Foreclosure Confirmations: Battle of the Appraisers

One of the consequences of the recent "Great Recession" has been an avalanche of mortgage foreclosures.  The Atlanta area being no exception.  In turn, this has led to a record number of foreclosure confirmation filings.  As these confirmations have been tried and appealed, we've watched with interest.  A clear pattern has emerged:  the appellate courts in Georgia are reluctant to second guess a trial court.

In Jimmy Britt Builders Inc. v. Suntrust Bank, A10A2352 (2/11/11), the central issue was the extent to which experts can be challenged on appeal.  In that case, both sides came to trial armed with experienced appraisers.  Each appraiser had done thousands of appraisals.  

The property in question was a partially finished spec house.  Both appraisers approached their appraisals similarly.  Each provided an estimate of how much the spec house would be worth fully built and then subtracted the cost of completing the house.  The amounts arrived at by both appraisers was similar.

But the lender's appraiser went one step further.  He applied an additional discount of 15% based on what he termed "builder/buyer's risk."  The lender's appraiser testified that the 15% discount was necessary to account for a homebuilder stepping into to complete a house that had only been partially completed and to account for the condition of the neighborhood (there were other unfinished houses).

The trial court sided with the lender's appraiser and confirmed the foreclosure.

On appeal, the borrower raised several issues. The borrower contended that the 15% "builder/buyer's risk" discount was "unsubstantiated and irrational."  The Georgia Court of Appeals rejected this argument.  It stated that

the question is not whether this Court would have found [the borrower's] or the [lender's] expert more reliable or accurate . . ., "but whether the record contains any evidence to support . . . that the property brought its true market value at the foreclosure sale."

Id. (Citing Greenwood Homes v. Regions Bank, 302 Ga. App. 591, 596, 692 S.E.2d 42 (2010)).

In analyzing the evidence supporting the 15% discount, the Court of Appeals explained that the bank's expert had arrived at his opinion by speaking with two builders and viewing the property.  It is not clear how or why speaking with two builders and viewing the property supports a 15% "builder/buyer's risk" discount, but the Court of Appeals Court of Appeals explained that "'[a]n expert need not give reasons for an opinion."  The borrower also argued that a 15% discount was illogical because the lender's expert had already incorporated the cost of completing the construction of the house into the appraisal.  The Court of Appeals disagreed and found that it was up to the trial court to determine the legitimacy of a 15% discount.

Though it might have been reasonable to conclude that the 15% discount was arbitrary and capricious, the Court of Appeals was unwilling to go down this path.  Jimmy Britt reinforces the notion that, in the context of a confirmation petition, it is virtually impossible to reverse a trial court on claims that an appraiser's opinion was flawed.  In these cases, you must win the appraisal battle at trial or live with the consequences.

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.