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This page is dedicated to providing lenders and borrowers with critical information on some of the rulings in other cases that have taken place since the Supreme Court of Georgia reached its long awaited decision in You v. JP Morgan Chase Bank, N.A., 743 S.E.2d 428, 293 Ga. 67 (Ga., 2013).

In You, the Supreme Court of Georgia was asked by a federal court to clarify Georgia law relating to non-judicial foreclosure sales. The points of Georgia foreclosure law that were “unclear” and presented to the Court were as follows:

(1) Can the holder of a security deed be considered a secured creditor, such that the deed holder can initiate foreclosure proceedings on residential property even if it does not also hold the note or otherwise have any beneficial interest in the debt obligation underlying the deed?

 (2) Does OCGA § 44–14–162.2(a) require that the secured creditor be identified in the notice described by that statute?

The Supreme Court answered “yes” to the first question, and “no” to the second question. What did these answers mean to both borrowers and lenders in Georgia? Well, with regard to the first question, the Supreme Court’s ruling all but eliminated borrowers' attempts to stop the foreclosure by arguing the "seller" at the courthouse steps did not hold the original note and deed and therefore did not have standing or authority to sell the property. 

The borrowers, prior to You, were fully aware that many of the loans in Georgia had been securitized, which as the Supreme Court explained often included separating ownership of the original note from the ownership of the original deed, the note often being transferred or assigned several times to various entities and ultimately added to a pool of mortgages that were sold to investors as securities.  The hope of the borrowers was in essence that, even if they were in default, the entity that was attempting to “sell” their home at the courthouse steps did not have authority under the law to sell the property because it was not the owner of both the note and the deed.  The borrowers argued only a party owning or “holding” both the original note and the deed could foreclose.

The Supreme Court disagreed with the borrowers. Georgia law permits “splitting” of the note from the deed, and doing so as part of a securitization process or other transfers after the original closing will not prevent the holder of the security deed with the power of sale clause from selling the property.

The second question related to the first because the phrase “secured creditor” was contained in both questions certified to the Supreme Court.  On the second question, the borrowers had hoped to argue in essence that, even after a default, a foreclosure sale was difficult and maybe impossible once the loan was securitized because the “secured creditor” that had to be disclosed in the local county newspaper prior to the sale on the courthouse steps could never be “identified” with consistency due to the owners being a shifting pool of investors, or other factors.  The Supreme Court ended this defense for borrowers and said the newspaper advertisement required prior to the sale at the courthouse merely had to identify the name, address, and telephone number of the individual or entity who shall have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor. This could be a loan servicer or other entity to which the original holder transferred the right to exercise the power of sale.

What has happened after You?  A settling of the storm has occurred to some extent.

Even after You, borrowers who were in default and still trying to find a way to stop the bank (“secured creditor”) from selling their home on the courthouse steps pursuant to the power of sale contained in the original security deed, and ultimately evicting them,  continued to hang onto a variant of the second defense wiped out by You. Specifically, borrowers argued that the “entity” identified in the newspaper posting was not a proper “assignee” of the note and therefore not a proper party with standing to sue. Among other arguments, borrowers claimed that the assignments of the deed to servicers of other parties were “robo-signed” or not signed at all and filed with empty or forged signatures.  As a result, the borrowers argued, the loans were “assigned” or transferred by fraudulent activities stripping the foreclosing party of authority or standing to sue or foreclose under the power of sale in the original security deed.  However, on March 2, 2015, the Court in Lawson v. Ocwen Loan Servicing, 1:14-cv-1301-WSD (ND GA 2015),  ruled that borrowers are not a party to the contracts between the lenders and the borrowers themselves lack standing to challenge the assignments after the original closing:

To the extent Plaintiff argues that the Assignments are "fraudulent," Plaintiff is not a party to the Assignments and she therefore lacks standing to challenge their validity. See Montgomery v. Bank of Am., 740 S.E.2d 434, 436 (Ga. Ct. App. 2013) (because assignment of security deed was contractual, plaintiff lacked standing to contest its validity because he was not a party to the assignment) (citing O.C.G.A. § 9-2-20(a), which provides that an action based on a contract can be brought only by a party to the contract); Edward v. BAC Home Loans Serv., L.P., 534 F. App'x 888, 891 (11th Cir. 2013) (citing Montgomery).

Borrowers have continued to get confused about their lack of standing to challenge invalid assignments. They raise concerns that the foreclosing party may not actually own any interest in the note or deed, exposing the borrower to the risk of liability twice or three times, i.e., to the foreclosing party with no proper standing, and the actual owner of the note and/or the deed. The competing rights of the assignees are a separate matter from whether the borrower is in default, as the courts continue to explain.

Borrowers bringing wrongful foreclosure claims and defenses also continue to confuse the UCC provisions relating to assignments and enforceability of notes as negotiable instruments from the Georgia statutes that apply to security deeds. The reasoning in You  is still the law of the land in Georgia:

 Nor do we agree with the contention that Georgia's Uniform Commercial Code prohibits a party who does not hold the note from exercising the power of sale in the deed securing the note. It is true that a promissory note is a negotiable instrument subject to Article 3 of the UCC. See OCGA § 11–3–104 (defining “negotiable instrument”). It is also true that Article 3 provides generally that only the holder of an instrument is entitled to enforce the instrument. OCGA § 11–3–301. However, it is equally true that, here, Chase does not seek to enforce the note but rather is enforcing its rights under the security deed, which is not a negotiable instrument and is therefore not governed by Article 3. See Alexander, Georgia Real Estate Finance and Foreclosure Law, § 5:3(b) (“[a] security deed is an interest in real property subject to all of the incidents and requirements of real property transfers under Georgia law, and a note is a contractual obligation ... subject to the quite different requirements of the Uniform Commercial Code”). In fact, Georgia law governing the transfer of security deeds expressly provides that “[t]ransfers of deeds to secure debt ... shall be sufficient to transfer the property therein described and the indebtedness therein secured.” (Emphasis supplied.) OCGA § 44–14–64(b). This Code section further supports the conclusion that the deed holder possesses full authority to exercise the power of sale upon the debtor's default, regardless of its status with respect to the note.

No cases since You appear to have made any substantial departures from these key principles. In sum, borrowers need to carefully review the foregoing cases and others since You before asserting the antiquated and overruled arguments above of “no standing, invalid assignments, unlawful splitting of the note” or related defenses. The non-judicial foreclosure process is wholly separate from judicial foreclosure, and of course the statutes relating to non-judicial foreclosure, O.C.G.A. § 44-14-160 et. seq. should be looked at in conjunction with the developing law in Georgia relating to foreclosures.

Amazingly, some borrowers in default attempt to stop foreclosure and eviction by the new buyer at the sale by asserting a boilerplate allegation that the foreclosing defendant cannot produce the “original” note and/or deed.  Although each case must be measured on its facts, as a general rule, courts in Georgia have stated that the original is not required before proceeding with non-judicial foreclosure and subsequent possessory actions. See e.g., Watkins v. Beneficial, HSBC Mortg., Civ. Action No. 1:10-cv-1999-TWT-RJV, 2010 WL 4318898, *4 (N.D. Ga. Sept. 2, 2010)(Vineyard, J.)("[N]othing in Georgia law requires a lender commencing foreclosure proceedings to produce the original note."), adopted 2010 WL 4312878 (N.D. Ga. Oct. 21, 2010)(Thrash, J.); and Webb v. Suntrust Mortg., Inc., Civ. Action No. 1:10-cv-0307-TWT-CCH, 2010 WL 2950353, *2 n.5 (N.D. Ga. July 1, 2010)(Hagy, J.), adopted 2010 WL 2977950 (N.D. Ga. July 23, 2010)(Thrash, J.)



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