Why You Should Always Buy Title Insurance

A question we hear often from real estate buyers is: "Do I need to purchase an owners' title insurance policy?"  The buyer will tell us that a title search has been done and the title looks fine.

The following case is an example of why we recommend that every buyer (and lender) should purchase title insurance.  

In the context of a quiet title action, the Georgia Supreme Court held that forged deeds, without exception, can't pass title.  Aurora Loan Servs. LLC v. Veatch, S10A1725 (4/1/11).  

The case involved property owned by a woman who died in 1974.  The property passed to her son, her sole heir.  The son died in March 2006.  In October 2006, a quitclaim deed transferring the property to a third party was recorded on the public record.  The problem is that the deed, dated May 2006, was executed by the woman who died in 1974.  In November 2006, an executor's deed related to the property was recorded.  The problem with this deed is that it was executed by the heir in March 2006, a date on which the heir lay in a coma.  Although not apparent from the face of these deeds, both were obvious forgeries.  

Following the recording of the two forged deeds, the property was sold to an innocent and unsuspecting buyer who borrowed money to buy the property from an innocent and unsuspecting lender.  When the true owner of the property learned of the forged deeds, he filed a quiet title action against the buyer and the lender.

Even though the Court conceded that the buyer and the lender were bona fide purchasers for value [definition:  innocent parties who purchase property for value without notice of any other party's claim to the title of that property], the Court ruled that the buyer's warranty deed and the lender's security deed were invalid because these interests were dependent on the two forged deeds.  The Court noted that "[i]t is of no moment whether the deed records provided notice of the forgeries at the time [the buyer] executed the security deed on which [the lender] bases its claim; there was simply no title held by [the buyer or the lender]."

The case doesn't mention whether the buyer and lender had title insurance, but without title insurance, both parties would have been left high and dry.

Don't make this mistake; always purchase title insurance.  Call Jeff Golomb at (404) 835-8080 to discuss your real estate concerns.

Tenants Can’t Contest Foreclosure Proceedings or Quality of Title In Eviction (Dispossessory) Court

While a foreclosure vests title in the winning bidder at a foreclosure sale, it doesn't entitle the winning bidder to immediate possession of the premises.  Rather, getting possession requires the filing an eviction, formally called a Petition for a Dispossessory Warrant in Atlanta, Georgia.

Frequently, tenants in these situations will file an answer claiming the foreclosure sale was done improperly or that the winning bidder’s title is defective.  Often, the court will look at the tenant’s answer and conclude that the tenant's defenses exceed the jurisdiction of the eviction court, which is set up to handle only landlord-tenant disputes.  Much to the horror of the winning foreclosure bidder, the judge will then transfer the case to the superior court for resolution.  This leaves the tenant in possession of the premises indefinitely and expands a simple eviction into a full-blown lawsuit.

Fortunately, Georgia law is supposed to prevent this from happening.

A recent Georgia Court of Appeal case reiterated the court’s position on these issues.  In Moore v. REO Properties Accredited Home Lenders, Inc., A10A2330 (2/11/11), a tenant, residing in a property that had been foreclosed, argued in her answer that the original sale of the property was fraudulent, that the property was wrongfully foreclosed, and that the lender didn’t have the right to foreclose on the property.

The Court rejected the tenant’s arguments, finding that "'challenges to a foreclosure sale cannot be asserted as a defense in a subsequent dispossessory proceeding.'" (citing Vines v. LaSalle Bank Nat. Ass’n, 302 Ga. App. 353, 691 SE2d 242 (2010)).  And, "'[c]laimed defects in the landlord’s title to premises cannot be raised as a defense to a proceeding for possession under O.C.G.A. § 44-7-50 et seq.'"  (citing Sanders v. Daniel, 302 Ga. App. 350, 351, 691 SE2d 244 (2010)).

When filing an eviction following a foreclosure, to prevent unnecessary litigation, your attorney should have these cases available at the trial to show the judge.

Please call Krause Golomb & Witcher LLC at (404) 835-8080 to handle your residential and commercial foreclosures and evictions.

Be Careful Before Buying a Property at Foreclosure

The lesson to be learned from the situation summarized below, which is a true story, is that purchasing and selling properties as part of a foreclosure are fraught with unfamiliar traps.  At Krause Golomb & Witcher, we have years of experience helping lenders foreclose properties and investors buy foreclosure properties.  Please call us at (404) 835-8080 to discuss any questions regarding foreclosures and real estate disputes in the Atlanta, Georgia metro area.

In April 1998, a company borrowed money from a Lender 1 to buy some property.  The company signed a promissory note to Lender 1, and gave Lender 1 a security deed to the property.  In October 1998, the same company borrowed additional money from Lender 2 and gave Lender 2 a security deed on the same property.

Lender 1 merged into another bank, Lender 3.  The borrower signed a modification of Lender 1’s loan, allowing Lender 3 to become the holder of the April 1998 promissory note and security deed.  At the same time, Lender 2 signed a subordination agreement, which placed Lender 3’s security deed in first position (i.e., in front of the Lender’s October 1998 second mortgage).

In December 2006, the borrower secured another loan from Lender 4 and paid off Lender 3.

In September 2008, Lender 2 began foreclosure proceedings in accordance with its October 1998 security deed.  In November 2008, Lender 4 filed a petition to quiet title on the subject property, claiming it held a first mortgage on the property.  Lender 4 also filed a lis pendens and asked the court to stop Lender 2’s foreclosure action.

The parties agreed to postpone the foreclosure until January 2009.  At the same time a special master was appointed in December 2009.  Lender 2 foreclosed the property in January 2009 and sold the property to a third-party investor.

The special master conducted a hearing in June 2009.  Primarily at issue was whether O.C.G.A. § 44-14-80, which provides that title under a security deed will automatically revert to the grantor seven years after the maturity of the underlying secured indebtedness, applied to Lender 2’s October 1998 security deed.  Also at issue was whether Lender 2 had provided the requisite 60-day notice to cure to the borrower before initiating the foreclosure, as provided in the October 1998 security deed.

The special master found in favor of Lender 4, and the trial court adopted the special master’s recommendations and entered a final order.  Lender 2 and the purchaser at the January 2009 foreclosure sale appealed.   The Georgia Court of Appeals in the companion cases of MPP Inv. v. Cherokee Bank NA. et al., S10A1361, S10A1363 (01/21/11), upheld the trial court’s final order.

In rejecting the argument that the 60-day notice issue had been waived by Lender 4, the Georgia Court of Appeals found that the November 2008 hearing did not deal with the foreclosure such as to require that Lender 4 raise the 60-day notice issue, that the pre-trial order did sufficiently reference the foreclosure (and by extension the 60-day notice issue), and, finally, O.C.G.A. § 23-3-66 gave the special master “complete jurisdiction with the scope of the pleadings to . . . determine the validity . . . [o]f all . . . interests in the land . . . .”  Thus, the special master was within her discretion to determine that the foreclosure sale was invalid because Lender 2 failed to provide the requisite 60-day notice.

Similarly, the Court rejected the argument that Lender 4 was estopped from asserting that title under Lender 2’s security deed had reverted back to the borrower because Lender 4 had failed to raise the issue prior to the January 2009 foreclosure.  The Court noted that in order to have a valid claim for estoppel, the buyer at the January 2009 foreclosure must have been unaware of the true nature of the title and must have relied upon the silence of the true owner.  The evidence in this case revealed that Lender 4 filed the lawsuit in November 2008, before the foreclosure in January 2009.  Also, Lender 4 recorded a lis pendens.  Further, the purchaser admitted that it was aware if Lender 2’s security deed and the maturity date contained therein; thus, the purchaser, prior to the foreclosure sale, should have known that O.C.G.A. § 44-14-80(a)(1) caused an automatic reversion of Lender 2’s security deed back to the borrower.  Finally, no evidence showed that the purchaser relied on Lender 4 in purchasing the subject property.

The next argument was that Lender 2’s promissory note didn’t contain the 60-day notice provision.  Therefore, by extension, notice was not required under Lender 2’s security deed.  The Court quickly dismissed this argument by pointing out that the promissory note provides for a method of accelerating the note, which does not require a 60-day notice, while the security deed provides for a power of sale, which does require a 60-day notice.  These two provisions are not in conflict.

Lastly, the purchaser argued that it was a bona fide purchaser for value under O.C.G.A. § 23-1-20.  The Court reiterated that the purchaser in this case has constructive knowledge of issues with the title.  Specifically, it was aware of Lender 4’s claim and was aware of the maturity date on Lender 2’s security deed.  The bona fide purchaser principle is meant to protect an innocent purchaser from the true title owner who stands silently by and permits such purchaser  to act to his own injury or such true title owner who fails to timely assert an unknown interest in the property.  Neither occurred in this case because Lender 4 took steps to make its interest known and because the purchaser had sufficient knowledge of Lender 4’s claims prior to purchasing the subject property.