Georgia Real Estate Litigation Blog

Georgia Foreclosure Law, MERS, and Real Estate: Where Are We?

2011-06-19T13:49:00.002-04:00

Around the country several courts have been ruling on some of the critical legal problems that have arisen as a result of the Foreclosure Crisis. The basic problem, trying to avoid legalese, is that for over one hundred years, it was bedrock law in the United States that a mortgage had to be "attached" to the loan it secured in order for it to be enforceable against the property that secured the note. In other words, the holder of the mortgage had to possess the note as well to foreclose on the home. For example, the United States Supreme Court case Carpenter v. Longan 83 U. S. 271 (1872) stated 139 years ago that "the note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity." In other words, if the note is assigned without the mortgage attached to it, the person left holding the mortgage cannot foreclose on the property, and the note becomes unsecured. Fast forward to 2011.

In the 90s the lenders got together to solve a problem. The business of taking mortgages and putting hundreds of them all together in a security instrument, and selling shares of that pool of debt was a huge hit, and generated massive fees. The debt could be sold over and over just like bonds and a big market began to flourish. The problem was that every County in the United States taxes the transfer of mortgages on real property, and each mortgage transfer has to be recorded in the property records. So in order to avoid the taxes and the hassle and cost of recording all these profitable transfers of the notes, they invented MERS, the Mortgage Electronic Registration System. MERS was made the mortgage holder in a lot of mortgages, perhaps millions. In foreclosure they serve as the "nominee" of the bank that holds the note. The argument that this is illegal is a state by state issue, but the gist of it is that the MERS method of handling the mortgage and the debt is illegal because the mortgage and the note get separated and, under cases like the Carpenter case, the mortgage is null and void, and the loan is unsecured. MERS is not a bank, and cannot be a lender. Thus, the argument goes, MERS cannot foreclose on homes. This is a huge legal problem working its ways through courts in the fifty states. Courts have come out both ways, with MERS winning some and the homeowners winning others, particularly in New York and Massachusetts. Last week a big win for MERS occurred in California.

None of the appellate courts of Georgia have had an opportunity to opine on this legal issue. In his blog, well known Georgia real estate litigator Hugh Wood has discussed the arguments on behalf of the homeowner under Georgia law. In different cases MERS is the agent, assignee, or nominee of the lender. Mostly as the nominee. Wood has identified several terms of the Georgia law that are, in his opinion, fatal to MERS acting as a nominee for the lender. Click here and you can see the argument laid out in full. All of the cases about MERS and Georgia law appear to still be pending as of this writing. In the cases that have gone for MERS, it seems like the courts have basically stretched the meaning of nominee because of a results oriented notion that, notwithstanding the fact that MERS clearly breaks the longstanding law on mortgages and loans having to move together, there are just too many cases out there and too much turmoil in the real estate market to let the old law stop the runaway train. In other words, one could argue, MERS broke the law so many times that as a state policy issue we have to let it slide and get these houses moving through the market. This is another version of the "too big to fail" argument the banks succeeded in making to the executive and legislative branches, and now they are making it to the courts.

Of course, the loan is still in place, so the homeowner still owes the bank the loan, it is simply unsecured. What a bank could do is sue on the note and levy all of the assets, garnish the wages, and make life miserable on the debt holder unless they surrender the house. The bank can put a lien on the house after they get the judgment on the note, but that judgment lien all by itself cannot force the homeowner to leave involuntarily like a mortgage foreclosure. Sooner or later, the bank will get the house, or if the bank gets shut down, the FDIC. The only question is how long the homeowner gets free housing. A stubborn homeowner could stay in a house a long time, but it would be awfully difficult to stay afloat financially. If you live in the house it is not hard to find you. Most judgment debtors are hard to find, but not a judgment debtor on a residential mortgage that still lives in the house. Life would probably be simpler walking away from the house and renting something affordable, but for some people there is no place like home.

Office Depot Learns That an Estoppel Certificate Can Stop a Tenant in Retail Lease Suit Over Exclusive Use Provision, and What About No Waiver Clauses in Leases?

2011-06-15T22:05:00.003-04:00


Office Depot Brand Briefcase, Minus Form Lease

Office Depot lost an effort to terminate a lease based on the alleged breach of a restrictive covenant by another tenant after having signed an estoppel certificate after the alleged breach occurred. Office Depot, Inc. v. The District at Howell Mill, 2011 Ga. App. LEXIS 381, Decided May 6, 2011. Office Depot filed a declaratory judgment action against its landlord for breach of the exclusive use provision (The "Exclusive") of its retail commercial lease. It also sought a judgment that it could not pay rent or terminate the lease based on the alleged breach of the Exclusive. The landlord counterclaimed for past due rent, attorney fees, and a declaration that it did not breach the lease. The trial court granted the landlord summary judgment and the Court of Appeals affirmed.

The record showed that Office Depot had a lease that was executed in 2005 that prevented the landlord from, among other things, leasing space to a business that "primarily" sold school supplies. Nonetheless, the landlord leased space 18 months later to a store called The School Box which, naturally, sold school supplies. The School Box opened in November 2006. In May 2007, the company ELPF agreed to purchase a majority interest in the shopping center. As is usually the case, in connection with the sale of the shopping center the tenants were asked to sign estoppel certificates, which, as the name indicates, are designed to estop the signatories from claiming breaches based on actions prior to the signing. The purchaser and lenders rely on these certificates to ensure that they are buying a shopping center without any problems. On April 24, 2007 Office Depot signed an estoppel certificate that stated, among other things, that to Office Depot's knowledge, the landlord was not in violation of any terms of its lease.

Obviously Office Depot knew that The School Box was in the shopping center selling school supplies at the time it executed the estoppel certificate. The Exclusive was a standard one that provided the tenant alternative remedies, (1) to pay reduced or "Alternative Rent" and (2) to terminate the Lease. On December 6, 2007 Office Depot gave notice it would start paying Alternative Rent in 60 days. It started paying reduced rent in February 2008 and in May 2009 filed its lawsuit against the landlord.

Office Depot argued that that the reliance on the estoppel certificate was unreasonable because the landlords knew that The School Box violated the lease. The court disagreed. The record showed that the review of the School Box lease (which listed many activities besides selling school supplies), a visit to the School Box store, and the fact that Office Depot made no complaints led the purchase ELPF to conclude that the School Box was not in the "primary business" of selling school supplies. The record showed that the District at Howell Mill made the same conclusion when it entered into the lease. Thus the court held that, as a matter of law, the landlords had reasonably relied on the estoppel certificate.

It is unclear that reasonable reliance should even be a defense against an estoppel certificate in a case where the tenant clearly knows what is going on before signing the estoppel certificate. Instead, it should be clear that the estoppel certificate operates as a waiver, which is the unilateral and knowing relinquishment of a right. The landlord should be able to assume that if the tenant signed the estoppel certificate well after The School Box entered the shopping center, then they were waiving any rights to contest The School Box's presence, and thus need not show that the reliance was reasonable at all. I do not know if the landlord raised waiver as an issue, but landlords and banks absolutely have to be able to rely on the fact that at the time the estoppel certificate is signed, all of the tenants in the shopping center are there legally with respect to any restrictive covenants.

There may have been a clause in the Office Depot lease called a "no waiver" clause. Depending on the wording of that clause in the lease, the landlord may have been unable to argue that the estoppel certificate is a waiver.

Practice Point: In commercial leases the language of the no waiver clause can make a big difference in the arguments available in a lawsuit. For example, the waiver clause could read as follows:

No waiver by the parties of any right contained herein shall constitute a waiver of any other rights in the lease including subsequent rights related to the same term herein.

I call this the "one waiver" clause. It means that one action can in fact be a waiver, such as signing an estoppel certificate or accepting one rental payment. It just means that all other rights are reserved.

On the other hand, the clause could read like this: No action by either party to this lease shall constitute a waiver of any of the rights herein.

This is a true "no waiver clause." It means that whatever anyone does, it is not a waiver. I do not favor this clause in leases, as a litigator, because it means that the parties can argue whatever they want to in a subsequent dispute and claim they are not bound by their actions, such as having signed an estoppel certificate. What good is an estoppel certificate in that instance?

The court ruled that the term had to mean that the tenant could automatically terminate the lease six months after notice only if there actually was a breach. This reading of the provision is also questionable, however, because it seems to render the clause somewhat superfluous, in that it requires the landlord to file a lawsuit to prevent termination, but only if the landlord has actually breached the lease, in which case, presumably, the landlord would lose every time. If there is no breach then the landlord apparently does not have to file a suit. Thus, in other words, that provision really has no meaning at all and requires the landlord to do nothing.

The Roof, The Roof, The Roof is on Fire...

2011-04-23T14:39:00.000-04:00

The Georgia Court of Appeals reversed a Cobb County decision in favor of a commercial tenant, finding that the lease (1) required the tenant to replace the roof of the structure it rented and (2) did not allow early termination to the tenant as a result of the tenant being in default for its failure to replace the roof. NW Parkway LLC v. Lemser, Case No. A10A1781, Decided March 24, 2011. The Landlord ended up not only getting a new roof but locked up the tenant for five more years on the lease in a tough market. The trial court had held that the tenant did not have to replace the roof, relying heavily on the Jacobi v. Timmers Chevrolet case, 164 Ga. App. 198 (1982).

In Jacobi the Court of Appeals held that the repair and maintenance clauses of a lease did not require the tenant to replace a roof that was in the same condition it had been in when the lease commenced. The Jacobi case had a lease with common repair and maintenance clauses but also a clause that the tenant should return the building in as good a condition as it got it. In Jacobi the tenant had not actually occupied the building on the property, it had leased it as a parking lot. Thus, the tenant got the building needing a new roof and turned it back in the same condition.

In this case, the lease contained a special stipulation that stated that the lessee "shall be responsible for and pay directly, on a timely basis, all expenses for the entire property and building, of any nature whatsoever during the term of this lease" except for the walls, slab and foundation. The lease also stated that where the rest of the lease conflicted with it, the stipulation governed. The lease went on to include common maintenance and repair provisions. Apparently the roof needed replacing during the term but the tenant refused to pay for it. The landlord got a TRO allowing entry to replace the roof.

The Court of Appeals noted that the Jacobi case did not include a clause like the special stipulation that trumped the maintenance and repair clause. Reading the plain language of the stipulation, the Court determined that the roof replacement fell within the meaning of "all expenses" related to the building, and that the tenant had to pay for the roof replacement. Going further the Court noted that the early termination clause required that the tenant not be in default in order to invoke it. Because the tenant was in default for not paying for the roof, when the time for early termination came, it was not able to terminate the lease. Therefore, the landlord got the new roof paid for by the tenant and five more years of the tenant being on the hook for the lease.

Title Company Should Have Issued Policy to Cover Forged Closing Documents

2010-11-24T11:00:00.001-05:00

An insured's title policy required the title company to insure over forged closing documents according to the Georgia Supreme Court. In Fidelity National Title Ins. Co. v. Keyingham Investments, LLC, Case No. S09G1783, Decided October 18, 2010, a borrower who executed a security deed was an imposter that absconded with the money after closing, leaving a mortgage on the property that nobody was prepared to pay. The lender filed a claim with its title insurer, who denied the claim. The lender then filed suit.

The crux of the case was the language of the title commitment the title insurance company issued at the closing. The way title insurance works is that the insured pays a one time premium at the closing on its interest in the property (here that was a mortgage securing a loan to the imposter) and at that time the insurance company issues a title "commitment," also known as a "binder," that commits the insurance company to issue a full policy after closing if certain conditions are met. Whether those conditions were satisfied so that the policy had to issue is what the court decided in this case. The reason this was an issue is that the insurance company issued a binder at closing but then found out the borrower was a fraud, so it refused to issue the insurance policy.

As an aside, it has always interested me that in the case of title insurance the party paying for the insurance does not know all of the terms of the contract at the time he or she pays for it. The buyer of insurance only receives the binder, not the full policy, at the time of purchase. Nevertheless, the purchaser of insurance is bound by the terms of the policy written after the fact, even though said purchaser has never seen the document before. Therefore, in this instance, a contracting party is held to have agreed to terms it has never heard of before. Of course, the purchaser could cancel the policy, but it would be at risk at that time of not having any coverage at all for a defect in the title. There are forms that are generally used for the boiler plate in these policies that can be found if someone looks for it, but this is never offered to the purchaser. Also, I have seen policies issued by closing attorneys with exclusions in them that were never disclosed at the closing. That is malpractice but it has happened.

At any rate, the insurance company here relied upon the following condition in the binder: "Documents satisfactory to the Company creating the interest in the land and/or mortgage to be insured must be signed, delivered and recorded." The insurance company argued that the language "creating the interest in the land and/or mortgage to be insured" meant that a fraud would not be covered because the forged documents would not actually create any interest in the land. In other words, because the documents were fake, no real interest was created.

The court brushed off this argument. The whole purpose of title insurance, it stated, was to protect property interests against fraud and such abuses. Here the documents were all prepared by Fidelity's agent and signed, delivered and recorded by said agent, thus satisfying the condition of the binder, notwithstanding the forged signatures. The court noted that other commitments have stated that the document must be signed by a particular person, and that those commitments have been held to exclude forged documents from coverage, because in those cases the acutal named person did not sign. Here, the commitment did not specify who had to sign, only that they be signed. Once the agent accepted the signed documents and recorded them, the insurance company had to issue the policy.

Questionable Supreme Court Decision Continues to Haunt Landlords Seeking Attorneys' Fees In Lease Lawsuits

2010-11-01T21:39:00.002-04:00

Under OCGA § 13-1-11 in a suit to collect on an indebtedness, where there is a prevailing party fees provision that does not set forth how much of the percentage of the amount collected shall be paid in fees the collecting party is limited to recovering attorneys' fees equal to 15% of the first $500 collected and 10% of all money collected thereafter. This law was passed in the 1890s and for 80 years was held to apply only to notes for debt, and the legislative history and language of the statute clearly states the intent to make the law applicable to loans only. Despite this, in the 1970s the Georgia Court of Appeals erroneously held that OCGA § 13-1-11 applied to commercial leases because, in its reasoning, the financial obligations of the tenant constitute an indebtedness. In a series of cases over the next thirty years the Court of Appeals reaffirmed this mistake in a series of cases that dealt solely with the collection of rent from tenants. The Supreme Court of Georgia, however, had not faced the question until 2007.

Thus, in 2007, the applicability of OCGA § 13-1-11 to commercial leases was raised as an issue of first impression in the Supreme Court when the question was certified to it by the Eleventh Circuit. Also, the 2007 case before the Supreme Court did not focus on the collection of unpaid rent, it dealt with the enforcability of a restrictive covenant that the tenant contended the landlord had violated. In that case, the Supreme Court of Georgia, in an unfortunate 4-3 decision, decided that OCGA § 13-1-11 applies to commercial leases such that despite a lease containing a prevailing party attorneys' fees provision, a victorious landlord in a case regarding restrictive covenants was limited to only $17,000 out of $286,000 spent on fees, because the result of the win for the landlord included the collection of approximately $170,000 from the tenant. RadioShack Corp. v. Cascade Crossing II. LLC, 282 Ga. 841; 653 S.E.2d 680 (Ga. 2007). In that case RadioShack contended that the landlord had violated a restrictive covenant in its lease by leasing space to Bellsouth Mobility, a cell phone service provider. RadioShack withheld over $170,000 in rent based on its belief that the restrictive covenant could be enforced against the landlord. Ultimately it was decided that RadioShack was wrong, and as a result the $170,000 that RadioShack had illegally withheld was collected by the landlord. Based on the Supreme Court decision, RadioShack was rewarded for illegally refusing to pay rent, however, because that refusal led to a collection of money, which threw the case under OCGA § 13-1-11, ultimately saving RadioShack over $269,000 in attorneys' fees. In other words, if RadioShack had paid its rent during the dispute as it should have, the case would not have involved the "collection" of an indebtedness, and OCGA § 13-1-11 would not have applied. This is because the focus of the case was a declaratory action by the landlord that the restrictive covenant was unenforceable. Had the case only involved the declaratory judgment action and not a collection of illegally withheld rent, it would not have involved an indebtedness and the victorious landlord would have recovered all $286,000 of its fees. It follows therefore, that the RadioShack case provides an incentive for tenants involved in disputes over restrictive covenants or other lease provisions to withhold rent such that the landlord will not be able to recover all of its fees.

Even more mysterious in the Supreme Court's decision was the reasoning behind it. First, the Supreme Court ignored the fact that the focus of the underlying RadioShack case was distinguishable from the thirty years of bad Court of Appeals precedent due to the fact that the case was really a restrictive covenant case with an ancillary issue as to the collection of rent that was not paid during the lawsuit. Thus the Supreme Court could have distinguished all of the cases that came down frm the Court of Appeal over the preceding 30 years. Instead, it focused exclusively on what could have been an academic question, which was whether OCGA § 13-1-11 applies to commercial leases in all situations. The Supreme Court did not hold that the Court of Appeals was correct in extending the reach of OCGA § 13-1-11 beyond notes to leases, nor could it based on the clear language of the statute and the history. Entertaining the issue as one of first impression in its chambers, the Supreme Court should have corrected the errors of the Court of Appeals and held that OCGA § 13-1-11 does not apply to leases. Instead, the Supreme Court held that, because the mistaken Court of Appeals precedent had gone on for thirty years without the legislature correcting the problem or the issue coming before the Supreme Court, the bad precedent somehow became part of the legislation itself such that the Supreme Court was powerless to do anything about it. In other words, the Supreme Court abdicated its job and let erroneous precedent stand despite it being an issue of first impression before them. Presumably under this holding, there is some kind of statute of limitations on improper rulings from the Court of Appeals that, at some point at or before thirty years since the bad holding, the improper ruling becomes law if the legislature has not managed to overturn it. Remarkable. Justice Sears excoriated the majority in a blistering dissent, but that was little solace for the victorious landlord who lost $269,000 in reasonable attorneys' fees as a result of this decision.

Over the last few months the absurd results that follow from the Radioshack decision surfaced in two retail landlord-tenant cases reviewing the award of fees, one for the landlord and one for the tenant. The cases demonstrate that, for the most part, prevailing tenants may recover all of the attorneys fees in a case while the landlord can only recover a tiny fraction of its fees. Following the Radioshack case, the Georgia Court of Appeals overturned another award of attorneys fees for a landlord victorious in a case against a tenant. Level One Contact, Inc. v. BJL Enterprises, LLC, 2010 Ga. App. LEXIS 649, Case No. A10A1196, Decided July 8, 2010. In Level One the landlord sued for unpaid rent and won $103,954 at a jury trial, as well as an award of attorneys' fees of $67,734. The Court of Appeals held that OCGA § 13-1-11 limited the recovery of fees to $15,593.10. On the other hand, where a tenant prevailed in a suit brought by the landlord for dispossessory and nonpayment of rent, the court awarded the tenant all of its approximately $70,000 attorneys' fees based on the prevailing party provision of the lease. Sugarloaf Mills Limited Partnership of Georgia v. Record Town, Inc., 2010 Ga. App. LEXIS, Case No. A10A2194, Decided September 29, 2010.

Therefore, attorneys drafting lease provisions on the landlord side MUST be cognizant of this anomaly. In order to preserve the ability of the landlord to collect attorneys fees in full, the fees provision must contain an express waiver of the protections of OCGA § 13-1-11. It should state, "The prevailing party shall be entitled to recover all of its reasonable attorneys' fees in any dispute arising under this lease, without regard to the applicability of O.C.G.A. § 13-1-11 or any other fee-limiting statute."

Easement Over Property to Boat Launch Violates Zoning

2010-10-03T23:25:00.000-04:00

The Court of Appeals affirmed summary judgment against a group of landowners in favor of the Lowndes County denying them the use of a boat ramp to a lake. Dawkins & Smith Homes LLC v. Lowndes County, Ga, Case No. A10A1741, Decided September 15, 2010. The plaintiffs were a developer and 13 other landowners. The developer, Dawkins & Smith Homes ("DSH") bought 14 lots, one of which had a boat ramp allowing access from the street to the lake. The developer sold the other 13 lots during the period from March 2007 through September 2007, and granted a perpetual easement with each lot over the lot with the boat ramp allowing vehicle access to the lake and use of the ramp. After complaints from neighbors the county informed these landowners that the easements violated a zoning ordinance that had been enacted in 1984 and replaced with a new ordinance in 2006.

Both the 1984 ordinance and the 2006 one are substantively the same. The ramp lot was zoned to allow only use for a single family residence and far any accessory uses. Accessory use was defined as a use which is incidental and subordinate to the principal use of the structure. The court held that the easements were not incidental to the primary use of the ramp lot as a single family residence. The ownership of the ramp lot and the easements were totally independent of each other. The court found that this was different than a single family homeowner giving revocable, temporary permission to friends and family to periodically access the lake. The landowners argued that the use of the ramp predated the ordinances and thus that the pre-existing use was grandfathered in under the ordinances. However, the court noted that the prior use was of a totally different character, and did not involve perpetual easements, so the court rejected the argument.

Landowner Fails in Bid to Keep Out Subdivision Granted Access Over Private Easement

2010-07-12T23:19:00.003-04:00

The Georgia Supreme Court upheld the denial of a motion for a permanent injunction and writ of mandamus seeking to prevent a subdivision permit from issuing to a developer. Danbert v. North Ga. Land Ventures, LLC, Case No. S10A0563, Decided July 5, 2010. In essence, the landowners were trying to get the courts to overturn the decision of Towns County to give the developer a permit. The facts showed that in 2003, Roger and Theresa Danbert purchased two adjoining land lots in Towns County comprising about 6.5 acres. Both lots were bordered by an easement now known as Chinquapin Ridge Road, and the Danberts owned the land to the centerline of that road as shown on a recorded plat. In 2005, NGLV purchased a 46 acre plot further down the Chinquapin Ridge Road. The easement along that road was the sole access to the NGLV land.

The Danberts argued that NGLV's submission to Towns County did not meet Section 503 of the Towns County Revised Subdivision Regulations ("Regulations"). That regulation states that "Access to every subdivision shall be provided over a public street or a public access street. Access cannot be provided over private easement." The Danberts argued that Chinquapin Ridge Road is not a "public street or a public access street" and that it is a private easement that cannot provide proper access to a subdivision. The regulations provide no definition of public street or private easement. The Danbert's deed described the easement only by stating that it is "subject to easements as shown on the plat." The plats contain no further text on the issue.

In the absence of definitions in the Regulations, the Danberts urged that the term public street used in Section 503 must be synonymous with the definition of the term "public road" used in OCGA § 32-1-3(24) and that further there is no difference in the Regulations between "public street" and "public access street." They also contended that because there is no record that Chinquapin Ridge Road was dedicated to or accepted by the County, it cannot be considered to be "intended or used" by the public within the meaning of OCGA § 32-1-3(24). Some case law states that a right of public access to a road does not occur until the road has been dedicated and accepted by the governing body.

The court found several flaws in the Danberts' argument. First, their contention ignored the fact that the County did not choose to use the term "public road" that was defined in the Georgia Code, but instead chose to use other terms undefined by the Georgia Code. No evidence indicated that the County felt that the definitions in the Georgia Code were pertinent. Moreover, the Regulations did not require an express or implied dedication as set forth in the case law because the definition of "street" included a "public or dedicated thoroughfare." Apparently, the court decided that the inclusion of the term "public ... thoroughfare" instead of referring only to a "dedicated thoroughfare" meant that access in Town County did not have to be through a dedicated road. Evidence as to whether members of the public had been able to access Chinquapin Road over the easement was conflicting. Thus, the court held, the trial court did not abuse its discretion to reject an injunction because the trial court concluded that the Danberts failed to show a violation of the Regulations, and that access to NGLV's property by virtue of the easement was over "a public street" or "public access street" under Section 503 of the Regulations. The bottom line in this case is that the Court went to some length to rule in favor of the development of the land, but limited the scope of the holding to the Regulations of rural Towns County and language identical to them.

Mortgage Company Makes Mistake in Minimum Bid, Pays For It

2010-07-05T18:38:00.000-04:00

A mortgage company lost its appeal of a doomed effort to rescind a foreclosure sale after it made a six figure mistake in calculating the minimum bid. Decisions One Mortgage Co. LLC v. Victor Warren Properties, Case No. A10A0247, 10 FCDR 1990, Decided June 14, 2010. In this case the company conducted a foreclosure sale and Warren Properties was the high bidder. The winner tendered the funds and received a receipt for the payment for the property. Several weeks later, however, the company sent the funds back with a letter stating that it had rescinded the sale. Warren had to file a lawsuit to enforce the sale.

Decision One pleaded for the court to use its equitable power to rescind the sale. It submitted an affidavit of a paralegal for the company that was the servicer of the nonjudicial foreclosure process for the law firm that represented Decision One in the foreclosure sale. The affidavit stated that prior to the foreclosure sale date the servicer was informed by another entity via a program known as MortgageServ of the total debt amount and the servicer was instructed to calculate the opening bid. Due to a "clerical error" the affiant mistakenly calculated the opening bid at $27,750 when in fact the opening bid should have been $333,000. When the law firm received the results of the high bid of only $54,000 it was apparent that a mistake had been made. In other words, Warren bought the property for $279,000 less than the minimum bid was supposed to be. Now that is a steal!

The Court of Appeals made short work of Decision One's argument for equity to intervene. Decision One relied upon a prior case where a contractor was permitted to rescind a bid based on a unilateral miscalculation after establishing four factors: (1) enforcement of the mistake would have been unconscionable; (2) the mistake related to the substance of the consideration; (3) the mistake occurred regardless of the exercise of ordinary care; and (4) the other party had not been prejudiced. Here, the court held that Decision One had made no effort to establish that ordinary care had been exercised or that Warren would not be prejudiced by the rescission. Thus, it upheld the sale of the land.

Less Than 60 Days to Judgment Day: Court of Appeals Grants Default Judgment for Failing to Answer in 30 Days, In Spite of Acknowledgment of Service, Answer Filed Before Motion

2010-07-05T17:14:00.001-04:00

The Court of Appeals affirmed a default judgment in a case where the attorney for the defendant thought he had 60 days to answer the complaint after executing an acknowledgment of service. Satnum Waheguru Corp. d/b/a/ Foothills Chevron v. The Buckhead Community Bank, Case No. A10A0395, 10 FCDR 1982, Decided June 16, 2010. In this case, Buckhead Community Bank ("BCB") filed suit on a promissory note against Satnum. On March 17, 2009 BCB filed suit. On March 31, 2009, Satnum's counsel signed an "Acknowledgment of Service" of the summons and complaint. This acknowledgment was filed on April 15, 2009. On May 26, 2009, counsel for BCB "certified" that it had received Satnum's acknowledgment of service but had not been served with Satnum's answer. Satnum fileds its answer three days later on May 29, 2009 -- less than 60 days after the signing of the acknowledgment.

On July 8, 2009, BCB moved for a default judgment on the ground that Satnum failed to timely file an answer to the complaint. Satnum responded that it timely filed its answer within the 60 days as allowed by OCGA § 9-11-4(d). The trial court ruled that OCGA § 9-11-4(d) was not implicated by the waiver at issue and therefore Satnum was required to answer within 30 days as set forth in OCGA § 9-11-12(a), which it had not done. The court granted the default judgment. Satnum appealed, arguing that pursuant to OCGA § 9-11-4(d) he was entitled to a 60 day answer deadline. The Court of Appeals disagreed.

The court ruled that because there was no statement invoking OCGA § 9-11-4(d), the acknowledgment executed by Satnum had been executed under OCGA § 9-10-73 instead. OCGA § 9-10-73 simply states that "the defendant may acknowledge service or waive process by a writing signed by the defendant or someone authorized by him." It does not mention any change in the deadline to answer set forth in OCGA §9-11-12(a). The procedures for waiving service in OCGA § 9-11-4(d) set forth the way that a plaintiff may avoid the cost of service of a summons and sets forth which defendants have a duty to avoid unnecessary service costs. Section 9-11-4(d)(3) states that a plaintiff may notify such a defendant of the filing of the action and request that the defendant waive service of a notice and sets forth specific rules for the form of the request. The rules require that the the request (A) be in writing (B) by first class mail or other reliable means (C) mailed with a copy of the complaint identifying the court (D) make specific reference to this code section and shall inform the defendant, by means of the text prescribed in subsection (l) of the Code section, of the consequences of compliance and of failure to comply with the request; (E) set forth the date the request is sent and (F) allow a reasonable time to return the waiver, at least 30 days from the date sent or 60 days if the addressee is out-of-state. In turn OCGA § 9-11-4(d)(5) states that a defendant that returns the waiver in a timely manner has until 60 days after the date on which the request was sent to answer the complaint.

The request for acknowledgment of service sent in this case, drafted by BCB and submitted to Satnum, (1) made no reference to OCGA § 9-11-(4) and (2) did not use the form set forth in subsection (l) of the statute. Therefore, found the court, the answer was due in 30 days and not 60, and the default judgment was affirmed.

What this means is that defendants cannot gain themselves 60 days to answer a complaint merely by offering to acknowledge service of a complaint they know has been filed. Furthermore, even if a plaintiff requests a waiver of service, agreeing to the waiver is not mandatory unless the plaintiff follows the procedures of OCGA § 9-11-4. Finally, if the plaintiff does not follow OCGA § 9-11-4 but requests a waiver of service and the defendant agrees to it, the defendant still has only 30 days to answer the complaint absent some other agreement to extend the time to answer.

No Legal Duty to Mitigate Damages in Retail Lease

2010-06-22T19:37:00.000-04:00

The Court of Appeals affirmed summary judgment in favor of a shopping center landlord in its suit for breach of two shopping center leases. Sirdah v. North Springs Assocs. LLLP, Case no. A10A0329, Decided June 8, 2010. The court reiterated that, with two limited exceptions, the duty to mitigate under OCGA § 13-6-5 does not apply to lease contracts. In Georgia, "if a tenant abandons lease premises without authorization prior to the expiration of the term, the landlord is not required to mitigate damages by reletting the premises." Allen v. Harkness Stone Co., 271 Ga. App. 397, 400, 609 SE2d 647 (2004). The two exceptions to this rule are (1) if the landlord accepts the tenant's surrender, and (2) if the tenant successfully terminates the lease. If either of these two things take place the landlord must take reasonable steps to re-lease the premises. In this case, the tenant argued that the landlord had accepted surrender of the leased premises by acknowledging in a demand letter that the tenant had "given up possession of the premises through his return of his key" and that landlord had "accepted same." The court was not persuaded by this argument. It is settled law that the mere taking of the keys to the leased premises by a landlord does not give rise to an inference that the landlord accepted surrender.

Action to Enforce Condominum Lien Must Be Brought in County of Defendant's Residence

2010-06-21T23:49:00.000-04:00

In a case of first impression the Court of Appeals reversed the denial of the defendant's motion to transfer venue of an action to enforce a condominium association lien. Foster v. Wilmington Plantation Owners Assn. Inc., Case Nos. A10A0262; A10A0374, Decided May 28, 2010. The first case was filed in the county where the property is located, Chatham County, rather than Twiggs County where the defendants resided. In the second case, also filed where the property was located, one of the two defendants admitted venue in Chatham County (wrongly) and the trial court held that the other defendant was a joint obligor. The court of appeals reversed that holding as well, finding that the two defendants were not joint obligors.

William Foster owned four units in a Savannah condominum known as Wilmington Plantation. In 2005, he sold two units to Ingelsby & Inglesby Real Estate Holdings ("Inglesby"), which had its office and registered agent in Fulton County. In 2006, he sold two units to EKL Georgia, LLC, like Foster a resident of Twiggs County. In 2008, Wilmington Plantation brought two actions for unpaid condominium association fees, one against Foster and EKL for the units owned by EKL, and one against Foster and Inglesby for the units owned by Inglesby. In both actions, Wilmington alleged that venue was proper in Chatham County as as action for the foreclosure of real property. Foster and EKL both answered and challenged venue, but Ingelsby admitted venue was proper in Chatham county. Foster moved to transfer in both actions. The trial court denied the motion in both cases.

With respect to the EKL units, the trial court held that a foreclosure action for condominium assessments is an "in rem" action against the property governed by Ga. Const. of 1983 Art. VI, Par II, Sec. II as a case respecting title to land. Thus, reasoned the trial court, venue was proper where the condominium was located. With respect to the Inglesby units, the court also found the case was an in rem action, but also noted that Inglesby had admitted venue, and held that venue was proper as to Foster as a joint obligor with Ingelsby. The court cited to OCGA § 9-10-31 which states that a county court other than that of the defendant's residence can enter judgment against the defendant if the Georgia resident is a joint obligor, joint tort-feasor, joint promisor, copartner, or joint trespeasser.

OCGA § 44-3-109 of the Georgia Condominum Act provides for the creation and enforcement of liens for all sums lawfully assessed against any unit owner or condominium unit. However, it does not specifically provide for venue of a foreclosure action; it states that the lien may be foreclosed in the same manner as other liens for the improvement of real property. Thus, the Court of Appeals decided to look to cases involving the foreclosure of mechanics' and materialmens' liens under OCGA § 44-14-360. Foreclosure of lien suits for mechanics' liens must be brought in the county of residence of the defendant. The trial court erred in holding that a foreclosure action is a case respecting title to land. Cases respecting title to land are actions at law such as ejectment in which the plaintiff relies on legal title to recover possession of the land or of the land and mesne profits.

As for the holding in the Inglesby case that Foster was a joint obligor, the Court of Appeals found this to be error as well. At the time of the lawsuits, Foster had sold the two units to Inglesby, taking a purchase money mortgage from Ingelsby. Under the Condominium Act the assessments are the personal obligation of the unit owner. As a mortgagee Foster was not a unit owner. Thus, he was not a joint obligor of the unit owner Inglesby. Thus, venue was not proper as against Foster in Chatham County.

Recreational Property Act Protects City from Claims of Spectator Hit by Falling Skydiver

2010-06-18T09:59:00.001-04:00

The Georgia Court of Appeals held that the City of Euharlee could not be liable for injuries the plaintiff suffered when she was hit by a skydiver whose parachute partially failed because of immunity bestowed by the Recreational Property Act, O.C.G.A § 51-3-20. Lowry v. Cochran, Case No. A10A0931, Decided June 1, 2010. As a result, the Court reversed the trial court's denial of summary judgment for the City. In this case the plaintiff was injured when she was hit by a skydiver whose parachute collapsed. This occurred at a City of Euharlee Park during a festival that included a skydiving demonstration. The plaintiff was standing just outside the landing area at the time. She sued numerous parties including the city, the skydiver, and an inspector who approved the landing area. The City moved for summary judgment and the trial court denied the motion, finding among other things that the City was not immune from suit under the Recreational Property Act.

The Recreational Property Act states that its purpose is to encourage both public and private landowners to make their property available to the public for recreational purposes by limiting the liability of the landowner. The Act provides that when a landowner invites or permits without charge any person to use its property for recreational purposes, it may not be held liable for personal injuries resulting from any act or omission of the landowner unless such injuries resulted from a "willful or malicious failure to guard or warn against a dangerous condition, use, structure, or activity." Although the city charged a nominal parking fee for the festival, Georgia case law is settled that such a nominal parking fee is not a "charge"for purposes of the Recreational Property Act. The plaintiff argued that the city willfully failed to warn of dangers related to the skydiving demonstration, but the Court found that the record was replete with evidence of warnings to the spectators, such that at most the question of the adequacy of any warning would be a question of negligence, and not of willfulness. Because of the Recreational Property Act the city could not be included in the negligence suit against the other parties. As an aside, the plaintiff also argued that the City could be held strictly liable for conducting an inherently dangerous activity with the skydiving show. The Court noted that there is no law concluding that skydiving is inherently dangerous to spectators, and rejected the claim.

Savannah Not Liable for Demolishing Building on Land Previously Bought at Tax Sale

2010-05-23T13:33:00.000-04:00

The Georgia Court of Appeals affirmed summary judgment for the City of Savannah against claims for trespass and the value of a vacant building brought by investors who had bought the building at a tax sale. Brown Inv. Group LLC v. The Mayor & Aldermen of the City of Savannah, Case No. A10A0311, Decided May 5, 2010. The investors bought the building at a tax sale and acquired a tax deed to the property on August 1, 2006. The city decided that the building on the property was unsafe and demolished it on July 25, 2007, just less than one year after the date on the tax deed. In Georgia, after a tax sale, there is a one year right of redemption of the property sold pursuant to OCGA § 48-4-40(1). The investors sued, and the city filed a motion for summary judgment claiming that the investors lacked standing because they did not hold legal title to the property. The Court of Appeals affirmed the validity of this argument.

In order to make a claim for trespass the plaintiff must show either that he was the true owner with legal title or that he had possession at the time of trespass. The tax deed did not convey legal title, instead it conveyed an inchoate or defeasible title subject to the owner's right of redemption. Thus, when the building was demolished there was still a right of redemption by the former owner of the property, and the investors lacked standing to make a trespass claim. The result of this case is that purchasers of property at a tax sale have no ability to file suit for property damage that occurs during the one year right of redemption period. This greatly increases the risks associated with property bought in a tax sale.

Power Plant Noise May Be a Continuing Nuisance

2010-04-18T17:27:00.001-04:00

In a split decision, the Georgia Court of Appeals affirmed the denial of summary judgment, finding that noise and vibrations from the Sewell Creek Energy Facility, pictured at right, were (1) not subject to the 12 month statute of limitations on certain claims against EMCs, and (2) could not be ruled a permanent nuisance on summary judgment. Oglethorpe Power Corp. v. Forrister, Georgia Court of Appeals, Case No. A09A2015, Decided March 30, 2010. Because of this ruling, a lawsuit filed by the neighboring landowners complaining of the noise and vibrations can not be ruled time barred on summary judgment. The original lawsuit was filed in 2007.

As the court noted, the difference between a permanent nuisance and a continuing nuisance continues to be one of the most baffling areas of the law. A nuisance is permanent if the damage it causes is complete when the action creating the nuisance first occurs, and gives rise to a single cause of action that initiates the running of the statute of limitation. On the other hand, a nuisance is not permanent if it causes continuing damage, and is one which can and should be abated by the person erecting or maintaining it. If it is continuing, every continuance of the nuisance is a fresh nuisance for which a fresh cause of action arises and a fresh statute of limitation runs. Thus, the category of nuisance controls the application of the statute of limitations.

The Sewell Creek plant is a gas fired power plant that began operating in 2000. Thus, if it is a permanent nuisance the 2007 lawsuit would be time barred. The facility does not operate continuously, but is designed to generate power only when energy usage exceeds the capacity generated by base and intermediate plants, such as on hot summer days. The plant is powered by four gas turbine engines similar to jet airplane engines, used because they can be turned on and off quickly.

Shortly after the plant opened in 2000 the neighbors complained of the noise and vibrations from the turbines. Before the 2002 operating season Sewell Creek added took action to reduce the noise and vibrations. The noise died down but in 2004 it returned, becoming louder with more of a rumbling sound. In 2005 the noise became even louder, in 2006 a booming noise arose, and in 2007 a high-pitched squeal began, with the plant operating more often and later at night. One neighbor testified that at times the plant was so loud that even indoors the family "could not basically function." An expert testified that the noise at the Sewell Creek plant could in fact be reduced by retrofitting the plant at a cost ranging from $2-8 million.

Sewell Creek argued that the noise was a permanent nuisance and thus time barred by either one of two statutes of limitations: (1) the 12 month statute of limitation for certain claims against EMCs under OCGA § 46-3-204, or (2) the four year statute for trespass or damage to realty under OCGA § 9-3-30. The plant moved for summary judgment. The landowners stated that the plant was not a permanent nuisance because the noise and vibrations have changed during the plant's operations, and that the problems can be abated. As to the EMC statute of limitations, the court rejected Sewell Creek's argument that the statute of limitation applies to all property rights claims against EMCs. Instead, the court found that the statute applied only to rights of way or easements or the occupying of lands of others, not to nuisance cases.

As to the claim of continuing versus permant nuisance, the court found that summary judgment was inappropriate. The defendants argued that because the plant is a public enterprise, the nuisance can only be continuing if it is caused by a minor feature and can be remediated at slight expense. They claimed that the exhaust stacks would have to be completely demolished and rebuilt to retrofit them as the landowners demanded, at great expense. The plant also argued that the 2002 modifications of the plant did not toll the running of the limitations period since 2000. The court affirmed the denial of summary judgment, noting that the landowners did not complain about the mere presence of the plant, but only the operation, which produced variable noise that increased markedly after 2004. As to whether the noise could be abated, the court agreed with the trial court that there was a sharp conflict in the evidence, with the plant arguing that it would have to be shut down and completely rebuilt to end the noise, while the landowners contended that the plant could be repaired at a small percentage of the $200 million cost to build it.

Contracts to Real Property Must include an Adequate Property Description Redux

2010-04-18T14:18:00.000-04:00

The Georgia court of Appeals affirmed a decision refusing to enforce a contract for the sale of a convenience store and gas station because the contract did not include an adequate property description. Salim v. Solaiman, et al. Georgia Court of Appeals, Case No. A09A1686, Decided March 4, 2010. It is well settled that the Statute of Frauds requires contracts to purchase real property to be in writing, and a corollary is that the contract must adequtely describe the property. In this case Salim attempted to sell a convenience store and gas station to Solaiman and Chowdury. The parties signed a handwritten document memorializing their deal, and soon afterward signed a typewritten "Purchase and Sale Agreement" prepared by Solaiman and Chowdury. The typed agreement did not contain or reference a metes-and-bounds description of the property, referring to it as "the property and business (known as BP Food Mart) located at 199 Upper Riverdale Raod, Jonesboro, GA 30236." The agreement set a closing date and required a $25,000 security deposit to be applied to the down payment.

After reviewing a title search and conducting due diligence, Solomon and Chowdury decided they did not want to buy the property and they sought their security deposit back from Salim. The typed agreement did not specify what happened to the deposit if the sale did not close. Salim refused to return the money and the lawsuit ensued.

In order to comply with the Stute of Frauds, the agreement for sale must describe the property with the same degree of certianty required in a deed conveying realty or provide a "key" by which the property may be located using extrinsic evidence. To qualify as a sufficent key, the description must open the door to extrinsic evidence which leads unerringly to the land in question. Salim argued that the address listed in the agreement and description of the store was a sufficient key to the property. There are cases indicating that the address may be a sufficent key. However, for some reason, Salim did not put forth sufficient extrinsic evidence at the trial for the key to be any good as a link to the property description. Without such evidence, the trial court was left only with the purchase agreement description, which was inadequate. Therefore, the court held, Solaiman and Chowdury were awarded their money back plus prejudgment interest.

Practice Pointers: 1. A contract for the sale of property must have an adequate property description included, usually a metes-and-bounds description.

2. The address of the property may be a sufficent "key" to lead to the admission of extrinsic evidence to identify the property, but a lawyer has to get that evidence admitted at trial in order for the key to make any difference.

Title Insurance Talk: here's another oldie but goodie....buyer beware when hiring a notary public

2010-04-13T17:24:00.000-04:00

Title Insurance Talk: here's another oldie but goodie....buyer beware when hiring a notary public

Title Insurance Case Argued in Georgia Supreme Court

2010-04-13T11:37:00.000-04:00

Here is a link to a news story regarding a case argued in the Georgia Supreme Court yesterday. In the case a man used a stolen identity to obtain a loan from a lender. At the closing the lenders received a commitment to issue a lenders title insurance policy from Fidelity National Title Insurance Company. As normal, the title commitment required that certain conditions be met before the issuance of the policy. The conditions included the requirement that “[d]ocuments satisfactory to the Company creating the interest in the land and/or mortgage to be insured must be signed, delivered and recorded.”

The closing attorney prepared the required closing documents, and at the closing, checked the ID of the phony "Mr. Shanahan" without discovering that it was an impostor. The closing went forward, and the law firm gave the phony "Mr. Shanahan" loan proceeds of $106,000. The closing attorney paid Fidelity the insurance premium for the title policy, then recorded the deed with the county clerk.

The fraud was discovered before the title policy was issued. Fidelity instructed the title agent not to issue the policy. The lender sued seeking coverage for the loan amount. The arguments centered on the language in the title commitment. Fidelity claimed that since the forged documents signed by the impostor actually created no interest in the property, the condition that "“[d]ocuments satisfactory to the Company creating the interest in the land and/or mortgage" had not been met, relieving Fidelity of its obligation to issue the title policy. The lenders argued for a different interpretation of this clause, saying that this condition has been met if the title agent has been satisfied that the documents create an interest in the land and or mortgage, whether an interest has actually been created or not.

The trial court ruled in favor of Fidelity, but the Court of Appeals reversed. Stay tuned for the result.

Lis Pendens Limited -- Georgia Supreme Court Extends Hill Case Even Where Constructive Trust Claim is Made

2010-04-08T16:32:00.003-04:00

The Georgia Supreme Court reversed the Court of Appeals in a case that holds that a lis pendens was improperly placed on the defendant's property notwithstanding litigation that the plaintiff alleged involved the property at issue. Meadow Springs, LLC v. IH Riverdale, LLC, Georgia Supreme Court Case No. S09G1127, decided March 15, 2010.

In this case, the plaintiff IH Riverdale claimed, among other things, that the defendant had improperly terminated a right of first refusal that it had to invest in the development of a multi-family apartment complex. IH Riverdale had invested in the first phase of a multi-family development and was granted a right of first refusal to invest in the second phase. The first phase was a success. In 2003, IH Riverdale contends, the defendant deprived it of the the right to invest in the second phase of the project. IH Riverdale made other contentions regarding the actions of the defendants, claiming fraud, breach of fiduciary duty, seeking an accounting, and other claims. Upon filing the lawsuit, IH Riverdale filed a lis pendens on the second phase property, owned by Meadow Springs, seeking specific performance of the right of first refusal and a constructive trust over the phase two property. Once the lis pendens was filed, the lender refused to fund the loan to construct the second phase. Meadow Springs sought a temporary restraining order removing the lis pendens on the grounds, it argued, that the lawsuit filed by IH Riverdale did not "involve" the property within the meaning of the lis pendens statute, O.C.G.A. § 44-14-610.

The trial court denied the motion for relief, and the Court of Appeals denied a motion for an interlocutory appeal. Meadow Springs filed a seperate lawsuit against IH Riverdale, alleging that the lis pendens was invalid and claiming slander of title. IH Riverdale filed a motion for summary judgment on these claims contending that the lis pendens was absolutely privileged as a matter of law. The trial court granted the motion for summary judgment and the Court of Appeals affirmed. The Court of Appeals stated that, because of the claims for constructive trust, the plaintiff was seeking a remedy that would be executed against the property. The remedy for a constructive trust claim is an equitable lien against the property at issue. Thus, said the court, the lawsuit "involves" the property.

The Georgia Supreme Court reversed this holding, relying on and extending Hill v. L/A Management Corp., 234 Ga. 341, 342-43 (216 SE2d 97) (1975). Hill held that real property is "involved" in litigation under the lis pendens statute only if it is actually and directly brought into litigation by the pleadings in a pending suit and as to which some relief is sought respecting that particular property. The easiest way this is accomplished is to claim a direct interest in the real estate that would support relief such as specific performance or cancellation of a deed. However, it is not essential that the plaintiff assert a direct interest in the real property for a lis pendens to be valid, so long as the real property would be directly affected by the relief sought. For example, in Griggs v. Gwinco Development Corp. 240 Ga. 487 (241 S.E.2d 244) the plaintiff filed a lawsuit alleging that an obstruction on an adjoining property was causing flooding on its property. The plaintiff sought to have the obstruction removed and filed a lis pendens on the adjoining property. The lis pendens was upheld even though the property at issue was not claimed by the party filing the lis pendens, because the relief claimed would directly affect the property.

In Hill, the plaintiff contended that he had been denied his right to invest in the development of real estate through a partnership, and he filed a notice of lis pendens against the real estate owned by the partnership. The plaintiff's partnership interest in the development was in the profits of the deal and not the real property itself. Because of this, the court held that the interest claimed in the suit and the relief sought did not "involve" the property. The Supreme Court in this case likened the facts to those in Hill. The court noted that the option that IH Riverdale claimed had been denied in the right of first refusal was merely an option to invest in the development, and not to buy a piece of the phase two property. What the Supreme Court did not mention is that in Hill there was no claim for constructive trust. Therefore, Hill contained no claim for relief against the property, while the Meadows Springs case did involve such a claim.

The court deals with the constructive trust claim for relief by stating that the relief sought by IH Riverdale actually would not be granted against the property. Instead, says the court, if IH Riverdale prevails the constructive trust would be placed on the profits of the deal, not the property itself. However, that is not what IH Riverdale asked for; it sought a trust, i.e. an equitable lien, on the property itself. In essence therefore, the holding is a finding that IH Riverdale could not seek a constructive trust against the property based on its claimed ownership interest in the LLC that owned the property.

The Meadow Springs court distinguished the main case relied upon by IH Riverdale and the Court of Appeals, Scroggins v. Edmunds, 250 Ga. 430, (297 SE2d 469)(1982). In Scroggins the plaintiff, a trustee for a company in bankruptcy, alleged that the defendant, a company officer, had fraudulently transferred money from the company to pay off a security deed on the officer's residence. The Supreme Court upheld the lis pendens, finding that if the trustee won the case a trust or lien would be imposed on the property described in the complaint. The Court in the present case explained that the lis pendens was proper in Scroggins because whenever one person steals money from another and invests that money in real estate, the person defrauded may follow that money to the property and impress a trust on the property for his benefit. In the present case, the court stated, IH Riverdale had not claimed that any of its funds were improperly used to acquire the real property at issue. This statement, however, does not provide a completely accurate statement of IH Riverdale's claims.

IH Riverdale's claims generally asserted that the main defendant and co-member in the Phase I development, McChesney Capital Partners, committed a host of grievances related to both phases of the development including but not limited to, fraud, breach of fiduciary duty, breach of an operating agreement, and other offenses. The relief sought included not only damages but also an accounting of the funds of the business. IH Riverdale maintained that McChesney Capital Partners and Meadow Springs were alter egos and that $100,000 of money from phase I had been improperly used to make the down payment on the real property for phase II. Thus, while IH Riverdale had not claimed explicitly that its money was stolen and used to buy the phase II property, it had made allegations of embezzlement of funds that it had an interest in, and at least some of those funds were alleged to have been used to buy part of the property on which the lis pendens was placed. The Supreme Court chose not to mention these facts or opine on whether they would have any affect on their analysis that the claims of IH Riverdale did not "involve" the property in the meaning of the lis pendens statute.

Ultimately, making a constructive trust claim against the property of a real estate development will not by itself protect the validity of the lis pendens. Instead, the plaintiff will apparently have to make specific allegations that its money was improperly used to purchase the property at issue in the development. This leaves open the question as to what happens when a party invests in a single purpose entity and believes that money from the entity has been been embezzled by the other members. Or where the investor believes that some of the money of the business has been stolen to buy property not held within the business. According to this holding, the investor has no right to seek relief against the property itself, to have an equitable lien against the property, which may be the only asset in the business. In other words your business partners can steal your earnings from a business that owns real estate, and then when you seek to recover your damages by seeking an equitable lien against the property owned by the business, if you file a lis pendens to give notice of that claim against the property, apparently your business partners can sue you for slandering the title of the property of the business.

Taxpayer Wins -- Georgia Supreme Court Affirms Injunction Against Barring Redemption Rights After Tax Sale

2010-04-08T14:44:00.001-04:00

The Georgia Supreme Court affirmed a trial court's injunction preventing a lien fund from barring a property owner's right to redeem her property sold at a tax sale while litigation proceeded over the legality of the tax sale, notwithstanding the owner's failure to tender the full redemption amount set forth in the Georgia Code under normal circumstances. The court found that there was a dispute over whether the owner owed the unpaid taxes that were the reason for the tax sale, sothat full tender of the tax sale redemption amount was unnecessary. American Lien Fund, LLC v. Dixon, Supreme Court of Georgia, Case No. S09A1602, decided March 1, 2010.

American Lien Fund (ALF) was the highest bidder at a tax sale on September 4, 2007 of the property owned by Sharon Dixon. The sale occurred after tax fieri facias were issued by Fulton County in 2003, 2004 and 2005 for unpaid property taxes. Dixon filed suit on November 29, 2007 seeking redemption of the property under O.C.G.A. § 48-4-40 et. seq. and an injunction against any attempt to dispossess her, foreclose on the property, or collect on any lien on it. Along with the suit, Dixon tendered to ALF $6,019.97, based on the purported unpaid taxes. ALF sought to foreclose on the right of redemption.

ALF paid $300,000 for the property at the tax sale. ALF contended that Dixon could not file the suit unless she tendered the full redemption amount set forth in O.C.G.A. § 48-4-42, which in its estimation was over $390,000. In support ALF cited O.C.G.A. § 48-4-47, which generally requires a full tender of the statutory amount by someone who wishes to redeem her property in order to prevent foreclosure of the redemption rights.

The court disagreed with ALF. The court noted that Dixon claimed that she had paid all of her property taxes and that they were not due when the property was sold. Thus, the court held that the case fell under the exception to the full tender rule, expressed in O.C.G.A. § 44-4-47(b)(1), which states that the full tender rule applies "unless it clearly appears that: (1) the tax or special assessment for the collection of which the execution under or by virtue of which the sale was held was not due at the time of sale...." ALF argued that this exception did not apply because Dixon had merely claimed that no taxes were due from her, and thus the situation did not satisfy the requirement that it "clearly appear" that the taxes were not due. The court rejected this argument notwithstanding the language of the statute, finding that there is no guidance as to what "clearly appears" means under the law. In the lawsuit at hand, Dixon claimed her taxes were paid, and ALF claimed the opposite, raising a dispute on the facts. In that situation, the court said that ALF's argument based on a finding of what "clearly appears" would require the trial court to decide the facts of the case before deciding whether to grant an injunction. Refusing to make that decision, the court also noted the decisions declaring the court's view that the collection of taxes through the sale of the taxpayer's property is a harsh procedure, and that policy requires interpreting the tax sale laws, and the redemption rules therein, in favor of property owners.

The upshot of this is that if a taxpayer wants to redeem property sold at a tax sale, it can prevent foreclosure of the redemption rights if it claims that it did not owe the taxes that caused the sale. The taxpayer need not provide any evidence other than its mere claim regarding the taxes to block the barring of the redemption.

Confirmation of Foreclosure Sales Reversed -- Attorneys Beware!

2010-04-07T21:14:00.001-04:00

The Georgia Court of Appeals has reversed the confirmation of foreclosure sales of three properties. The court held that the trial court committed reversible error because the bank failed to submit proper evidence of the true market value of the properties as required by O.C.G.A. § 44-14-161(b) in Belans v. Bank of America A09A1986. O.C.G.A. § 44-14-161 applies to nonjudicial foreclosures, which was the kind of foreclosure that took place in this case. What is a non-judicial foreclosure?

Non-Judicial Foreclosure

The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative. Regulations for this type of foreclosure process are outlined below.

Power of Sale Foreclosure Guidelines

If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:

A foreclosure notice must be mailed by certified mail, return receipt requested to the borrower no later than 15 days prior to the date of the foreclosure sale. The time period begins the day the letter is postmarked. The notice must be mailed to the address given to the lender by written notice from the borrower. No waiver or release of the rights to notice is valid if it was signed at the same time as the original documents. The notice must be published in a newspaper of general circulation in the county where the sale will be held once a week for four (4) weeks proceeding the date of the foreclosure sale.

The sale must be made by public auction on the first Tuesday of the month between 10:00 am and 4:00 p.m. at the courthouse.

Lenders may seek a deficiency judgment in Georgia, meaning that if the property sells for less than the amount due on the mortgage, the bank can seek the remaining amount due on the mortgage from the borrower or any guarantor. In the case at issue here, the bank was seeking a deficiency judgment against the guarantor of the notes secured by the three properties that were sold. O.C.G.A.§ 44-14-161 governs deficiency sales in Georgia.

O.C.G.A. § 44-14-161 states as follows:

(a) When any real estate is sold on foreclosure, without legal process, and under powers contained in security deeds, mortgages, or other lien contracts and at the sale the real estate does not bring the amount of the debt secured by the deed, mortgage, or contract, no action may be taken to obtain a deficiency judgment unless the person instituting the foreclosure proceedings shall, within 30 days after the sale, report the sale to the judge of the superior court of the county in which the land is located for confirmation and approval and shall obtain an order of confirmation and approval thereon.

(b) The court shall require evidence to show the true market value of the property sold under the powers and shall not confirm the sale unless it is satisfied that the property so sold brought its true market value on such foreclosure sale.

(c) The court shall direct that a notice of the hearing shall be given to the debtor at least five days prior thereto; and at the hearing the court shall also pass upon the legality of the notice, advertisement, and regularity of the sale. The court may order a resale of the property for good cause shown.

In this case, the guarantor alleged that the bank had not satisfied O.C.G.A. § 44-161(b). At the hearing, the bank's attorney submitted appraisal reports on all three properties, however, the appraiser who prepared the reports, who was at the hearing, did not testify on the stand. Instead, the lawyer stated "in his place" that the properties had sold at fair market values. In certain situations, the court stated, attorneys can, as officers of the court, make statements in their place as officers that, if not objected to, serve the same function as evidence. However, the court went on, "this principle cannot be extended to convert otherwise incompetent hearsay into competent evidence."

The bank argued that the guarantor, who did not attend the hearing, had waived his right to object to the lack of oral testimony supporting the appraisal reports. The court disagreed, stating that hearsay evidence has no probative value even when it is admitted without objection. Thus, the appraisal reports were unsupported hearsay. When the reports were eliminated, there was no evidence that the bank had sold the properties at fair market value, and thus the trial court's determination of fair market value was in error.

Not So Innocent -- Summary Judgment Overturned for Property Purchaser Claiming to Be Bona Fide Purchaser for Value

2010-04-07T17:56:00.002-04:00

The Georgia Supreme Court reversed summary judgment in favor of Barrow & Byrd Properties, Inc. (B&B) in the recent case Montgomery v. Barrow. B&B purchased 223 acres of land from the estate of Cauley Barrow in Taylor County in 2004. Cauley's son, Robert Barrow died in 2000. However, the executors of Robert Barrow's estate (the "Executors") claimed that the property had been owned by Robert Barrow from 1975 until 2000, and therefore that the property belonged to Robert Barrow's estate, not Cauley Barrow's. The executors of Robert Barrow's estate filed a quiet title action claiming that Robert Barrow owned the land pursuant to four unrecorded warranty deeds. B&B claimed that it was a bona fide purchaser for value without notice of the unrecorded deeds. The trial court granted summary judgment to B&B, but the Supreme Court reversed, holding that there was sufficient evidence to create a genuine issue of fact as to whether B&B had notice of the unrecorded deeds.

The court noted that there is a presumption of good faith which attaches to a purchaser for value and which remains until overcome by proof. However, the court noted, circumstances which would place a man of ordinary prudence fully upon his guard, and induce serious inquiry, are sufficient to constitute notice of a prior unrecorded deed, and a younger deed, taken with such notice, acquires no preference by being recorded.

At trial, Homer Barrow, one of the owners of B&B, testified that the attorney for the Executors told him that the Executors had said that they had unrecorded deeds to the property. Homer Barrow asked the attorney to produce the deeds repeatedly and they were not brought forth, and eventually the Executors said they were destroyed by fire. Not until the filing of the lawsuit did the unrecorded deeds surface, when copies were attached to the complaint. Also, a witness gave hearsay testimony that Robert Barrow had told him before his death that Homer Barow had offered to buy the property from him. Furthermore, the evidence showed that the owners of B&B were locals and familiar with the land and its history, and that Robert Barrow had lived on the land after Cauley Barrow's death and had farmed it until his own death in 2000. All of this evidence taken together led the court to conclude that triable issues of material fact existed whether B&B was actually a bona fide purchaser without notice, such that summary judgment for B&B could not stand.

Court of Appeals Throws Cold Water on Builder of Treatment Plant's Argument for a Perpetual Easement by Estoppel

2010-04-07T14:04:00.003-04:00

In a dispute between Forsyth County and the builder of a water treatment plant, the Court of Appeals reversed the Lumpkin Superior Court's ruling that the builder could terminate its contract with the county after it had already built the treatment plant, and continue to operate said plant pursuant to a perpetual easement by estoppel and an injunction against interfering with its use of the easement.

The parties executed a contract for Waterscape Services to design a build a water treatment plant. The contract called for Waterscape to build the plant and to convey the plant to the county after three months of successful operation. After the plant was constructed and became operational Waterscape notifed the county that it was terminating the contract due to a dispute over the county's refusal to pay all sums billed under a change order. After this notice the county sued Waterscape seeking specific performance of the conveyance obligation. Waterscape counterclaimed seeking a declaratory judgment that it had validly terminated the agreement; a declaratory judgment that it was entitled to a perpetual easement by estoppel to use the county's permits and wastewater infrastructure; and an injunction to prevent the county from interfering with its use of the permits and infreastructure.

The trial court denied the county's motion for summary judgment and granted summary judgment to Waterscape. The Court of Appeals reversed. First, the court held that, as a matter of law, Waterscape had not validly terminated the contract. Second, the court held that the trial court had committed error in granting Waterscape summary judgment that it had a perpetual easement to utilize the county's permits and wastewater disposal infrastructure and an injunction preventing the county from interfering with its use of the permits and infrastructure. The court held that the evidence showed that Waterscape had a revocable license to operate the plant, not a perpetual easement. The court noted that a license is "defined as authority to do a particular act or series of acts on land of another without possessing any estate or interest therein." The court held that the contract language demonstrated that the county had only granted a license that was intended to be revoked upon termination of the agreement, failure of Waterscape to perfom its duties, or conveyance of the facility, whichever came first. The court pointed to three provisions of the contract in making its holding. First, the contract provided that upon termination of the agreement, Waterscape would no longer have "any further rights, obligations, or responsibilities hereunder." Second it noted that the contract provided that if Waterscape failed to perform its contractual duties, the county would be entitled to take over the facility and Waterscape would be required to "promptly donate and deed to the County the entire project, including but not limited to all neccesary appurtenant easements and infrastructure for the facility and its associate collection and distribution systems." Finally, the provision regarding conveyance of the facility stated tht Waterscape would donate to the county the entire facility, "including ... all necessary appurtenant easements...."

Having found that Waterscape had not validly terminated the contract, and did not have an easement to operate the plant, the court granted summary judgment on the county's claims for specific performance, holding that Waterscape must convey the facility to the county. The court found that money damages would not be an adequate remedy for the county because the contract sought to be enforced involved the sale of unique real property.