• Victory for the Mortgage Industry in Georgia
  • May 24, 2013 | Authors: John C. Lynch; Jason E. Manning; Andrew Pittman; Alexandria J. Reyes
  • Law Firms: Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Atlanta Office
  • In a decision much anticipated by the residential mortgage industry in Georgia, the Georgia Supreme Court ruled that the holder of a security deed is authorized to conduct a non-judicial foreclosure without holding an interest in the underlying note. The Court also held that Georgia’s foreclosure statute requires a foreclosure notice to identify only the entity with authority to modify the loan. This decision provides much-needed clarity concerning Georgia’s non-judicial foreclosure requirements, which have been called into question by numerous borrower-initiated lawsuits since 2008.

    The Court’s decision in You v. JPMorgan Chase Bank (May 20, 2013) represents a major victory for mortgage lenders, servicers, and investors. In addition to providing greater certainty as to Georgia’s non-judicial foreclosure requirements, it will also serve as a powerful tool in defense against many of the typical challenges to properly instituted foreclosures in Georgia.

    The You decision comes in response to three questions certified to the Court from the U.S. District Court for the Northern District of Georgia. In the underlying wrongful foreclosure action, the borrowers argued that the 2008 amendments to the relevant foreclosure statute require the foreclosing party to hold both the note and the deed, and that the foreclosure notice identify the “secured creditor,” i.e., the owner of the loan.

    Noting that these issues were dispositive questions of state law as to which there was no controlling decision by the Georgia Supreme Court, Chief District Judge Julie E. Carnes certified the following questions:

    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?

    2. Does O.C.G.A. § 44-14-162.2(a) require that the secured creditor be identified in the notice described by that statute?

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

    The Court answered “yes” to the first question and “no” to the second, while declining to address the third question in light of its first two answers.

    Writing for a unanimous court, Chief Justice Carol W. Hunstein confirmed “the stand-alone enforceability of the deed, apart from the note, thus reinforcing the ability of a deed holder to exercise its rights under the deed, independent of the note.” Notably, the Court reiterated Georgia’s long-standing tradition of treating security deeds as private agreements governed by their express terms.

    As to the second question, the Court relied on the language of the statute itself, O.C.G.A. § 44-14-162.2(a), which provides that a foreclosure notice “shall be in writing [and] shall 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.” Thus, the only entity that must be identified is the one with authority to modify the borrower’s loan, regardless of any other role that the entity may play in relation to the loan. This interpretation eliminates the need for determining the holder of the loan, which may be problematic when foreclosing securitized mortgages.