Lenders Face Code Violations in a Post Foreclosure REO World

Georgia as a "title" state poses new problems for Lenders in REO. While the phenomenon of holding property post foreclosure by a lender is not a new concept, the current situation presents new problems and thorny issues for banks.

Banks have traditionally attempted to foreclose and then discharge their ownership out of REO as quickly as possible. The current market downturn (read that: recession in other industries; depression in real estate) is presenting code violation problems and "ownership" problems never contemplated before by lenders.

In the current market environment, lenders are finding themselves full "owners" of property for timeframes that now stretch into years. While lenders past goals have simply been to clean up the property and list it for resale, lenders now must examine the very real possibility that they will be required to: pave roads, install sewers, abate stormwater runoff, resolve environmental issues and defend themselves against local code violations.

These financial issues were never budgeted when the lenders initiated the loans and these payments for fines can only come out of the bank earnings - not the foreclosed value of the secured property. The payment for abtement, additionally, must be paid out of bank earnings. The reason that the secured property cannot pay the freight is simple economics. In a rising market value, the property either never reaches foreclosure or, if it does, it is quickly resold. In a declining market (here a rapidly declining market), the property is "negative," or "upside down," when the bank takes it REO at the foreclosure sale. There are no funds out of which to cover the deficiency and there are no funds to cover the "support" of the property. In a more robust market, the "support," was simply added (as much as possible) into the resale price; the support costs were recovered (as much as possible) in the subsequent sale from REO to the new owner.

Here, there is no new owner. Banks are faced with the possibility that these properties may remain on their REO books for a year or more. Until the recent spate of FDIC takeovers, lenders had ignored this issue. However, that is unlikely to continue.

[ This segment of the Article has been redacted. No member of the public is authorized to use the name of our firm without written permission and/or entering into an attorney client relationship with us. Any use of our name without our permission is strictly prohibited. Hugh Wood, Wood & Meredith, LLP, Atlanta, GA ]

Hugh Wood, Atlanta, Georgia

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These issues are coming to the surface in Georgia and other states.

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Recently the Georgia Business Chronicle wrote of on this issue as follows:

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Banks face environmental fines from foreclosed subdivisions
Atlanta Business Chronicle - by Joe Rauch Staff writer

October 24-30, 2008

As banks take back more lots and homes from bankrupt builders, the dirt washed away from these sites during each rainstorm is adding millions in costs statewide to their new owners.

Erosion control and other environmental issues at abandoned and foreclosed residential projects are becoming an unforeseen, but possibly large, cost for metro banks already struggling to survive. “The potential here to grow into a bigger issue is just huge,” said Bert Langley, the Mountain District manager for the Georgia Environmental Protection Division (EPD), the main state agency charged with overseeing environmental compliance at developments.

Under state law, developers and builders are required to limit erosion.
The laws are the reason for the ubiquitous black and orange silt fences at residential projects, and limiting other damage to water sources and other land.
But as builders shut their doors and banks take back lots and homes by the hundreds, compliance with those environmental laws is lapsing.

For now, according to state data, the problem is still small.
Georgia's EPD assessed $68,650 in fines in 2007 and has assessed $56,678 thus far this year, according to agency data. Those fines are concentrated in the state's rural counties, as Georgia's metro counties oversee these issues locally.

Most banks, local and state regulators said, are either unaware of the erosion control and other environmental issues at foreclosed properties, or see the cost of correcting any violations as optional when saddled with declining real estate values and other rising costs.

"They get this deer-in-the-headlights look when you tell them about this stuff," Langley said.

Some banks are being proactive.

SunTrust Banks Inc. has introduced a comprehensive environmental compliance program for its foreclosed and repossessed properties.
Regulators said the bank retained two engineering firms to oversee the properties.

Langley estimates there are 6,000 construction projects across his 37-county district, which stretches across the northern portion of the state and does not include Forsyth County.

Two-thirds of those projects are currently stalled.

With an eight-person enforcement team, Langley said his division is unable to monitor all sites, and relies largely on complaints.

Phil Mallon, Fayette County's director of public works, said his county has overseen two major subdivisions foreclosed by banks. But Mallon said his larger concern is those developments where construction stopped but the bank has not foreclosed. “Dealing with some of these sites is frustrating. You can't find the owner or the right person to talk to about complying with state law," Mallon said.

Bankers and regulators are facing this wave of new compliance issues for the first time in a housing downturn. "I've never seen anything like this in my career," said Steve Dempsey, a Forsyth County stormwater engineer who oversees erosion issues. Georgia's erosion control laws were last overhauled in 2000, when local and state agencies were brought under one standard of environmental controls.

Fines can cost as little as a few hundred dollars per day, or tens of thousands, when property owners are not compliant with state law. The fines stick to the property itself, rather than the owner. For banks taking back dozens of properties after builders have not maintained the sites for months, the fines can add up, and are passed along to the new owner. The cost to make a site compliant can be as little as a few thousand dollars for a single site, to hundreds of thousands for an entire subdivision.

With thousands of properties being seized by banks, the costs can quickly scale into the millions. Dempsey said Forsyth County is working with banks to minimize fines, but cannot eliminate them entirely.

One subdivision in Forsyth County is an example of the emerging problem.
The Greenleaf subdivision is located just outside Dawsonville on the eastern edge of the county. The property was bought for $1.97 million, according to a civil lawsuit filed by Gainesville Bank & Trust in 2006.

Since then, the land has been largely untouched, after some of the builders and developers of the site were convicted earlier this year of mortgage fraud.
The site now sits vacant, and no work is being done on the few built homes.
Bankers familiar with the project said the fines assessed by the county for erosion control exceed $4 million, roughly twice the value of the property.
Dempsey declined to comment on the subdivision, citing pending litigation.
© Atlanta Business Chron.

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Lenders in California are experiencing similar issues.

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Posted on: July 2, 2008 4:35:00 PM
Localities to Lenders: Maintain Your Foreclosures © Builder Magazine

Frustrated by the increasing number of foreclosed properties sitting vacant and untended, cities across the country are responding with ordinances that require the owners--the lenders that took back the houses--to maintain the properties or face heavy fines.

The California legislature is expected next week to pass a statewide law that would allow local governments to assess a fine of up to $1,000 a day on the owners of foreclosed properties who don’t maintain them. The bill also has strict requirements for notifying mortgage holders that the foreclosure process has started, and gives tenants living in a foreclosed property additional time to move. Considered an urgency measure, the bill would take effect immediately after being signed by the governor.

The Rhode Island General Assembly also has sent its governor a bill to sign, the Rhode Island Foreclosed Property Upkeep Act. It requires any financial institution that purchases a foreclosed property to post a bond with the municipality for 25 percent of the property’s assessed value, to be used to correct any code violations if the owner doesn’t take care of it. If the full value of the bond is used in the upkeep of the property, the owner has 10 days to file another bond in the same amount or have the property forfeited to the municipality.

Cathedral City, located in what was once the white-hot real estate market of Riverside County, Calif., is one of the cities that has recently passed laws requiring owners of foreclosed properties to register the property with the city. Among other requirements, the ordinance requires owners to pay a $70 annual registration fee, secure the property, keep it free of debris, landscape the front and side yards to neighborhood standards, clean or drain the pool, and hire a local property manager to inspect it weekly.

The procedures for enforcing the ordinance, which was passed this spring, are still being worked out, says William Soqui, chief of the Cathedral City Fire Department, which oversees code enforcement for the city.

He’s thrilled to have a mechanism to address the problems associated with the 2,000 foreclosed properties currently sitting vacant in this California desert community. The empty houses have been broken into by gang members and drug addicts, who vandalize them or use them as bases for criminal activities. Stagnant swimming pools have created breeding grounds for mosquitoes and drowning hazards.

“Keeping them crime-free and making sure they’re secured and in a condition that they’re not dragging down other property values is a daunting task,” Soqui says.
The ordinance addresses the biggest problem his department has with foreclosed properties, which is simply keeping track of who owns it.

“We’ve had to hunt for the owners and that’s been difficult,” Soqui says. “The loans get sold from one company to another. This is for us to have someone we can contact on our local level to deal with issues going on at a specific property. We can’t do anything about the foreclosure, unfortunately, but we can bring the property up to the standard of the community.”

END

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Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068


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Banks Held to A “True Market Value” Standard in Deficiency Confirmation

The Court of Appeals indicated in Cartersville Developers, LLC. v. Georgia Bank & Trust., (“GB&T”) No. A08A0533., Court of Appeals of Georgia, July 1, 2008, that it intends to continue to hold Banks to a true “true market value,” standard in a confirmation hearing post foreclosure.

In Cartersville, Supra, GB&T foreclosed on 17 townhomes. GB&T paid in at foreclosure the amount of the secured debt and then sought a deficiency judgment. At the confirmation hearing 30 days later, GB&T testified that each unit should be discounted $10,000 based on the fact that the units were “in foreclosure.” The trial court allowed the discount on each unit. On appeal, the Court of Appeals indicated that this “in foreclosure,” discount was arbitrary and erroneous and that the Trial Court, whether it was is difficult standard or not, must find – by an evidentiary hearing – the actual “true market value.” The confirmation judgment was vacated and the case remanded.

It may be that Cartersville Developers, LLC, is a signal to banks that, in this time of massive foreclosure red ink, the Courts are going to examine deficiency judgments more stringently.

The only thing novel about Cartersville, Supra, is that it exists. While perhaps cynical on this author’s part, generally, banks have been able to put on most any reasonable evidence at confirmation and walk out with a deficiency judgment. [It should be noted that deficiency judgments post foreclosure are not particularly common in Georgia.] Maybe Cartersville, Supra, will raise the evidence bar a bit and make banks work toward proving “true market value,” in post-foreclosure deficiency.

Hugh Wood, Atlanta, Georgia

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The relevant Georgia Confirmation statute is:

§ 44-14-161. Sales Made On Foreclosure Under Power Of Sale -- When Deficiency Judgment Allowed; Confirmation And Approval; Notice And Hearing; Resale.

(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.

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CARTERSVILLE DEVELOPERS, LLC
v.
GEORGIA BANK & TRUST.
No. A08A0533.
Court of Appeals of Georgia,
July 1, 2008
Smith, Presiding Judge.
Cartersville Developers, LLC, appeals from the Bartow County Superior Court's order confirming a foreclosure sale by Georgia Bank & Trust. Because the trial court applied the wrong legal standard when confirming the foreclosure, we must vacate its order and remand this case for further proceedings.
"At a confirmation hearing, the judge sits as the trier of fact and his findings and conclusions have the effect of a jury verdict; therefore the trial judge's findings should not be disturbed by this court if there is any evidence to support them." (Citations and punctuation omitted.) Wilson v. Metropolitan Fed. Sav. & Loan Assoc., 196 Ga.App. 588, 589 (396 S.E.2d 546) (1990). The facts in this case are not disputed. Georgia Bank & Trust purchased 17 town homes built by Cartersville Development at a foreclosure sale, paying $129,500 for each two-bedroom unit and $130,900 for each three-bedroom unit. A real estate appraiser hired by Georgia Bank & Trust testified that he valued the town homes at $128,600 for each two-bedroom unit and $130,000 for each three-bedroom unit. The appraiser acknowledged that in arriving at these values he made a $10,000 deduction because the properties were "in foreclosure." According to the appraiser, his assignment included taking into account that the properties were under foreclosure and that "homes that sold in foreclosure tended to sell for approximately eight to twelve thousand dollars less than homes that were not under foreclosure that were similar competitive homes in the market." Georgia Bank & Trust submitted no other evidence demonstrating the specific fair market value of the town homes. A real estate appraiser hired by Cartersville Development gave both the two-bedroom and three-bedroom units a value of $150,000.
During the confirmation hearing, Cartersville Development argued that it was inappropriate for the superior court to consider the $10,000 foreclosure discount and that the minimum value for the units established by the evidence was approximately $140,000. The trial court rejected this argument and concluded that it was obligated only to determine if its "judicial conscience was shocked" by any disparity between the foreclosure sale price and the true market value.
Cartersville Development asserts in this appeal that the trial court erred by confirming the sale based on an appraisal that discounted the value of the properties by $10,000 because they were in foreclosure. We agree.
The standard to be applied by a trial court in an action by a lender to confirm a foreclosure sale differs from that used in an equity action filed by the borrower to set aside a foreclosure sale. Grizzle v. Federal Land Bank of Columbia, 145 Ga.App. 385, 388 (244 S.E.2d 362) (1978); Federal Deposit Ins. Corp. v. Ivey-Matherly Constr. Co., 144 Ga.App. 313, 315 (241 S.E.2d 264) (1977). A different rule applies because the lender's right to foreclose is governed by statute, OCGA § 44-14-161 (b), and a judicial confirmation "that the property brought at least its true market value on the foreclosure sale" is a condition precedent to the lender's right to obtain a deficiency judgment against the borrower. See Wheeler v. Coastal Bank, 182 Ga.App. 112, 114 (1) (354 S.E.2d 694) (1987).
In an action brought by a borrower to set aside a foreclosure sale,
inadequacy of price paid upon the sale of property under power will not of itself and standing alone be sufficient reason for setting aside the sale. It is only when the price realized is grossly inadequate and the sale is accompanied by either fraud, mistake, misapprehension, surprise or other circumstances which might authorize finding that such circumstances contributed to bringing about the inadequacy of price that such a sale may be set aside by a court of equity.
(Citations omitted.) Giordano v. Stubbs, 228 Ga. 75, 79-80 (3) (184 S.E.2d 165) (1971). The lender's right to obtain a deficiency judgment is not directly at stake in a motion to set aside a foreclosure sale.
A trial court cannot confirm a foreclosure sale, on the other hand, "unless it is satisfied that the property so sold brought its true market value." (Citation, punctuation and footnote omitted.) Wilson v. Prudential Industrial Properties, 276 Ga.App. 180 (1) (622 S.E.2d 890) (2005). True market value "is the price that the property will bring when it is offered for sale by one who is not obligated, but has the desire to sell it, and is bought by one who wishes to buy it, but is not under a necessity to do so." (Citation and punctuation omitted.) Id. at 181 n.1.
Based on this definition, this court has previously found that a trial court erred by confirming a foreclosure sale based upon "evidence of the 'quick sale' value of the subject property because such a valuation does not reflect the price that would be obtained in a sale under the usual market conditions." (Citation omitted.) Guthrie v. Ford Equipment Leasing Co., 206 Ga.App. 258, 261 (1) (424 S.E.2d 889) (1992). The appraiser's $10,000 foreclosure deduction in this case is precisely the type of valuation precluded by our opinion in Guthrie.
The trial court relied upon this court's opinion in Darby & Assoc. v. Federal Deposit Ins. Corp., 141 Ga.App. 78, 79 (232 S.E.2d 615) (1977), to confirm the foreclosure sale at issue here. In Darby, this court stated in dicta that "[t]he purpose of confirmation hearings is to establish that the sale was fairly conducted and that any disparity between value and sale price, if it exists, is not such as to shock the judicial conscience. Brooks v. Bast, 242 Md. 350, 219 A.2d 84, 15 ALR3d 1265, 1271; Giordano, [supra]." Id. at 79 (1).
We find that the trial court erred in applying this language to confirm a judicial sale when no construction of the evidence would authorize a finding that the sale price was at least the true market value of the property. This language was impliedly overruled in Ivey-Matherly Constr. Co., supra, where we held that the rule set out by the Georgia Supreme Court in Giordano, supra, should not be applied in proceedings to confirm a foreclosure sale, but only in equity cases to set aside a foreclosure sale. 144 Ga.App. at 315. We now expressly disapprove the use of the above-quoted language in Darby, supra, in actions to confirm a judicial sale where the evidence demonstrates that the sale price is not at least as much as the true market value of the property.
Because the trial court applied the wrong legal standard when determining whether to confirm the foreclosure sale, we vacate its order and remand this case to the trial court for further proceedings consistent with this opinion. Wheeler, supra, 182 Ga.App. at 114 (1); Gutherie, supra, 206 Ga.App. at 261-262 (2).
Judgment vacated and case remanded with direction. Barnes, C. J., Johnson, P. J., Blackburn, P. J., Ruffin, P. J., Andrews, Miller, Ellington, Phipps, Mikell, Adams, and Bernes, JJ., concur.


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Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068

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Affidavit of Title Under Tax Deed

The Georgia Supreme Court has again indicated that if the owner of a tax deed goes to the trouble of barring the right or redemption (and, thus, vesting ownership in the tax deed owner) the owner must file some indication on the land records of the bar redemption or risk the loss of the tax property.

What is disappointing about this ruling and the Official Code of Georgia Annotated, is that there is no form, no deed or indicated filing to show all the world that the right of redemption has been barred. There is a historical record of the legal organ publication; however, the legal advertisement is not of record on the land records.

Our firm has, therefore, created an “Affidavit of Title Under Tax Deed,” that we file after we bar the right of redemption for a client. The Clerk of Court, generally, will not accept a “deed” or some other muniment of title; however, the Clerk must accept an Affidavit affecting title. Thus, we file an Affidavit. Had Alvin Washington, filed our document on the land records, he probably would have won his case. Washington v. Mckibbon Hotel Group, Inc., Case No. S08A0584, Supreme Court of Georgia, July 11, 2008.

Hugh Wood, Atlanta, Georgia.

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The form we file (redacted) is:


After Recording Return to:

Wood & Meredith, LLP Cross Ref.: DB 00000 P 00
Attorneys at Law
3756 Lavista Road
Suite 250
Atlanta (Tucker), Georgia 30084
P: 404-633-4100
F: 404-633-0068

STATE OF GEORGIA

COUNTY OF _________

AFFIDAVIT OF
TITLE UNDER TAX DEED


This is Notice to All the World:

That on December 00, 2008, the Ex Officio Sheriff of [ Insert County ] County, Sheriff acting for and on behalf [ Insert County ] County, and due to the failure of the then record owner of the real property at that time, Acme Properties, Inc., to pay the property taxes as they had become due and payable to [ Insert County ] County, did grant, bargain, sell, alien and convey, at public outcry, to Alpha & Beta Development, Inc. of Atlanta, Georgia, for and in the Consideration of $00,000.00, the real property described below as follows:

ALL THAT TRACT or parcel of land lying and being in Land Lot [Insert Legal Desription] hereinafter "Subject Property."

The Tax Commissioner and Ex Officio Sheriff of [ Insert County ], by public sale, granted, bargained, sold and conveyed the property to Alpha & Beta Development, Inc., pursuant to the sale of properties by tax deed, the tract of land, subject to the right of redemption by the owner(s), with all singular rights, members and appurtenances thereof, being, and belonging, or in anywise appertaining, to the proper use and benefit of Alpha & Beta Development, Inc. after the valid extinguishment of the owner(s) right of redemption.
Pursuant to the purchase of the tax deed and in compliance with OCGA § 48-4-42, Alpha & Beta Development, Inc. now shows all the World that Notice was sent to the entities, parties and individuals who possessed any interest in the property in order to forever foreclose the right of redemption. The tax deed to which the notice related, is recorded in the Office of the Clerk of Superior Court of [ Insert County ] County, Georgia, in Deed Book 00000 at Page 00. These notices were sent certified and regular mail, and informed the receiver that the property could be redeemed at any time before November 00, 2008, by payment of the redemption price as provided by law pursuant to OCGA § 48-4-42. Pursuant to law, the Notice of the Right to Redeem was published in the legal organ of [ Insert County ] County, The County Legal Organ, on September 00, 00, October 00, and 00, 2008. The last day to redeem, November 15, 2008, passed with no redemption taking place.
In as much as Alpha & Beta Development, Inc. has provided proper notice of the right to foreclose the right of redemption as provided by law, and no redemption having been made by any former owner or creditor, Alpha & Beta Development, Inc. now shows all the World that the property is now no longer subject to the right of redemption.
Alpha & Beta Development, Inc. hereby states that it is now the fee simple owner, as against all the World of all rights, members, appurtenances and all incidents of ownership, whether surface fee, subsurface fee and any and all mineral interests in the land, as against all claimants in all the world, wherever situate.
Alpha & Beta Development, Inc. hereby further declares that it will forever defend its right and title from the date it acquired it, November 00, 2008, it to any Grantee against the claims of all persons whomsoever.
IN WITNESS WHEREOF, Alpha & Beta Development, Inc. has caused this instrument to be executed and sealed the day and year written below.


_____________________________
Alpha & Beta Development, Inc.

By:______________________
Its: ______________ (Seal)

[ Insert Address ]


__________________________
Unofficial Witness



Sworn to and subscribed to before
me this the ____ day of ______, 2008.


___________________________
Notary Public


___________________________
My Commission Expires

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WASHINGTON
v.
McKIBBON HOTEL GROUP, INC.
No. S08A0584
Supreme Court of Georgia
July 11, 2008
CARLEY, Justice.
At issue in this case is title to an almost triangular, 0.082-acre parcel of real property. Vernita Kearse originally had record title, but the property was sold for nonpayment of taxes. Charles Layton was the purchaser of the property and received a tax deed in 1982, but he then lost the property due to nonpayment of taxes. Johnnie Mae Shedrick purchased the property and received a tax deed in 1984. She also lost the property for nonpayment of taxes, and it was purchased by Appellant Alvin Washington, who received a tax deed to the property in 1990.
Appellee McKibbon Hotel Group, Inc., which owns property contiguous to the parcel of land at issue, purchased Mr. Layton's interest in 2006, and brought an action for quiet title in 2007, claiming title to the property by means of a right of redemption which it acquired through that purchase. Appellant claimed title through his purchase of the property at a tax sale followed by his purported foreclosure of the rights to redeem the property from the sale pursuant to OCGA § 48-4-45 or, alternatively, through the ripening of his tax deed by prescription into fee simple title under OCGA § 48-4-48 (b). In accordance with OCGA § 23-3-63, the case was submitted to a special master, who recommended issuance of a decree which vested fee simple title in Appellee. The trial court approved and adopted the special master's report, and entered a decree vesting title in Appellee. Appellant appeals from that order.
1. The trial court, through its adoption of the special master's report, concluded that Appellant's claim of foreclosure of the rights to redeem failed because "the documentary record is silent as to any actions taken by him in this regard" and, even if that were not so, "he still failed to set out all of the requisite requirements for a barment, such as notice to any occupants of the property and all persons with any interest of record."
"[O]ne seeking to bar redemption under OCGA § 48-4-45 must comply with its notice requirements." Blizzard v. Moniz, 271 Ga. 50, 53 (518 S.E.2d 407) (1999). However, regardless of whether the trial court erred in finding that Appellant failed to comply with those notice requirements, the trial court did correctly conclude that his claim of foreclosure of all rights to redeem must fail "since the documentary record is silent as to any actions taken by him in this regard." We take this statement to refer to the trial court's previous finding that the county real estate records do not contain an entry memorializing the successful completion of the foreclosure of the right of redemption. "Any original notice [of such foreclosure] together with the entries on the notice may be filed and recorded on the deed records in the office of the clerk of the superior court of the county in which the land is located." OCGA § 48-4-46 (d).
Even assuming that Appellant's evidence documenting the steps he took in 1992 to foreclose the rights of redemption reflects compliance with OCGA § 48-4-45 as a matter of law, there nevertheless is not any evidence of record that those steps were successfully completed. Indeed, this litigation would not have taken place had the purported foreclosure of the right of redemption been filed and recorded. Appellee acquired the interest of a tax deed grantee with notice only that Appellant, as a subsequent tax deed grantee, held an inchoate or defeasible title under the laws of this state and that Appellant's title could be perfected upon foreclosure of all senior rights of redemption. However, Appellee did not have any notice that such foreclosure had been accomplished so that Appellant's interest through his junior tax deed became a perfect fee simple title. See Bennett v. Southern Pine Co., 123 Ga. 618 (51 SE 654) (1905) (a tax deed constitutes record notice only that the grantee has an inchoate title subject to redemption). Compare Herrington v. LaCount, 225 Ga. 232, 233-234 (167 S.E.2d 631) (1969) (where the seven-year period of repose provided under the law in effect from 1949 to 1978 had expired, see Moultrie v. Wright, 266 Ga. 30, 31-32 (1) (464 S.E.2d 194) (1995), the lack of a foreclosure of redemption on record was insufficient to prove that fee simple title had not vested in grantee of tax deed or in his assignees). Thus, with respect to Appellant's interest as a result of his purported foreclosure of the rights to redeem, Appellee stands in the position of a good-faith purchaser for value without notice.
2. Even though Appellant failed to give record notice of the allegedly complete foreclosure of redemption, we still must address whether his 1990 tax deed title ripened by prescription into fee simple title four years after the execution of the tax deed. See OCGA § 48-4-48 (b-d).
In order for a tax deed title to ripen by prescription into fee simple title, the plain language of OCGA § 48-4-48 (b) requires adverse possession, as set forth in OCGA § 44-5-161, by the tax deed grantee for a period of four years. Mark Turner Properties v. Evans, 274 Ga. 547, 549 (2) (554 S.E.2d 492) (2001); Blizzard v. Moniz, 271 Ga. 50, 54 (518 S.E.2d 407) (1999). Under OCGA § 44-5-161 (a) (3), it is mandatory that possession, in order to be the foundation of prescriptive title, "be public, continuous, exclusive, uninterrupted, and peaceable ...." Furthermore, "the purchaser at a tax sale does not have constructive possession of the premises. [Cit.]" Mark Turner Properties v. Evans, supra.
Actual possession of lands may be evidenced by enclosure, cultivation, or any use and occupation of the lands which is so notorious as to attract the attention of every adverse claimant and so exclusive as to prevent actual occupation by another.
OCGA § 44-5-165. "Where there is no evidence of enclosure or cultivation, notoriety and exclusivity become questions of fact .... [Cits.]" Friendship Baptist Church v. West, 265 Ga. 745 (462 S.E.2d 618) (1995).
In the report adopted by the trial court, the special master resolved these questions of fact as follows:
Although [Appellant's] possession factually meets four of the tests for prescription listed [in OCGA § 44-5-161], he failed to establish by a preponderance of the evidence facts which satisfy the third requirement, that his possession was public, continuous, exclusive, uninterrupted and peaceable. His testimony was unpersuasive that he did anything other than pay the taxes on the property and occasionally cut the grass. There is not evidence of any occupancy by himself or anyone else on his behalf, nor that the premises were cultivated, fenced or in any other way utilized so as to provide notice to other persons of his interest in the property. It is apparent that the City performed much of the maintenance on the property as [Appellant] was admittedly unable to do so, including demolition of the structure on the property, which was never occupied. Thus, his claim of prescription under the statute fails.
Although the nature and situation of the property and the uses to which it can be applied are proper considerations, "the fact that the land may be useless for most purposes will not relieve the claimant of the necessity of establishing such possession as will meet the requirements of law and serve to warn the true owner of his adverse claim." 1 Pindar's Ga. Real Estate Law and Procedure § 12-28, p. 825 (6th ed. 2004) (citing McCook v. Crawford, 114 Ga. 337, 339 (40 SE 225) (1901), which held that use of the land for timber cutting and as range for livestock did not constitute actual possession, that at least a fence could have been erected even if it was expensive and troublesome, and that, if the character of the property makes it truly impossible to be in actual possession thereof, title cannot be acquired by prescription, but only by written evidence of title).
The findings of the trial court in this case show that Appellant "did mow and occasionally clean up the area, but that is not generally sufficient to constitute actual possession, much less to require such conclusion as a matter of law. [Cit.]" Friendship Baptist Church v. West, supra at 746. Furthermore, "[p]ayments of taxes 'are insufficient to establish prescriptive title, however long continued, even though accompanied by constant assertions of title.' [Cits.]" Mark Turner Properties v. Evans, supra. Accordingly, neither Appellant's payments of taxes nor occasional cleanup and mowing are
as notorious or exclusive as ... enclosure or cultivation would be. Therefore, the issue of actual possession "becomes a question of fact for the jury. (Cit.)" [Cit.] Where[, as here,] there is some evidence on either side of this issue, a reviewing court should not disturb the verdict. [Cit.]
Friendship Baptist Church v. West, supra. Thus, the trial court did not err when it concluded that Appellant's tax deed did not ripen by prescription into a fee simple title. The opposite conclusion could be reached only by overruling Friendship Baptist Church or by wholly disregarding that controlling precedent.
3. The trial court also correctly determined that Appellee holds the senior right to redeem the property and is entitled to do so from Appellant. Because Appellee's calculations of the redemptive price were unrefuted, the trial court ordered Appellant to execute a quitclaim deed to Appellee upon receipt of the tendered money. Indeed, Appellant did not offer any evidence to the contrary at the special master's hearing. Accordingly, the judgment of the trial court is affirmed.
Judgment affirmed.
All the Justices concur, except Sears, C. J., who concurs in the judgment only and Benham, J., who dissents.

& & &

Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068

& & &

Equitable Subrogation :: Muddy Waters

The Court of Appeals recently muddied the waters of equitable subrogation in Georgia. In a fact pattern that can only arise in our disjointed and schizophrenic filing system, Washington Mutual, FA ("WAMU")foreclosed on the same property on the same day as another first lienholder, Secured Equity Financial, LLC ("Secured Equity").

Pretermitting the creative arguments of notice put forth by the lawyers, Secured Equity purchased a small second mortgage which stated that it was "second" to other loans on the Subject Property and was "second" when created. The borrowers refinanced the underlying first mortgage. The underlying first mortgage was cancelled and the new "refi" first was delayed in recording. Thus, the second mortgage jumped ahead of the first mortgage on the real estate records and became, at least in raw date priority, the "first" mortgage. (In Georgia, they are actually Security Deeds).

In the comedy of lien priority, an investor buys the second and forecloses it as the first. WAMU, unbeknownst to Secured Equity forecloses its interest the same day, at the same time on the same courthouse steps.

Both lenders claim they own the subject property after the foreclosure and suit ensues. Race notice recording shows that Secured Equity was first, but a fact issue exists with regard to the language of its "second" security deed and, perhaps, actual notice to Secured Equity. WAMU shows that it refinanced a first and was to be given first priority under the refi security deed.

The Fulton Superior Court bluntly applied (perhaps without a hearing) the doctrine of equitable subrogation. It voided Secured Equity's ownership and placed WAMU in sole ownership of the Subject Property.

In reviewing the case, the Court of Appeals restated the Doctrine of Equitable Subrogation in Georgia, as follows:

Equitable subrogation means that "in certain circumstances, a lender who pays off the lien of a senior creditor may step into the shoes of the senior creditor as to the priority of the senior creditor's lien. [Cit.]" Greer v. Provident Bank, 282 Ga.App. 566, 568 (639 S.E.2d 377) (2006). The Supreme Court set out the complete rule in Davis v. Johnson: Where one advances money to pay off an encumbrance on realty either at the instance of the owner of the property or the holder of the encumbrance, either upon the express understanding or under circumstances under which an understanding will be implied that the advance made is to be secured by the senior lien on the property, in the event the new security is for any reason not a first lien on the property, the holder of the security, if not chargeable with culpable or inexcusable neglect, will be subrogated to the rights of the prior encumbrancer under the security held by him, unless the superior or equal equity of others would be prejudiced thereby. . . . (Citations and punctuation omitted.) 241 Ga. 436, 438 (246 S.E.2d 297) (1978). See also OCGA § 10-7-56 ("A surety who has paid the debt of his principal shall be subrogated, both at law and in equity, to all the rights of the creditor and. . . shall rank in dignity the same as the creditor whose claim he paid."). The typical remedy is that equity will set aside a cancellation of the original security and revive it "for the benefit of the party who paid it off." Davis, 241 Ga. at 438. Secured Equity Financial, LLC Et Al v. Washington Mutual Bank, F. A., No. A08A0376, Court of Appeals of Georgia, Fourth Division June 23, 2008.

The Court of Appeals seemed concerned that there were factual disputes that the lower court glossed over, to wit: "By contrast, in the present case the original security deed had been cancelled of record long before Secured Equity purchased Bank One's interest," ... "We hold that Washington Mutual has failed to establish as a matter of undisputed fact that Secured Equity was on notice of a possible equitable subrogation claim. The trial court erred by granting summary judgment for this reason." The Case was remanded. (WAMU has applied for Cert.).

In remanding , the Court wrote: "Subrogation is of equitable origin and benevolence. It is founded upon the dictates of refined justice. Its basis is the doing of complete, essential, and perfect justice between all the parties, without regard to form, and its object is the prevention of injustice." (Emphasis supplied; citations and punctuation omitted.) Davis, 241 Ga. at 439. In this case, the trial court simply enforced Washington Mutual's foreclosure sale, which thereby extinguished any interest held by Secured Equity. Other solutions are available that preserve the subrogee's and the purchaser's interests."

Like what "other solutions?" That sounds like opening Pandora's Box in the already slippery world of equtiable subrogation.

If a clean foreclosure in Georgia is akin to a scoring a touchdown in football. Equitable Subrogation is the yellow flag penalty for offside; they call back the touchdown.

Remand is a year of video review.

Unless the Georgia Supreme Court weighs in on this dispute, expect the coming foreclosure litigation to become more (not less) muddy.

Hugh Wood, Atlanta, Georgia

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Case Number:
A08A0376

Style:
SECURED EQUITY V. WASHINGTON MUTUAL

Judge:
HON. BESONETTA TIPTON LANE

County:
FULTON

ATTORNEY INFORMATION
Appellant
Mr. David E. Allman

Appellee
Ms. Dana Garrett Diment

Appellee
Ms. Stephanie A. Ziegelasch


SUPREME COURT INFORMATION
Notice of Intent
July 31, 2008

Application Date
August 13, 2008

Certiorari SC Case #
S08C2028

SECURED EQUITY FINANCIAL, LLC et al
v.
WASHINGTON MUTUAL BANK, F. A.
No. A08A0376
Court of Appeals of Georgia, Fourth Division
June 23, 2008
SMITH, P. J., MIKELL and ADAMS, JJ.
Adams, Judge.
The trial court granted summary judgment in favor of Washington Mutual Bank, F. A. by applying the doctrine of equitable subrogation to a dispute between Washington Mutual and another lender, Secured Equity Financial, LLC and a related party, who now appeal. The trial court concluded the undisputed facts justify the conclusion that, at the time it acquired a security interest in the property, Secured Equity was on constructive notice of a possible claim of equitable subrogation and that, therefore, its security interest was extinguished. For the reasons that follow, we reverse.
Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. OCGA § 9-11-56 (c). We review a grant or denial of summary judgment de novo and construe the evidence in the light most favorable to the nonmovant. Home Builders Assn. of Savannah v. Chatham County, 276 Ga. 243, 245 (1) (577 S.E.2d 564) (2003).[1]
Construed in favor of the appellants, the record shows that in September 2000, Michael and Melanie Busby purchased property in Paulding County using a $102,550 purchase money loan secured by a deed to secure debt (the "original security deed"). On October 12, 2001, the Busbys obtained a home equity loan of $17,000 from Bank One secured by a second priority security deed; the deed states that it "may be secondary and inferior to the lien securing payment of an existing obligation [with] a current principal balance of approximately $101,000."
Although Bank One filed its security deed on October 25, 2001, the document was not recorded until January 18, 2002 because of internal delays at the courthouse. In the interim, on December 21, 2001, the Busbys refinanced the original loan, borrowing $107,264 from Franklin American Mortgage Co. to pay off the original loan balance of $102,663.44, and entering into a new security deed (the "refinance security deed"), intending to give Franklin a first priority security interest in the property. On January 4, 2002, Franklin assigned the note and the refinance security deed to a predecessor of appellee Washington Mutual. The original security deed was cancelled of record in March 2002.
In early 2004, the Busbys defaulted on both loans, causing both Washington Mutual and Bank One to initiate foreclosure proceedings. Those proceedings were delayed for several months because the Busbys filed for bankruptcy protection. Michael Schak of Fastback Home Solutions, LLC eventually saw a notice of Bank One's foreclosure, but he claims not to have seen Washington Mutual's similar notice on the same property. Schak informed business associate Matt Crowley of Secured Equity.[2] On July 27, 2004, Bank One accepted Secured Equity's offer to purchase the security deed; the price was set at $12,422.35.
Crowley relied in part on Bank One and its attorney Heath Williams who, in turn, relied on a title examination of the property obtained on behalf of Bank One for the conclusion that the Bank One deed was superior to the Washington Mutual deed. Crowley saw a one-page synopsis of the title examination dated August 24, 2004 that listed the Washington Mutual security deed as a subordinate lien. Crowley also relied on Schak, who had researched the title to the property and seen both security deeds. Because the original deed had been paid off, Schak concluded that Bank One's security deed had first priority. He also determined that the house was vacant and that it was worth between $110,000 and $120,000. He communicated this information to Crowley. On October 1, the transaction closed, and Bank One assigned to Secured Equity the note associated with the Bank One deed "without recourse," "without warranty," and with the obligation for any and all due diligence placed solely upon Secured Equity.
On November 2, 2004, unbeknownst to each other, both Washington Mutual and Secured Equity held a foreclosure sale on the same courthouse steps, and each purchased their respective deeds for the value of their outstanding loan.[3] The Secured Equity deed under power was issued subject to "any Security Deeds, liens, and encumbrances existing when the above-described Security Deed was filed for record." Secured Equity filed its deed under power on November 22, 2004; Washington Mutual filed its deed under power on December 7, 2004. On December 27, Secured Equity then transferred the Bank One Deed to Fastback, which intends to sell the property and split the profits with Secured Equity.
Washington Mutual filed suit seeking any one of five alternative remedies: (1) a declaratory judgment stating that it held the senior security interest in the amount of $102,663.44; that Secured Equity's security interest was extinguished by Washington Mutual's foreclosure; and that the real estate records be reformed accordingly; (2) a declaratory judgment that Secured Equity's foreclosure and the subsequent sale to Fastback be set aside; and that Secured Equity's interest was extinguished by Washington Mutual's foreclosure sale; (3) a declaration that the parties be restored to their status quo before the foreclosure sales with Washington Mutual holding the senior interest; (4) a judgment for wrongful foreclosure; or (5) a judgment for unjust enrichment. Washington Mutual also sought a temporary restraining order to prevent Fastback from further transfer or sale of the property, but the trial court denied the motion. On cross-motions for summary judgment, the trial court granted Washington Mutual's motion and denied Secured Equity's motion. Although the refinance security deed was executed after the Bank One deed, the trial court held that Washington Mutual's interest should be considered prior under the doctrine of equitable subrogation. But the trial court concluded, "[Washington Mutual] holds the senior security interest under the doctrine of equitable subrogation, which interest has extinguished the interest of [Secured Equity and Fastback]."
Equitable subrogation means that "in certain circumstances, a lender who pays off the lien of a senior creditor may step into the shoes of the senior creditor as to the priority of the senior creditor's lien. [Cit.]" Greer v. Provident Bank, 282 Ga.App. 566, 568 (639 S.E.2d 377) (2006). The Supreme Court set out the complete rule in Davis v. Johnson:
Where one advances money to pay off an encumbrance on realty either at the instance of the owner of the property or the holder of the encumbrance, either upon the express understanding or under circumstances under which an understanding will be implied that the advance made is to be secured by the senior lien on the property, in the event the new security is for any reason not a first lien on the property, the holder of the security, if not chargeable with culpable or inexcusable neglect, will be subrogated to the rights of the prior encumbrancer under the security held by him, unless the superior or equal equity of others would be prejudiced thereby. . . .
(Citations and punctuation omitted.) 241 Ga. 436, 438 (246 S.E.2d 297) (1978). See also OCGA § 10-7-56 ("A surety who has paid the debt of his principal shall be subrogated, both at law and in equity, to all the rights of the creditor and. . . shall rank in dignity the same as the creditor whose claim he paid."). The typical remedy is that equity will set aside a cancellation of the original security and revive it "for the benefit of the party who paid it off." Davis, 241 Ga. at 438.
Washington Mutual meets the prima facie requirements for equitable subrogation. It paid off an encumbrance pursuant to an agreement that it would stand in the same position as the prior encumbrancer. Also, even though Bank One had properly filed its security deed, which provided constructive notice to all the world,[4] equitable subrogation applies even where the successor in interest has knowledge of the intervening lien:
knowledge of the existence of an intervening encumbrance will not alone prevent the person advancing the money to pay off the senior encumbrance from claiming the right of subrogation where the exercise of such right will not in any substantial way prejudice the rights of the intervening encumbrancer. . . .
Davis, 241 Ga. at 438, and compare n. 1 (actual notice in the absence of an agreement to subrogate may show intent to give priority to the intervening lien). But as seen above, equitable subrogation may be denied (a) if the party claiming equitable subrogation is guilty of culpable or inexcusable neglect, (b) if the superior or equal equity of others would be prejudiced, or (c) if the exercise of the right of subrogation will in a substantial way prejudice the intervening lienholder's rights. Greer, 282 Ga.App. at 569. Secured Equity contends there are issues of fact on each of these points.
(a) In this context, "inexcusable neglect" can be seen as the plaintiff's failure to "avail itself of the proper legal remedy when it had the chance." See, e.g., Bankers Trust Co. v. Hardy, 281 Ga. 561 (640 S.E.2d 18) (2007) (party seeking subrogation failed to include mortgagee's son in loan transaction, even though son had an interest in property), citing Bank of Danielsville v. Seagraves, 167 Ga.App. 135, 142 (305 S.E.2d 790) (1983). Secured Equity cites evidence suggesting that Washington Mutual discovered the Bank One lien two weeks prior to the foreclosures yet failed to contact Secured Equity at that time to try to resolve the matter. But Secured Equity has not shown that the document, an exhibit to a deposition, was authenticated, and the deponent denied any knowledge about it. Therefore "it was merely inadmissible hearsay that could not be considered as evidence in support of the motion for summary judgment." Valentin v. Six Flags Over Georgia, L.P., 286 Ga.App. 508, 511 (649 S.E.2d 809) (2007). And "[i]t is well settled that this Court will not cull the record. . . on an appellant's behalf." Carlisle v. Abend, 288 Ga.App. 150, 151 (1) (653 S.E.2d 388) (2007). Secured Equity also argues that Washington Mutual should have conducted a post-closing title exam, which could have revealed the existence of the subsequent lien. However, Secured Equity has not cited any law to support such an obligation as a prerequisite to equitable subrogation, and we find none.
(b) Secured Equity contends that application of the doctrine of equitable subrogation would prejudice its "superior or equal equity" in the property. In Davis, the Court noted that the refinancing lienholder "is estopped from being reinstated to its senior status where the intervening lienholder has taken or purchased the lien in reliance upon his apparent status." Davis, 241 Ga. at 439. It is undisputed that the county records showed the Bank One security deed as having been recorded prior to the refinance security deed under which Washington Mutual claims an interest. Thus this enumeration depends on whether Secured Equity took title with constructive knowledge of Washington Mutual's position as being subrogated to the original security deed.
Constructive notice of a claim of equitable subrogation is possible. In Greer, Provident Bank loaned a consumer over $400,000 to pay off two prior mortgages on a piece of property. Greer, 282 Ga.App. at 567. Unbeknownst to Provident, the consumer had executed a deed on the same property six weeks earlier to secure a $35,950 note to Alfa Management. Id. As a result of delay in the county clerk's office, the Alfa lien was not recorded in the public records until after the Provident transaction, and thus, Provident had only constructive knowledge of the Alfa lien at the time. Id. at 567. Upon default, Alfa foreclosed on the property, and Provident sought equitable subrogation against the purchasing party. The Court rejected the argument that the purchaser was a "bona fide purchaser" because at the time of Alfa's foreclosure sale, the two original security liens were still on the record - they had never been cancelled - and the foreclosure sale was made subject to "any other open indebtedness on any prior (liens) of record." Id. at 569. And the purchaser "was aware that another lender may have satisfied the [prior] liens, and also knew it was unusual for a lender not to have satisfied the third position Alfa lien." Id. at 570. This Court held that under the circumstances, there was an issue of fact as to whether the purchaser was on constructive notice of Provident's claim of equitable subrogation. Id. at 568-569.
By contrast, in the present case the original security deed had been cancelled of record long before Secured Equity purchased Bank One's interest. Accordingly, Greer is distinguishable on this point. Here, the Bank One deed appeared to be in first priority at the time of Secured Equity's purchase.[5] Washington Mutual argues that the language of Bank One's deed put Secured Equity on notice of the possibility of an equitable subrogation claim. The Bank One deed states that it "may be secondary and inferior to the lien securing payment of an existing obligation [with] a current principal balance of approximately $101,000." But the statement is true with regard to the original security deed, which the record showed as having been cancelled. Although Willams admitted that the language "suggests that this deed might be a second mortgage," he did not admit that the language suggests that a later-in-time security deed was subrogated to the original security deed. And even though the appellants admit that it is not typical to have a $17,000 first security deed followed by a second security deed for $107,000, that does not establish as a matter of law that Secured Equity was on notice of a claim of equitable subrogation. See Leeds Bldg. Products v. Sears Mtg. Corp., 267 Ga. 300, 301 (1) (477 S.E.2d 565) (1996) ("The substance of the notice required must be sufficient to 'place a [person] of ordinary prudence fully upon his guard and induce serious inquiry.' [Cit.]").
We hold that Washington Mutual has failed to establish as a matter of undisputed fact that Secured Equity was on notice of a possible equitable subrogation claim. The trial court erred by granting summary judgment for this reason.
(c) Finally, Secured Equity argues that the trial court erred because the exercise of the right of subrogation will prejudice its rights in a substantial way. We agree that the manner in which the doctrine was exercised in this case substantially prejudiced Secured Equity's rights. "Subrogation is of equitable origin and benevolence. It is founded upon the dictates of refined justice. Its basis is the doing of complete, essential, and perfect justice between all the parties, without regard to form, and its object is the prevention of injustice." (Emphasis supplied; citations and punctuation omitted.) Davis, 241 Ga. at 439. In this case, the trial court simply enforced Washington Mutual's foreclosure sale, which thereby extinguished any interest held by Secured Equity. Other solutions are available that preserve the subrogee's and the purchaser's interests.[6] Indeed, Washington Mutual is only entitled to subrogation up to the amount of the original indebtedness that it paid, and Secured Equity would be entitled to any surplus obtained in a foreclosure sale. See East Atlanta Bank v. Limbert, 191 Ga. 486, 490 (2) (12 S.E.2d 865) (1941); Restatement (Third) of Property, § 7.6, comment e at 520 (an increase in the amount of the first priority lien may be harmful to junior lienholders).
For the above reasons, we reverse and remand for further proceedings consistent with this opinion including, if equitable subrogation is applicable, a remedy that protects the interest of both parties.
Judgment reversed and case remanded.
Smith, P. J., and Mikell, J., concur.
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Notes
[1] The appellee's brief does not conform to the rules of this Court. We remind the bar that the Rules of the Court of Appeals require that record and transcript citations must be to the volume or part of the record or transcript and the page numbers that appear on the appellate records or transcript as sent from the court below. See Rule 27.
[2] Secured Equity had made an earlier offer to purchase the Bank One deed in March that was not accepted, and that offer included an acknowledgment that "We understand this mortgage is a 2nd mortgage." But Crowley now explains that this was merely boilerplate language in a form letter that it used for every mortgage. For the purposes of summary judgment, we accept this explanation.
[3] Although Williams commenced foreclosure proceedings on behalf of Bank One, Secured Equity eventually retained Williams to handle the foreclosure on its behalf.
[4] Thompson v. Hudson, 190 Ga. 622 (10 S.E.2d 396) (1940) (recording errors by the clerk have no effect on the rights of those who have properly filed).
[5] Comments in The Restatement of Property state that where an investor purchases an intervening lien "it may not be apparent to the purchaser of the intervening interest that the priority of the old first mortgage will be preserved by subrogation." Restatement (Third) of Property, § 7.6, comment f.
[6] We note that there are alternative methods for foreclosing a second security deed. See 2 Daniel F. Hinkel, Pindar's Ga. Real Estate Law and Procedure § 21-74, p. 698 (6th ed.2004),
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& & &

Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068

& & &


For those who may not get the play on words, Muddy Waters, IS the father of Rock and Roll. McKinley Morganfield (born April 4, 1913, Issaquena County, Mississippi; died April 30, 1983, Westmont, Illinois), better known as Muddy Waters.

A Completed Foreclosure Bars Suit on Most Claims Against the Lender

If you are facing foreclosure in Georgia, you need to fight foreclosure in Georgia before the foreclosure is final. If you simply sit on the sidelines and allow the foreclosure to conclude, you will have waived most rights you have to challenge the foreclosure or the loan.

Sometimes folks ask me whether they can "now" (meaning after the foreclosure is over) sue the Lender in federal court. Generally, the answer is "no." One doctrine is that you cannot have two bites at the same apple – one in state court and then another one in federal court. Its called res judicata. Also, there is a completely separate federal doctrine that prevents a federal court from relitigating a case (here a completed state foreclosure) that has concluded in a state court.

The Rooker-Feldman doctrine is a rule of civil procedure enunciated by the United States Supreme Court in two cases, Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923) and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983). The doctrine holds that lower United States federal courts other than the Supreme Court have no subject matter jurisdiction to sit in direct review of state court decisions unless Congress has enacted legislation that specifically authorized such relief. Wiki.

If you fail to challenge the lender’s foreclosure before it goes final, you (as a borrower) will find any claim you file after the foreclosure may be barred by the doctrines of waiver and estoppel. Those are fancy ways of saying, “you have waived your right to raise them at a later date.”

While the below wrongful foreclosure case occurred in Pennsylvania, its outcome in a Georgia Federal Court would be the same.

If you want to sue your lender for mortgage violations associated with TILA, HOEPA, and RESPA, money damages or file similar claims, you, generally, need to act BEFORE the Georgia foreclosure goes final.

Hugh Wood, Atlanta, Georgia



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ANGEL J. LAYCHOCK
v.
WELLS FARGO HOME MORTGAGE, et al.
Civil Action No. 07-4478
United States District Court, Eastern District of Pennsylvania
July 23, 2008
MEMORANDUM AND ORDER
Juan R. Sanchez, J.
Wells Fargo and Wachovia move to dismiss for lack of subject matter jurisdiction under the Rooker-Feldman doctrine[1] because a federal judgment favoring Angel Laychock would negate the state's foreclosure judgment against her. Alternatively, they argue res judicata and the statute of limitations bar Laychock's claims. Laychock contends neither Rooker-Feldman nor res judicata apply because her state mortgage foreclosure action neither addressed nor decided this lawsuit's claims for liability damages. She further asserts equitable tolling prevents the Court from applying the statute of limitations. Because Rooker-Feldman, res judicata, and the statute of limitations apply, I will grant the Defendants' motion to dismiss.
FACTS
In June 2006, Laychock alleges she signed up for Wachovia's automatic bi-weekly payments to pay her mortgage. Three months later, Wells Fargo, the mortgagee, allegedly without Laychock's authorization also began withdrawing bi-weekly payments from Laychock's Wachovia bank account. In December 2006, Laychock discovered Wells Fargo's allegedly unauthorized withdrawals, which led to incurring insufficient funds and late fees.
After Laychock's discovery, Wells Fargo informed her it would investigate and reversed three out of the seven duplicative payments. Wells Fargo then notified Laychock it informed the credit reporting agencies of its erroneous credit reports.
About seven months later in July 2007, Wachovia filed a foreclosure in Philadelphia Court of Common Pleas against Laychock. In its foreclosure complaint, Wachovia, as a trustee for Wells Fargo, alleged Laychock had failed to pay her monthly payment since April 1, 2007. Wachovia alleged Laychock owed $120,493.72 on the mortgage. Wachovia also alleged it was not seeking a judgment of personal liability, but only sought to "foreclose the mortgage and sell the mortgaged premises." Wachovia's Foreclosure Compl.
On October 12,2007, Laychock petitioned the Philadelphia Court of Common Pleas to open the default judgment. In this petition, Laychock asserted different defenses including "[Wells Fargo and Wachovia] double-debited Plaintiffs auto-pay account causing Plaintiffs short-fall and then foreclosed while contemporaneously giving Plaintiff credit for the same." Laychock's Pet. to Open Def J. ¶ 21. In her proposed answer, Laychock also stated the "mortgage is rescindable pursuant to [Wells Fargo and Wachovia]'s truth-in-lending violations." Laychock's Proposed Ans.¶5.
On October 25, 2007, before receiving the decision on her petition to open, Laychock filed this federal lawsuit against Wells Fargo and Wachovia for "predatory lending" unfair and deceptive acts and practices, wrongful foreclosure, and conspiracy and/or aiding and abetting. In this federal lawsuit, Laychock alleges Well Fargo and Wachovia double-debited her account for the monthly mortgage payments and filed a wrongful foreclosure against her. She alleges their conduct resulted in 14 state and federal violations: wrongful use of civil proceedings; abuse of process; breach of contract; two counts of negligence; fraud/fraud on the court; Unfair Trade Practices Consumer Protection Law (UTCPL); Truth In Lending Act (TILA); Home Ownership Equity Protection Act (HOEPA); Real Estate Settlement Practices Act (RESPA); Fair Credit Reporting Act (FCRA); Fair Credit Extension Uniformity Act (FCEUA); Civil Rights (Section 1983); and Slander of Title.[2] Judge Gary F. DiVito in the Philadelphia Court of Common Pleas reviewed Laychock's petition to open, Wells Fargo and Wachovia's answer, and denied Laychock' s petition on November 28,2007.
DISCUSSION
Under Rooker-Feldman, I must discuss what the state court decided and how Laychock's current claims and proposed relief will affect the state court decision. I conclude 11 of Laychock's claims along with her request for recision will require I find the state court was wrong in its foreclosure, so Rooker Feldman applies and I lack jurisdiction. Alternatively, res judicata also precludes these claims. The statue of limitations bars the TILA, HOEPA, and RESPA monetary claims.
Federal courts are courts of limited jurisdiction. Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994). When considering a motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), the plaintiff bears the burden of persuading the Court subject matter jurisdiction exists. Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir. 1991). The court "may not presume the truthfulness of plaintiff s allegations, but rather must evaluate for itself the merits of the jurisdictional claims." Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005) (brackets omitted).
The Rooker-Feldman Doctrine "prevents 'inferior' federal courts from sitting as appellate courts for state court judgments." In re Knapper, 407 F.3d 573, 580 (3d Cir. 2005). Rooker-Feldman applies when: (1) "the federal claim was actually litigated in state court prior to the filing of the federal action" or (2) "if the federal claim is inextricably intertwined with the state adjudication." Id. A federal and state case are "inextricably intertwined" when "the federal court must take an action that would negate the state court's judgment" or when the plaintiff s sought relief "would prevent a state court from enforcing its orders." Id. at 581. "If the relief requested in the federal action requires determining that the state court's decision is wrong or would void the state court's ruling, then the issues are inextricably intertwined and the district court has no subject matter jurisdiction to hear the suit." ITT Corp. v. Intelnet Intern., 366 F.3d 205, 211 (3d Cir. 2004) (citing FOCUS, 75 F.3d at 840 (quoting Charchenko v. City of Stillwater, 47F .3d 981, 983 (8th Cir. 1995)). "The doctrine applies only when a plaintiff asks a district court to redress an injury caused by the state court judgment itself - not when a plaintiff merely seeks to relitigate a claim or issue already litigated in state court." Moncrief v. Chase Manhattan Mortg. Corp., 2008 WL 1813161, at * 2 (3d Cir. Apr. 3, 2008) (citing Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 292-93 (2005)) (emphasis added).
In deciding whether a claim is "inextricably intertwined," courts must determine "exactly what the state court held." FOCUS v. Allegheny County Court of Common Pleas, 75 F.3d 834, 840 (3d Cir. 1996) (citing Charchenko v. City of Stillwater, 47 F.3d 981, 983 (8th Cir.1995) (citations omitted)). Then, courts must examine the sought federal relief. Id. If this relief "requires determining that the state court decision is wrong or would void the state court's ruling," then the issues are inextricably intertwined and the court lacks jurisdiction. Id.
In Laychock's case, the Philadelphia Court of Common Pleas entered default foreclosure judgment against her and subsequently, denied her petition to open this default judgment. In Pennsylvania, a foreclosure judgment against the mortgagor means "the mortgage is in default, that [the mortgagors] have failed to pay interest on the obligation, and that the recorded mortgage is in the specified amount." Cunningham v. McWilliams, 714 A.2d 1054, 1056-57 (Pa. Super. 1998) (citing Landau v. Western Pennsylvania National Bank, 445 Pa. 217, 225-26, 282 A.2d 335, 340 (1971) (discussing burden mortgagee must prove in summary judgement motion)); Pa. Civ. R. P. 1147.[3] A mortgage foreclosure also depends "upon the existence of a valid mortgage." In re Randall, 358 B.R. 145, 158 (Bkrtcy. E.D. Pa. 2006). Thus, in the default foreclosure judgment against her, the Philadelphia Court of Common Pleas decided Laychock had not paid her monthly payments since April 1, 2007 and her recorded valid mortgage was rightfully for $120,493.72. Judge DiVito denied Laychock's petition to open the default judgment. The denial rejected Laychock's assertions Wachovia and Wells Fargo allegedly double debited Laychock's bank account and allegedly violated TEA. This denial affirmed the Philadelphia Court of Common Pleas' default mortgage foreclosure judgment against Laychock, finding she had failed to make her monthly mortgage payments and was in default.
In her federal lawsuit, Laychock seeks monetary damages for Wachovia and Wells Fargo allegedly double-debiting her account and filing a wrongful foreclosure against her. This misconduct underlies her claims of wrongful use of civil proceedings; abuse of process; breach of contract; negligence; fraud/fraud on the court; UTPCPL; FCRA; FCEUA; Section 1983; and Slander of Title.[4] In other words, Laychock alleges she made her monthly mortgage payments and Wachovia and Wells Fargo wrongly initiated the state foreclosure suit. She also seeks monetary damages and rescission of her mortgage based on violations of TILA, HOEPA, and RESPA.
All her claims for monetary damages, except for TILA, HOEPA, and RESPA, would require me to decide Wells Fargo and Wachovia wrongfully double-debited her account and initiated a wrongful foreclosure against her. Such a decision requires me to find the Philadelphia Court of Common Pleas Judge's decision, Laychock failed to make her monthly mortgage payments, was wrong. Moncrief v. Chase Manhattan Mortg. Corp., 2008 WL 1813161, at * 1-2 (3d Cir. Apr. 3, 2008) (finding Rooker Feldman precluded former home owner's case to the extent it sough redress from state foreclosure judgment). A federal judgment in Laychock' s favor would also invalidate the Philadelphia Court of Common Pleas Judge's denial of the petition to open based on alleged double-debiting and wrongful foreclosure. Her sought relief for rescission would also invalidate the state default judgment. In re Faust, 353 B.R. 94, 103 (Bankr. E.D. Pa. 2006).
Laychock contends she should be allowed to proceed with all of her claims because Pennsylvania law precludes her and other defendants in mortgage foreclosure proceedings from asserting recoupment or allegations for personal liability damages. Pa. R. Civ. P. 1141; see Overly v. Kass, 382 Pa. Super. 108, 113-15, 554 A.2d 970, 973-74 (1989) (precluding Wells Fargo and Wachovia from seeking a set-off for misrepresentations about the condition of the property), Chrysler First Business Credit Corp. v. Gourniak, 411 Pa. Super. 259, 267, 601 A.2d 338, 342 (1992) (precluding defenses relating to misrepresentation in the inducement to purchase of the property). A mortgage foreclosure proceeding permits only counterclaims "directly related to the transaction or occurrence out of which the mortgage arose. . . ." Pa. R. Civ. P. 1148; Indymac Bank F.S.B. v. Vicuna, 83 Pa. D. & C.4th 129, 132 -133 (Pa. Com. PI. 2007). Counterclaims or defenses regarding the mortgage itself, however, are permitted. Vicuna, 83 Pa. D. & C.4th at 133 (permitting counterclaim and defense of fraud in the inducement of the mortgage itself).
Laychock's allegations of double-debiting and illegal foreclosure would fit as defenses to the mortgage default. See id.; Moncrief, 2008 WL 183161 at *2. Through her claims, Laychock requests a federal fact-finder to decide Wells Fargo and Wachovia inappropriately debited her account and wrongfully foreclosed on her property. Such a decision would negate the state court's judgment, which decided in favor of Wells Fargo and Wachovia. Laychock brought these allegations as defenses in her petition to open the default. Judge DiVito rejected these arguments. Laychock could also raise these defenses and arguments on appeal of the default judgment and petition to open. See Andrew v. Ivanhoe Financial, Inc., 2008 WL 2265287, at * 8 (E.D. Pa. May 30, 2008) (instructing plaintiff to seek relief by petitioning under Pa R. Civ. P. 237.3). Alternatively, res judicata also precludes these claims as they are an attempt to relitigate the state foreclosure.[5]
Rooker-Feldman precludes 11 of Laychock's 14 claims. The first claim barred by Rooker-Feldman is slander of title. To prevail on slander or disparagement of title, Laychock must prove Wachovia and Wells Fargo falsely and maliciously represented "the title or quality of another's interest in goods or property." Pro Golf Mfg., Inc. v. Tribune Review Newspaper Co., 809 A.2d 243, 246 (Pa. 2002). She alleges Wells Fargo and Wachovia "slandered Laychock's then title and rights to the premises." Compl. ¶ 68. The Philadelphia Court of Common Pleas default mortgage foreclosure judgment against Laychock held Laychock had failed to make her mortgage payment for three months. I would have to invalidate the state default judgment in order to rule Wells Fargo and Wachovia "maliciously represented" her interest in her property.
Laychock's FCRA[6] and FCEUA[7] are the next two claims barred by Rooker-Feldman. Laychock alleges Wachovia and Wells Fargo violated these laws by reporting her mortgage foreclosure. Both claims require a finding Wachovia and Wells Fargo wrongfully reported the mortgage foreclosure. See Crane v. American Home Mortgage, Corp., 2004 WL 1529165, at * 5 (E.D. Pa. July 7, 2004) (citing 15 U.S.C. § 1681a(k)(l)(B)(iv) (defining adverse action for FCRA); 77 Pa.C.S. § 2270.3 (stating FCEUA prohibits oppressive and harassing behavior on behalf of the creditors).[8] Finding Wachovia and Wells Fargo wrongfully reported this would mean the foreclosure, and the state judgment, was incorrect.
The next three claims, wrongful use of civil proceedings, abuse of process, and fraud/fraud on the court assert an abuse of legal proceedings. Wrongful use of civil proceedings and abuse of process require Laychock to prove Wells Fargo and Wachovia initiated a baseless claim against her. See 42 Pa.C.S.A. § 8351; D'Etta v. Folino, 933 A.2d 117, 121 (Pa. Super. 2007) (requiring plaintiff to prove "(a) initial lawsuit was brought in grossly negligent manner or without probable cause and for purpose other than discovery, joinder, or adjudication; and (b) proceedings have terminated in favor of person against whom they were commenced" to prevail in wrongful use of civil proceedings claim); Werner v. Plater-Zyberk, 799 A.2d 776, 785 (Pa. Super. 2002) (holding an abuse of process requires: a legal process against plaintiff; [p]rimarily to accomplish a purpose for which the process was not designed; [h]arm has been caused to the plaintiff").
To show a fraud on the court, Laychock would have to show the Defendants committed fraud upon the court by filing the state foreclosure. Pittsburgh Live, Inc. v. Servov, 419 Pa. Super. 423, 429, 615 A.2d 438, 441 (1992) (listing prevailing burden for fraud as a "(1) a misrepresentation, (2) a fraudulent utterance thereof, (3) an intention by the maker that the recipient will thereby be induced to act, (4) justifiable reliance by the recipient upon the misrepresentation, and (5) damage to the recipient as the proximate result"). For Laychock to prevail on these claims, I would have to find Wells Fargo and Wachovia wrongfully withdrew more automatic payments from her account than permitted and then maliciously filed a baseless foreclosure against her. This finding would negate the state court's judgment Laychock had defaulted in her judgment and Wachovia Wells Fargo rightfully initiated the foreclosure proceedings, in violation of Rooker-Feldman.
Laychock's seventh claim is a Civil Rights - Section 1983 claim. Section 1983 "establishes a federal remedy against a person who, acting under color of state law, deprives another of constitutional rights." Burella v. City of Philadelphia, 501 F.3d 134, 139 (3d Cir. 2007) (internal quotation marks and citation omitted). To prevail in this claim, Laychock must prove (1) Wachovia and Wells Fargo deprived her of a federal right (2) while acting under color of state law. Id. She alleges Wells Fargo and Wachovia used the "Prothonotary, Sheriff, and the Court of Common Pleas" to initiate the illegal foreclosure, depriving her of her First, Fourth, and Fourteenth amendment rights. Compl. ¶¶ 65-66. Laychock's constitutional deprivation depends on a finding the foreclosure was illegal. Such a finding requires deciding the state court was wrong in entering the default mortgage foreclosure. In re Knapper, 40 F.3d at 581 (finding Rooker-Feldman precluded Knapper's due process attack on her state foreclosure judgment because federal relief would rely on a finding the state court default judgment was "improperly obtained.").
Rooker Feldman also bars Laychock's one breach of contract and two negligence claims. For Laychock to establish breach of contract and negligence claims, she must show Wells Fargo and Wachovia breached a term of the contract and/or a duty. See Ware v. Rodale Press, Inc., 322 F.3d 218, 225 (3d Cir. 2003) (as cited in Sampathachar v. Federal Kemper Life Assur. Co., 186 Fed. Appx. 227, 230 (3d Cir. 2006) (listing contract prima facie as "(1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract[,] and (3) resultant damages."); Jones v. Levin, 940 A.2d 451, 454 (Pa. Super. 2007) (citations omitted) (listing negligence elements as: 1) a duty or obligation recognized by law; 2) a breach of that duty; 3) causation between the breach and the resulting injury; and 4) actual loss or damage suffered by complainant). To prove these breaches, she alleges Wells Fargo and Wachovia wrongfully withdrew automatic payments from her account and then illegally filed a foreclosure against her. To find Wells Fargo and Wachovia breached their duties, I would have to find Laychock made her monthly payments and the state default foreclosure judgment against her was wrong. Rooker Feldman precludes this.
The eleventh claim precluded by Rooker-Feldman is the UTCPL. Under UTCPL, Laychock must prove Wachovia and Wells Fargo "engag[ed] in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding." 73 P.S. § 201-2. She alleges Wells Fargo and Wachovia' conduct "surrounding the mortgage, servicing and underlying complaint falls within the [UTCPL]." Compl. ¶ 44. To find Wells Fargo and Wachovia engaged in fraudulent or deceptive conduct, I would have to find they wrongfully withdrew money from her account and wrongfully initiated the foreclosure proceedings.
Laychock also asks me to both rescind the mortgage and award her monetary damages for disclosure violations under TILA,[9] HOEPA,[10] and RESPA.[11] "Courts in this district have, in fact, consistently drawn such a distinction, holding that claims for recision or other relief calling a Debtor's mortgage itself into question may not proceed pursuant to Rooker-Feldman, but claims for damages may go forward following a state court foreclosure judgment." In re Reagoso, 2007 WL 1655376, at * 1 -4 (Bkrtcy. E.D. Pa. 2007). Thus, Laychock's claims requesting rescission are precluded because rescinding the mortgage would invalidate the state court's default mortgage foreclosure judgment. To prove her claims for monetary relief under TILA, HOEPA, and RESPA, she alleges Wells Fargo and Wachovia failed to provide the appropriate disclosures during closing. A finding she did not receive appropriate disclosures would not require me to find the state court was wrong in entering the default judgment. Such a finding does not dispute the validity of the state court's mortgage foreclosure or of whether Laychock made her monthly mortgage payments. Thus, Rooker-Feldman precludes her TILA, HOEPA, and RESPA claims to the extent they request rescission, but it does not preclude these claims to the extent they request monetary damages. In re Randall, 358 B.R. 145, 157 (Bkrtcy. E.D. Pa. 2006) (finding Rooker-Feldman does not preclude monetary damages because " a set-off for an alleged violation of the Truth-in-Lending Act cannot be asserted as a counter-claim in a mortgage foreclosure action"). The statute of limitations, however, does bar these monetary claims.
The statute of limitations is an affirmative defense that can be raised on a 12(b)(6) motion to dismiss "if the defect appears on the face of the pleading." In re Faust 353 B.R. 94, 101-02 (Bkrtcy. E.D. Pa. 2006) (citing Brody v. Hankin, 299 F.Supp.2d 454, 458 (E.D. Pa. 2004), rev'd on other grounds 145 Fed. Appx. 768 (3d Cir. 2005)). A 12(b)(6) motion to dismiss admits the complaint's well pleaded allegations, but denies their legal sufficiency. Hospital Building Co. v. Trustees of the Rex Hospital, 425 U.S. 738, 740 (1976); T.R. Ashe, Inc. v. Bolus, 34 F.Supp.2d 272, 274-75 (M.D. Pa. 1999). The complaint and every doubt is resolved in the plaintiffs favor. In re Arthur Treacher's Franchise Litigation, 92 FR.D. 398,422 (E.D. Pa. 1981). The court must accept the complaint's factual allegations as true, as well as all its reasonable inferences. Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996); Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994). "[A] case should not be dismissed unless it clearly appears that no relief can be granted under any set of facts that could be proved consistently with the plaintiffs allegations." Id. (citing Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)). Only the complaint's allegations, matters of public record, orders, and exhibits attached to the complaint are considered. Chester County Intermediate Unit v. Pennsylvania Blue Shield, 896 F.2d 808, 812 (3d Cir. 1990). Courts must allow plaintiffs to amend unless amendment would be "inequitable or futile." Phillips v. County of Allegheny, 515 F.3d 224,236 (3d Cir. 2008) (citing Grayson v. Mayview State Hosp., 293 F.3d 103, 108(3dCir.2002)).
The statute of limitations also applies and bars Laychock's remaining TILA, HOEPA, and RESPA claims for monetary damages. TILA and HOEPA, have a one-year statute of limitations for monetary damages. 15 U.S.C. § 1640(e) (stating the one-year statute of limitations); In re Community Bank of Northern Virginia, 418 F.3d 277, 304 -305 (3d Cir. 2005) (citing to 15 U.S.C. § 1640(e) for one year statue of limitations). RESPA has a one-year statute of limitation for fee splitting and a three-year statute of limitation for a defective response. 12 U.S.C. A. § 2614. The statute of limitations begins to run when "the cause of action accrues." Oshiver v. Levin, Fishbein Sedran & Berman, 38 F.3d 1380, 1385 (3d Cir. 1994).
Here, Laychock' s violations occurred at her 2002 closing. She filed the TILA, HOEPA, and RESPA allegations in 2007, long after both the expiring one and three year limitations. The statute of limitations bars these complaints.
Laychock's contention equitable tolling precludes dismissal fails. Equitable tolling applies: (1) where the defendant actively misleads the plaintiff about his/her cause of action (fraudulent concealment); (2) where some extraordinary circumstance prevents the plaintiff from asserting his/her rights; or (3) where the plaintiff has timely asserted his/her rights, but in the wrong forum. Oshiver, 38 F.3d at 1387; Wise v. Mortgage Lenders Network USA Inc., 420 F.Supp.2d 389, 393-94 (E.D. Pa. 2006). Here, Laychock would have to rely on the first option of fraudulent concealment. Andrew, 2008 WL 2265287 at *4. To satisfy this option, Laychock's allegation of fraudulent concealment must also satisfy Federal Rule of Civil Procedure 9(b)'s requirements of specificity. Id.; Lum v. Bank of America, 361 F.3d 217, 223-24 (3d Cir.2004) (requiring a fraud allegation to specify "who made a misrepresentation to whom and the general content of the misrepresentation" in order to notify the defendants of the exact misconduct alleged); Wise v. Mortgage Lenders Network USA Inc., 420 F.Supp.2d 389, 394 (E.D. Pa. 2006) (making specific allegations of fraud and defendants actively and intentionally misleading them). Instead of specific allegations, Laychock makes conclusory allegations of conspiracy and deceptive practices. Andrew, 2008 WL 2265287 at * 5 (holding Andrew and Andrew's attorney, who is also Laychock's attorney, needed to plead fraud specifically for equitable tolling to apply). Equitable tolling fails to apply to Laychock's TILA, HOEPA, and RESPA claims, and the statute of limitations bars them.
In conclusion, Rooker-Feldman and res judicata bar Laychock's claims attempting to challenge and relitigate the state default foreclosure judgment against her. Rooker Feldman also bars her request for rescission under TILA, HOEPA, and RESPA, but not her request for monetary damages. The statute of limitations, however, does bar Laychock's these request for monetary damages under TILA, HOEPA, and RESPA.
An appropriate order so follows.
ORDER
AND NOW, this 23rd day of July, 2008, Defendants' 12(b)(6) Motion to Dismiss (Document 13) is GRANTED. Judgment is entered in favor of Defendants Wells Fargo and Wachovia, and against Angel J. Laychock.
The Clerk of Court is directed to mark the above-captioned case CLOSED.
---------
Notes:
[1] Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1976).
[2] During the hearing for the motion to dismiss, Laychock withdrew her claim for ECOA, 15 U.S.C. § 1691(f).
[3] Pennsylvania's Foreclosure Complaint must state the following:
(1) the parties to and the date of the mortgage, and of any assignments, and a statement of the place of record of the mortgage and assignments;
(2) a description of the land subject to the mortgage;
(3) the names, addresses and interest of the Defendants in the action and that the present real owner is unknown if the real owner is not made a party;
(4) a specific averment of default;
(5) an itemized statement of the amount due; and
(6) a demand for judgment for the amount due.
Note: The plaintiff may also set forth in the complaint a release of the mortgagor and the mortgagor's successors in interest. See Rule 1144(b).
If the mortgage is a residential mortgage under Act No. 6 of 1974, 41 P.S. § 101, the complaint should set forth an averment of compliance with the provisions of Section 403 of Act No. 6, 41 P.S. §403.
(b) If the plaintiff is proceeding against both personal and real property covered by a mortgage as provided by Section 9604(a) of the Uniform Commercial Code, the plaintiff shall set forth in the complaint
(1) the matters required by subdivision (a), and
(2) a description of the personal property subject to the mortgage.
Pa. R. Civ. P. 1147
[4] Laychock also had punitive damages as a claim for relief. Because none of the claims survive, Laychock's claim for punitive damages is also dismissed.
[5] Res judicata is an affirmative defenses that can be raised on a 12(b)(6) motion to dismiss "if the defect appears on the face of the pleading." In re Faust 353 B.R. 94, 101-02 (Bkrtcy. E.D. Pa. 2006) (citing Brody v. Hankin, 299 F.Supp.2d 454, 458 (E.D. Pa. 2004), rev'don other grounds 145 Fed. Appx. 768 (3d Cir. 2005)). A 12(b)(6) motion to dismiss admits the complaint's well pleaded allegations, but denies their legal sufficiency. Hospital Building Co. v. Trustees of the Rex Hospital, 425 U.S. 738, 740 (1976); T.R. Ashe, Inc. v. Bolus, 34 F.Supp.2d 272, 274-75 (M.D. Pa. 1999). The complaint and every doubt is resolved in the plaintiffs favor. In re Arthur Treacher's Franchise Litigation, 92 F.R.D. 398, 422 (E.D. Pa. 1981). The court must accept the complaint's factual allegations as true, as well as all its reasonable inferences. Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996); Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994). "[A] case should not be dismissed unless it clearly appears that no relief can be granted under any set of facts that could be proved consistently with the plaintiffs allegations." Id. (citing Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)). Only the complaint's allegations, matters of public record, orders, and exhibits attached to the complaint are considered. Chester County Intermediate Unit v. Pennsylvania Blue Shield, 896 F.2d 808, 812 (3d Cir. 1990). Courts must allow plaintiffs to amend unless amendment would be "inequitable or futile." Phillips v. County of Allegheny, 515 F.3d 224, 236 (3d Cir. 2008) (citing Grayson v. Mayview State Hosp., 293 F.3d 103, 108 (3d Cir.2002)).
To prevail on res judicata, Wells Fargo and Wachovia must prove: (1) whether the acts complained of and the demand for relief are the same (that is, whether the wrong for which redress is sought is the same in both actions); (2) whether the theory of recovery is the same; (3) whether the witnesses and documents necessary at trial are the same (that is, whether the same evidence necessary to maintain the second action would have been sufficient to support the first); and (4) whether the material facts alleged are the same. O 'Leary v. Liberty Mut. Ins. Co., 923 F.2d 1062, 1065 (3d Cir. 1991) (internal citations omitted). Asserting different laws, statutes, or theories of recovery will not by itself preclude application of res judicata. United States v. Athlone Industries, Inc., 746 F.2d 977, 984 (3d Cir. 1984) (citations omitted). "Rather than resting on the specific legal theory invoked, res judicata generally is thought to turn on the essential similarity of the underlying events giving rise to the various legal claims ... ." Id. at 983-84 (3d Cir. 1984) (citing Davis, 688 F.2d at 171). The Pennsylvania Supreme Court has explained res judicata moves to preclude "a second trial on the same cause between the same parties." Hochman v. Mortgage Fin. Corp., 289 Pa. 260, 263, 137 A. 252, 253 (1927). The court considers "whether the ultimate and controlling issues have been decided in a prior proceeding in which the present parties actually had an opportunity to appear and assert their rights." Id.
Res judicata has precluded others like Laychock, who are attempting to relitigate the legitimacy of foreclosures. Moncrief 2008 WL 183161, at * 2 (finding res judicata precluded disputes regarding the mortgage amount). In Moncrief the Third Circuit found res judicata precluded Moncrief s claims against the legality of her previous state foreclosure judgment "claims regarding the legality of the foreclosure are predicated on the same underlying transaction (the mortgage agreement) that was the basis of the foreclosure action." Id. (citing Athlone, 746 F.2d at 983-84). Like Moncrief all of Laychock's claims dispute the legitimacy of the underlying mortgage. Id. Res judicata also precludes Laychock's claims. Id.
[6] Fair Credit Reporting Act, 15 U.S.C. § 1681.
[7] Fair Credit Extension Uniformity Act, 77 Pa.C.S. § 2270.3.
[8] The Fair Credit Extension Uniformity Act states:
(b) By creditors.-With respect to debt collection activities of creditors in this Commonwealth, it shall constitute an unfair or deceptive debt collection act or practice under this act if a creditor violates any of the following provisions:
(4) A creditor may not engage in any conduct the natural consequence of which is to harass, oppress or abuse any person in connection with the collection of a debt. Without limiting the general application of the foregoing, the following conduct is a violation of this paragraph:
(5) A creditor may not use any false, deceptive or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this paragraph:
73 P.S. § 2270.4.
[9] Truth in Lending Act, 15 U.S.C.A. §§ 1691 et seq.
[10] Home Ownership Equity Protection Act, 15 U.S.C.A. §§ 1602(aa), 1610, 1639, 1640.
[11] Real Estate Settlement Practices Act, 12 U.S.C.A. § 2614.


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