the meaning of lis pendens and its proper use.⁴⁴ Stating that "'[t]he phrase "lis pendens" means, literally, pending suit,'" the supreme court noted that its purpose is to give notice to prospective purchasers that the real property is involved in a pending lawsuit and that the relief sought by the parties to such a suit involves the particular property.⁴⁵ The court then looked to the common law origins of lis pendens and noted that to have a valid and effective lis pendens, a showing of certain elements regarding the property and the court adjudicating the issues of the underlying lawsuit were required.⁴⁶ The court also analyzed O.C.G.A. Sec. 44-14-610,⁴⁷ the Georgia statute enacted to address a lis pendens filing.⁴⁸ This statute provides that a lis pendens must be filed with the clerk of court in the county where the property is located and also recorded by the clerk of the superior court in a book to provide notice of: (1) the legal action, (2) the names of the parties, (3) when the action was filed, (4) the court in which the action is pending, (5) the legal description of the property, and (6) a statement of the relief sought.⁴⁹ In addition to the requirements of the statute, the court reaffirmed that Georgia law requires a showing of the common law elements of lis pendens.⁵⁰ The court noted its affirmation of those requirements in Scroggins v. Edmondson,⁵¹ in which it identified three essential elements for a valid lis pendens: first, "'the property must be of a character to be subject to the rule;'" second, the court must have both proper personal and subject matter jurisdiction; and third, the property at issue must be sufficiently described in the pleadings.⁵² Additionally, "the real property must be involved in the suit . . . i.e., it must be property which is actually and directly brought into litigation by the pleadings in a pending suit and as to which some reliefis sought respecting that particular property."⁵³

The supreme court rejected Boca's argument that the jurisdictional requirement of Scroggins was controlled by where the property in question lay (Georgia), holding that it was the court having jurisdiction of the underlying litigation (Florida) that determined the jurisdictional element.⁵⁴

The court noted that "[t]he states are split on the question of extraterritorial application of lis pendens" but distinguished the states that have "justified this expansion of the reach of common law lis pendens on policy considerations and/or in light of statutory provisions."⁵⁵ Unlike those states, Georgia has no statute or other authority to indicate a legislative intent to expand the scope of lis pendens to include litigation from other states.⁵⁶ Then-Presiding Justice Hunstein dissented from the...