No Legal Duty to Mitigate Damages in Retail Lease

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

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

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

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

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

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

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

Title Insurance Case Argued in Georgia Supreme Court

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

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

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!

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:   

1. 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.
   
2. 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.