Tuesday, July 17, 2012

Georgia Appeals Court: Failure To Include Name Of Actual Owner Of Mortgage Loan Sinks Foreclosure; Ruling Could Affect Tens Of Thousands Of Cases

In Cobb County, Georgia, The Atlanta Journal Constitution reports:

  • An appeals court ruling this week in favor of a Cobb County couple could leave mortgage companies liable for damages for not following state law in an unknown number of Georgia foreclosures.

    The 4-3 ruling probably won't undo the result of past foreclosures, lawyers say, but could open another avenue for borrowers to sue mortgage firms.

    "This could breathe new life into the challenges of foreclosures that took place in late 2008 and throughout 2009," said Frank Alexander, a real estate law professor at Emory University. The number of cases where the ruling might be applicable was not immediately clear, but could be in the tens of thousands.

    The issue involves the many lenders who sell their loans to other parties such as investment trusts, but serve as stand-ins handling the paperwork in the foreclosure process and act as if they still own the loans.

    The Georgia Court of Appeals held Thursday that the name of the actual owner of a mortgage must be present in foreclosure filings and notices sent to delinquent borrowers.

    State law was modified in 2008 to require that foreclosure notices and legal advertisements include the name and contact information of the mortgage owner and of organizations that could negotiate a modification, short sale or other relief on lender's behalf.

    "A debtor has a right to know which entity has the authority to foreclose, and there should be no confusion about the identity of that entity. The practical ramifications are troubling if it were otherwise," the court majority agreed in its opinion.(1)

    The court said that if a debtor knows a mortgage servicer no longer holds the loan, for instance, he could be "misled or confused, or simply disregard, a notice of foreclosure" that doesn't correctly identify the loan's proper owner.

    David Ates, an attorney for plaintiffs Izell and Raven Reese, said mortgage servicers, stand-ins for investors who buy mortgages the original lenders have sold, often have an incentive to foreclose because of potential fee revenue.
  • Alexander said the ruling is significant as an affirmation of the 2008 amendment to Georgia's foreclosure statutes. In addition to helping borrowers under threat of foreclosure know where to turn for help, the principle of the 2008 amendment was to help ensure that the true holder of the mortgage was foreclosing.

    "Even a dog in Georgia has a right to know who's kicking them," Alexander said. "Before you lose your home you have a right to know who's taking it from you."
For the court ruling, see Reese v. Provident Funding Associates, LLC., A12A0619 (Ga. App. July 12, 2012).

(1) The state court of appeals made these, among other, observations in reaching its conclusion:
  • A persuasive discussion of the legislature's intent is set out by the Northern District of Georgia in Stubbs v. Bank of America, No. 1:11-CV-1367-AT, 2012 WL 516972, at *1, 5 (N.D. Ga. Feb. 16, 2012) (originally filed in state court and removed to the Northern District of Georgia based on diversity jurisdiction), which held as follows:

    While it may be of no consequence who actually sends the notice, and that task may properly be delegated to a servicing agent (or, as is often the case, an attorney), the amendments of sections [OCGA § 44-14-]162 and [OCGA § 44-14-]162.2 in 2008 make clear that the identity of the secured creditor conducting the sale is a material element of that notice.


    The Northern District's analysis in Stubbs is compelling, and although not controlling, is persuasive authority in analyzing the very same Georgia statute that we interpret in this case. Notably, the circumstances in this case are nearly identical to those presented in Stubbs, where

    the actual "secured creditor" did not provide notice of the foreclosure sale as required by OCGA § 44-14-162.2. Nor did the servicer, acting as agent for the secured creditor, send a foreclosure notice that properly identified the secured creditor. Rather, the loan servicer sent a notice of foreclosure identifying itself as the secured creditor when it was not.

    (Punctuation omitted.) Id. at *4. Like the notice in Stubbs, the notice in this case was sent by the loan servicer, rather than the secured creditor. While a loan servicer may be permitted to send the notice on behalf of the secured creditor,[6] Provident's fatal mistake was in sending a notice that failed to properly identify the secured creditor. Although the notice disclosed that Provident had the "authority to negotiate, amend and modify all terms of the Note and Security Deed[,]" such "is materially different from disclosing that [the loan servicer] has full authority to modify on behalf of a creditor, . . . within whatever guidelines that creditor may have imposed." (Citations and punctuation omitted.) Id. at *5. This is especially so when the notice fails to ever identify the true secured creditor. The notice in this case contained material misrepresentations, and we agree with the federal court's sentiment that "[s]ending a foreclosure notice that misidentifies the secured creditor violates the spirit and intent of OCGA § 44-14-162.2." (Punctuation and emphasis omitted.) Id.[7]

    Indeed, a debtor has a right to know which entity has the authority to foreclose, and there should be no confusion about the identity of that entity. The practical ramifications are troubling if it were otherwise. For example, in a case such as the instant one, where the debtor knows that the loan servicer is no longer the holder of the note or the security deed, it is certainly conceivable that the debtor could be misled or confused by, or simply disregard, a notice of foreclosure which is sent by an entity different from the secured creditor, and which fails to properly identify the secured creditor. The misrepresentation in this case illustrates how transparency can be obfuscated in the Georgia foreclosure process.

    Finally, a notice that discloses the true identity of the secured creditor is a simple requirement, and one that does not impose an undue burden upon the banks or other entities authorized to send the notice of foreclosure sale.

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