Georgia's Non-Judicial Foreclosure Statutes :: Just the Nuts and Bolts

Listed below are the Georgia Statutes relevant to a Non-Judicial Foreclosure. For some reason, I email these out every day or so. So, for those who keep asking for the citations to same, here they are:


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OCGA § 44-14-160. Recording Of Foreclosure And Deed Under Power; Notations Of Sale In Records.

When the holder of a deed to secure debt or a mortgage forecloses the same and sells the real property thereby secured under the laws of this state governing foreclosures and sales under power and the purchaser thereof presents to the clerk of the superior court his deed under power to have the same recorded, the clerk shall write in the margin of the page where the deed to secure debt or mortgage foreclosed upon is recorded the word "foreclosed" and the deed book and page number on which is recorded the deed under power conveying the real property; provided, however, that, in counties where the clerk keeps the records affecting real estate on microfilm, the notation provided for in this Code section shall be made in the same manner in the index or other place where the clerk records transfers and cancellations of deeds to secure debt.

OCGA § 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.

OCGA § 44-14-162. Sales Made On Foreclosure Under Power Of Sale -- Manner Of Advertisement And Conduct Necessary For Validity.

(a) No sale of real estate under powers contained in mortgages, deeds, or other lien contracts shall be valid unless the sale shall be advertised and conducted at the time and place and in the usual manner of the sheriff's sales in the county in which such real estate or a part thereof is located and unless notice of the sale shall have been given as required by Code Section 44-14-162.2. If the advertisement contains the street address, city, and ZIP Code of the property, such information shall be clearly set out in bold type. In addition to any other matter required to be included in the advertisement of the sale, if the property encumbered by the mortgage, security deed, or lien contract has been transferred or conveyed by the original debtor to a new owner and an assumption by the new owner of the debt secured by said mortgage, security deed, or lien contract has been approved in writing by the secured creditor, then the advertisement should also include a recital of the fact of such transfer or conveyance and the name of the new owner, as long as information regarding any such assumption is readily discernable by the foreclosing creditor. Failure to include such a recital in the advertisement, however, shall not invalidate an otherwise valid foreclosure sale.

(b) The security instrument or assignment thereof vesting the secured creditor with title to the security instrument shall be filed prior to the time of sale in the office of the clerk of the superior court of the county in which the real property is located.
History. Amended by 2008 Ga. Laws 576, OCGA § 1, eff. 5/13/2008.
Amended by 2001 Ga. Laws 266, OCGA § 1, eff. 7/1/2001.

OCGA § 44-14-162.1. Sales Made On Foreclosure Under Power Of Sale -- Mailing Of Notice To Debtor -- "Debtor" Defined.

As used in Code Sections 44-14-162.2 through 44-14-162.4, the term "debtor" means the grantor of the mortgage, security deed, or other lien contract. In the event the property encumbered by the mortgage, security deed, or lien contract has been transferred or conveyed by the original debtor, the term "debtor" shall mean the current owner of the property encumbered by the debt, if the identity of such owner has been made known to and acknowledged by the secured creditor prior to the time the secured creditor is required to give notice pursuant to Code Section 44-14-162.2.

OCGA § 44-14-162.2. Sales Made On Foreclosure Under Power Of Sale -- Mailing Of Notice To Debtor -- Procedure For Mailing Notice.

(a) Notice of the initiation of proceedings to exercise a power of sale in a mortgage, security deed, or other lien contract shall be given to the debtor by the secured creditor no later than 30 days before the date of the proposed foreclosure. Such notice shall be in writing, shall include the name, address, and telephone number of the individual or entity who shall have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor, and shall be sent by registered or certified mail or statutory overnight delivery, return receipt requested, to the property address or to such other address as the debtor may designate by written notice to the secured creditor. The notice required by this Code section shall be deemed given on the official postmark day or day on which it is received for delivery by a commercial delivery firm. Nothing in this subsection shall be construed to require a secured creditor to negotiate, amend, or modify the terms of a mortgage instrument.

(b) The notice required by subsection (a) of this Code section shall be given by mailing or delivering to the debtor a copy of the notice of sale to be submitted to the publisher.
History. Amended by 2008 Ga. Laws 576, OCGA § 2, eff. 5/13/2008.
Amended by 2001 Ga. Laws 370, OCGA § 6, eff. 7/1/2001.

OCGA § 44-14-162.3. Sales Made On Foreclosure Under Power Of Sale -- Mailing Of Notice To Debtor -- Applicability Of Notice Requirement; Waiver Or Release Of Notice Requirement.

(a) The notice requirement of Code Section 44-14-162.2 shall apply only to the exercise of a power of sale of property all or part of which is to be used as a dwelling place by the debtor at the time the mortgage, security deed, or lien contract is entered into.

(b) The notice requirement of Code Section 44-14-162.2 shall apply to all nonjudicial foreclosure sales under a mortgage, security deed, or other lien contract taking place after July 1, 1981, this Code section being procedural and remedial in purpose.

(c) No waiver or release of the notice requirement of Code Section 44-14-162.2 shall be valid when made in or contemporaneously with the security instrument containing the power of nonjudicial foreclosure sale; but, notwithstanding the requirements of Code Sections 44-14-162.1, 44-14-162.2, this Code section, and Code Section 44-14-162.4, a subsequent quitclaim deed in lieu of foreclosure shall be valid and effective as such.
History. Amended by 2002 Ga. Laws 462, OCGA § 44, eff. 4/18/2002.

OCGA § 44-14-162.4. Sales Made On Foreclosure Under Power Of Sale -- Mailing Of Notice To Debtor -- Recitals In Deeds As To Meeting Of Notice Requirement.

All deeds under power shall contain recitals setting forth the giving of notice in compliance with Code Section 44-14-162.2 or a statement of the facts which render the same inapplicable thereto, which facts may include, without limitation, the nonresidential character of the property. The effect of such recitals shall be to protect the validity of the title of any subsequent purchaser in good faith other than the lender.

OCGA § 44-14-163. Vacation Of Certain Judgments Prior To Sale -- Jurisdiction, Power, And Authority.

When a judgment is rendered upon any obligation secured by a deed to secure debt, a bond for title to realty, or a bill of sale to personalty given under Code Section 44-14-60, the court which rendered the judgment shall have the jurisdiction, power, and authority to vacate and set aside the judgment at any time before the sale of the property described in the deed, bond for title, or bill of sale is made upon the motion of the attorney of the plaintiff in execution and of the attorney of the defendant in execution and the payment of the costs. The jurisdiction, power, and authority to vacate and set aside a judgment as provided in this Code section shall extend to a judgment on a purchase-money note, a conditional sale contract where a title is reserved as security or a bond for title is given, a judgment and decree foreclosing a mortgage, and all other cases where it is necessary under Code Section 44-14-210 to reconvey property to the defendant in execution for the purpose of levy and sale.

OCGA § 44-14-164. Vacation Of Certain Judgments Prior To Sale -- Cancellation Of Execution; Invalidation Of Deed Made For Purpose Of Levy And Sale; Notation On Record.

Whenever a judgment is so vacated and set aside, the clerk of the court in which it was rendered shall mark the fi. fa. issued on the judgment "canceled"; and the clerk of the superior court shall enter the same upon the general execution docket and make thereon an appropriate reference to the order vacating the judgment. Whenever a judgment is vacated and set aside as provided in Code Section 44-14-163, any deed reconveying the property to the defendant in fi. fa. for the purpose of levy and sale shall be automatically canceled and rendered null and void by virtue of this Code section; and the clerk of the superior court shall enter on the record of such deed or reconveyance, when recorded, the word "canceled" and shall make an appropriate reference to the order vacating the judgment.

OCGA § 44-14-165. Vacation Of Certain Judgments Prior To Sale -- Effect.
When a judgment is vacated and set aside as provided by Code Sections 44-14-163 and 44-14-164, the obligation upon which the judgment was rendered, as well as the deed, bond for title, bill of sale securing the same, and other instruments mentioned in Code Section 44-14-163, shall be fully restored in all respects to their original status which existed prior to the commencement of the action in which the judgment was rendered; and thereafter the instruments shall be for all purposes whatsoever legally of force and effect as if an action had not been instituted and a judgment had not been obtained on the obligation.

END

It's Difficult to “Boyko” a Georgia Lender

As the foreclosure news pendulum shifts from lender to borrower, much has been written about the legal defense of, "Show me the Note."

Borrowers have hit upon the defense in foreclosure of: "Show me the Note," and "Show me the Assignment." If the lender cannot locate the original note or the original security deed (Deed of Trust in most states), the lender is in world of hurt. The foreclosing lender (many times a Servicer acting for the lender) must be able to show it has the legal authority to accelerate the debt on the borrower and seek to reclaim the real property. Until recently, borrower’s never challenged whether the lender actually had the "original" note and/or Security Deed (Deed of Trust).

After federal Judge Boyko's [1] Order dismissing more than 14 of DeustchBank's foreclosure actions in Cleveland, Ohio hit the Internet, the default legal world has been awash with Plaintiff demands for “the Original Promissory Notes,” the “original Security Deeds,” (Trust Deeds) and the filed assignments. [2] If these documents are not produced upon demand, lender cases may be lost.

As federal Judge Rose wrote in dismissing CitiBank, IndyBank and WellsFargo, "[S]ubject matter jurisdiction may not have existed at the time certain of the foreclosure complaints were filed [ * * * ] To show standing, then, in a foreclosure action, the plaintiff must show that it is the holder of the note and the mortgage at the time the complaint was filed. The foreclosure plaintiff must also show, at the time the foreclosure action is filed, that the holder of the note and mortgage is harmed, usually by not having received payments on the note. In re Foreclosure Cases, 521 F.Supp.2d 650 (S.D.Ohio 2007). [3]

These complaints do not work well in Georgia.

Why is that? You ask.

Because Georgia is a self-help or a non-judicial foreclosure state, the property is gone by the time the debtor realizes he or she has this potential defense to foreclosure. Since 100% of Deeds to Secure Debt allow the lender to declare default and proceed directly to the courthouse steps and sell the property, there is almost no legal juncture in the Georgia process where the debtor can raise this defense. Additionally, we know that this "defense," may not be raised in a post foreclosure confirmation action. BBC Land And Development, Inc. et al. v. Bank Of North Georgia, Georgia Court of Appeals, Case No. A08A1679 (November 20, 2008).

To raise this issue in Georgia foreclosure, a borrower must be proactive. Demanding the Note and assignment prior to foreclosure may stop the foreclosure. Or, potentially, a borrower can seek an OCGA § 9-11-65(b) Temporary Restraining Order (“TRO”) to stop a Georgia foreclosure. Foreclosure TRO’s are rarely granted and it’s somewhat like shooting at a bear. You better kill the bear with your one TRO bullet, or you will be the bear’s dinner (and, you will owe attorney’s fee to the lender for the missed shot).

If, however, a borrower is CERTAIN that the lender doe not possess the original note, security deed or a search of the public records reveals no filed assignment prior to the foreclosure, a defaulted borrower may bring a suit for “wrongful foreclosure,” after the fact. While this course of action is safer and less costly than a TRO, the property is gone during the life of the suit. That is, the borrower, generally, may not continue to live in the property during the life of the wrongful foreclosure suit.

Lenders know that its is costly and legally fatal to proceed with a foreclosure, if they do not possess the property original paperwork. Since servicers may have as many as four, five or six assignments before a foreclosure arrives in their default department, it is common that a servicer (acting for a lender) will not have the original paperwork at the outset of the default process.

A Borrower's demand is not a privilege, but a right. As Judge Rose indicated, lenders many not maintain their claims unless they have the “original.”

Hugh Wood
Atlanta, GA


Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30384
hwood@woodandmeredith.com
404-633-4100
Fax 404-633-0068

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[1] The F.Supp citation eludes me. However, I have reproduced the entire Boyko Order dismissing DeutschBank at the end of the endnotes.

Whether “Boyko” is a noun or a verb, I do not know. However, I do know that lenders are now aware of Federal Judge Christopher A. Boyko, Cleveland, OH.

[2]

IN RE FORECLOSURE CASES
Nos. 1:07CV2282, 07CV2532, 07CV2560, 07CV2602, 07CV2631, 07CV2638, 07CV2681, 07CV2695, 07CV2920, 07CV2930, 07CV2949, 07CV2950, 07CV3000, 07CV3029.
United States District Court Northern District, Ohio Eastern Division
October 31, 2007
OPINION AND ORDER
CHRISTOPHER A. BOYKO, United States District Judge.
On October 10, 2007, this Court issued an Order requiring Plaintiff-Lenders in a number of pending foreclosure cases to file a copy of the executed Assignment demonstrating Plaintiff was the holder and owner of the Note and Mortgage as of the date the Complaint was filed, or the Court would enter a dismissal. After considering the submissions, along with all the documents filed of record, the Court dismisses the captioned cases without prejudice. The Court has reached today's determination after a thorough review of all the relevant law and the briefs and arguments recently presented by the parties, including oral arguments heard on Plaintiff Deutsche Bank's Motion for Reconsideration. The decision, therefore, is applicable from this date forward, and shall not have retroactive effect.
LAW AND ANALYSIS
A party seeking to bring a case into federal court on grounds of diversity carries the burden of establishing diversity jurisdiction. Coyne v. American Tobacco Company, 183 F.3d 488 (6th Cir. 1999). Further, the plaintiff "bears the burden of demonstrating standing and must plead its components with specificity." Coyne, 183 F. 3d at 494; Valley Forge Christian College v. Americans United for Separation of Church & State, Inc., 454 U.S. 464 (1982). The minimum constitutional requirements for standing are: proof of injury in fact, causation, and redressability. Valley Forge, 454 U.S. at 472. In addition, "the plaintiff must be a proper proponent, and the action a proper vehicle, to vindicate the rights asserted." Coyne, 183 F. 3d at 494 (quoting Pestrak v. Ohio Elections Comm'n, 926 F.2d 573, 576 (6th Cir. 1991)). To satisfy the requirements of Article III of the United States Constitution, the plaintiff must show he has personally suffered some actual injury as a result of the illegal conduct of the defendant. (Emphasis added). Coyne, 183 F. 3d at 494; Valley Forge, 454 U.S. at 472.
In each of the above-captioned Complaints, the named Plaintiff alleges it is the holder and owner of the Note and Mortgage. However, the attached Note and Mortgage identify the mortgagee and promisee as the original lending institution - one other than the named Plaintiff. Further, the Preliminary Judicial Report attached as an exhibit to the Complaint makes no reference to the named Plaintiff in the recorded chain of title/interest. The Court's Amended General Order No. 2006-16 requires Plaintiff to submit an affidavit along with the Complaint, which identifies Plaintiff either as the original mortgage holder, or as an assignee, trustee or successor-in-interest. Once again, the affidavits submitted in all these cases recite the averment that Plaintiff is the owner of the Note and Mortgage, without any mention of an assignment or trust or successor interest. Consequently, the very filings and submissions of the Plaintiff create a conflict. In every instance, then, Plaintiff has not satisfied its burden of demonstrating standing at the time of the filing of the Complaint.
Understandably, the Court requested clarification by requiring each Plaintiff to submit a copy of the Assignment of the Note and Mortgage, executed as of the date of the Foreclosure Complaint. In the above-captioned cases, none of the Assignments show the named Plaintiff to be the owner of the rights, title and interest under the Mortgage at issue as of the date of the Foreclosure Complaint. The Assignments, in every instance, express a present intent to convey all rights, title and interest in the Mortgage and the accompanying Note to the Plaintiff named in the caption of the Foreclosure Complaint upon receipt of sufficient consideration on the date the Assignment was signed and notarized. Further, the Assignment documents are all prepared by counsel for the named Plaintiffs. These proffered documents belie Plaintiffs' assertion they own the Note and Mortgage by means of a purchase which pre-dated the Complaint by days, months or years.
Plaintiff-Lenders shall take note, furthermore, that prior to the issuance of its October 10, 2007 Order, the Court considered the principles of "real party in interest," and examined Fed. R. Civ. P. 17 - "Parties Plaintiff and Defendant; Capacity" and its associated Commentary. The Rule is not apropos to the situation raised by these Foreclosure Complaints. The Rule's Commentary offers this explanation: "The provision should not be misunderstood or distorted. It is intended to prevent forfeiture when determination of the proper party to sue is difficult or when an understandable mistake has been made. ... It is, in cases of this sort, intended to insure against forfeiture and injustice ..." Plaintiff-Lenders do not allege mistake or that a party cannot be identified. Nor will Plaintiff-Lenders suffer forfeiture or injustice by the dismissal of these defective complaints otherwise than on the merits.
Moreover, this Court is obligated to carefully scrutinize all filings and pleadings in foreclosure actions, since the unique nature of real property requires contracts and transactions concerning real property to be in writing. R.C. § 1335.04. Ohio law holds that when a mortgage is assigned, moreover, the assignment is subject to the recording requirements of R.C. § 5301.25. Creager v. Anderson (1934), 16 Ohio Law Abs. 400 (interpreting the former statute, G.C. § 8543). "Thus, with regards to real property, before an entity assigned an interest in that property would be entitled to receive a distribution from the sale of the property, their interest therein must have been recorded in accordance with Ohio law." In re Ochmanek, 266 B.R. 114, 120 (Bkrtcy.N.D. Ohio 2000) (citing Pinney v. Merchants' National Bank of Defiance, 71 Ohio St. 173, 177 (1904).[1]
This Court acknowledges the right of banks, holding valid mortgages, to receive timely payments. And, if they do not receive timely payments, banks have the right to properly file actions on the defaulted notes - seeking foreclosure on the property securing the notes. Yet, this Court possesses the independent obligations to preserve the judicial integrity of the federal court and to jealously guard federal jurisdiction. Neither the fluidity of the secondary mortgage market, nor monetary or economic considerations of the parties, nor the convenience of the litigants supersede those obligations.
Despite Plaintiffs' counsel's belief that "there appears to be some level of disagreement and/or misunderstanding amongst professionals, borrowers, attorneys and members of the judiciary," the Court does not require instruction and is not operating under any misapprehension. The "real party in interest" rule, to which the Plaintiff-Lenders continually refer in their responses or motions, is clearly comprehended by the Court and is not intended to assist banks in avoiding traditional federal diversity requirements.[2] Unlike Ohio State law and procedure, as Plaintiffs perceive it, the federal judicial system need not, and will not, be "forgiving in this regard."[3]
CONCLUSION
For all the foregoing reasons, the above-captioned Foreclosure Complaints are dismissed without prejudice.
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Notes:
[1] Astoundingly, counsel at oral argument stated that his client, the purchaser from the original mortgagee, acquired complete legal and equitable interest in land when money changed hands, even before the purchase agreement, let alone a proper assignment, made its way into his client's possession.
[2] Plaintiff's reliance on Ohio's "real party in interest rule" (ORCP 17) and on any Ohio case citations is misplaced. Although Ohio law guides federal courts on substantive issues, state procedural law cannot be used to explain, modify or contradict a federal rule of procedure, which purpose is clearly spelled out in the Commentary. "In federal diversity actions, state law governs substantive issues and federal law governs procedural issues." Erie R.R. Co. v. Tompkins, 304 U.S. 63 (1938); Legg v. Chopra, 286 F.3d 286, 289 (6th Cir. 2002); Gafford v. General Electric Company, 997 F.2d 150, 165-6 (6th Cir. 1993).
[3] Plaintiff's, "Judge, you just don't understand how things work," argument reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process. Typically, the homeowner who finds himself/herself in financial straits, fails to make the required mortgage payments and faces a foreclosure suit, is not interested in testing state or federal jurisdictional requirements, either pro se or through counsel. Their focus is either, "how do I save my home," or "if I have to give it up, I'll simply leave and find somewhere else to live."
In the meantime, the financial institutions or successors/assignees rush to foreclose, obtain a default judgment and then sit on the deed, avoiding responsibility for maintaining the property while reaping the financial benefits of interest running on a judgment. The financial institutions know the law charges the one with title (still the homeowner) with maintaining the property.
There is no doubt every decision made by a financial institution in the foreclosure process is driven by money. And the legal work which flows from winning the financial institution's favor is highly lucrative. There is nothing improper or wrong with financial institutions or law firms making a profit - to the contrary, they should be rewarded for sound business and legal practices. However, unchallenged by underfinanced opponents, the institutions worry less about jurisdictional requirements and more about maximizing returns. Unlike the focus of financial institutions, the federal courts must act as gatekeepers, assuring that only those who meet diversity and standing requirements are allowed to pass through. Counsel for the institutions are not without legal argument to support their position, but their arguments fall woefully short of justifying their premature filings, and utterly fail to satisfy their standing and jurisdictional burdens. The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test, their weak legal arguments compel the Court to stop them at the gate.
The Court will illustrate in simple terms its decision: "Fluidity of the market" - "X" dollars, "contractual arrangements between institutions and counsel" - "X" dollars, "purchasing mortgages in bulk and securitizing" - "X" dollars, "rush to file, slow to record after judgment" - "X" dollars, "the jurisdictional integrity of United States District Court" - "Priceless."

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[3]

521 F.Supp.2d 650 (S.D.Ohio 2007)
In re FORECLOSURE CASES.
Nos. 3:07CV043, 07CV049, 07CV085, 07CV138, 07CV237, 07CV240, 07CV246, 07CV248, 07CV257, 07CV286, 07CV304, 07CV312, 07CV317, 07CV343, 07CV353, 07CV360, 07CV386, 07CV389, 07CV390, 07CV433.
United States District Court, S.D. Ohio, Western Division
Nov. 15, 2007.
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[Copyrighted Material Omitted]
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Kevin L. Williams, Manley Deas Kochalski LLC, Columbus, OH, Timothy R. Billick, Metropolitan Savings Bank of Cleveland, Hudson, OH, for Citibank, N.A., HSBC Mortgage Services, Inc., Household Realty Corp., Indymac Bank, F.S.B., Deutsche Bank Trust Company Americas Formerly Known as Agent of Banker's Trust Company, Wells Fargo Bank, NA, LaSalle Bank National Association, Saxon Mortgage Service, Inc.
Colette S. Carr, Montgomery County Prosecuting Attorney's Office, Dayton, OH, for Montgomery County Treasurer.
Deborah F. Perkins, Miamisburg, OH, Pro se.
Betty A. Lowry, Brookeville, OH, Pro se.
Lucas Chambers Ward, Columbus, OH, for State of Ohio Department of Taxation.
Scott D. Schockling, Champaign County Prosecutor's Office, Urbana, OH, for Champaign County Treasurer.
Dennis Edward Stegner, Allen M. Lehmkuhl Co., L.P.A., Springfield, OH, for Douglas M. Morris.
Michael Edmond Foley, Greene County Prosecutors Office, Xenia, OH, for Greene County Treasurer.
OPINION AND ORDER
THOMAS M. ROSE, District Judge.
The first private foreclosure action based upon federal diversity jurisdiction was filed in this Court on February 9, 2007. Since then, twenty-six (26) additional complaints for foreclosure based upon federal diversity jurisdiction have been filed.
STANDING AND SUBJECT MATTER JURISDICTION
While each of the complaints for foreclosure pleads standing and jurisdiction, evidence submitted either with the complaint or later in the case indicates that standing and/or subject matter jurisdiction may not have existed at the time certain of the foreclosure complaints were filed. Further, only one of these foreclosure complaints thus far was filed in compliance with this Court's General Order 07-03 captioned "Procedures for Foreclosure Actions Based On Diversity Jurisdiction."
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Standing
Federal courts have only the power authorized by Article III of the United States Constitution and the statutes enacted by Congress pursuant thereto. Bender v. Williamsport Area School District, 475 U.S. 534, 541, 106 S.Ct. 1326, 89 L.Ed.2d 501 (1986). As a result, a plaintiff must have constitutional standing in order for a federal court to have jurisdiction. Id.
Plaintiffs have the burden of establishing standing. Loren v. Blue Cross & Blue Shield of Michigan, 505 F.3d 598, 606-07 (6th Cir.2007). If they cannot do so, their claims must be dismissed for lack of subject matter jurisdiction. Id. (citing Central States Southeast & Southwest Areas Health and Welfare Fund v. Merck-Medco Managed Care, 433 F.3d 181, 199 (2d Cir.2005)).
Because standing involves the federal court's subject matter jurisdiction, it can be raised sua sponte. Id. (citing Central States, 433 F.3d at 198). Further, standing is determined as of the time the complaint is filed. Cleveland Branch, NAACP v. City of Parma, Ohio, 263 F.3d 513, 524 (6th Cir.2001), cert. denied, 535 U.S. 971, 122 S.Ct. 1438, 152 L.Ed.2d 382 (2002). Finally, while a determination of standing is generally based upon allegations in the complaint, when standing is questioned, courts may consider evidence thereof. See NAACP, 263 F.3d at 523-30; Senter v. General Motors, 532 F.2d 511 (6th Cir.1976), cert. denied, 429 U.S. 870, 97 S.Ct. 182, 50 L.Ed.2d 150 (1976).
To satisfy Article III's standing requirements, a plaintiff must show: (1) it has suffered an injury in fact that is concrete and particularized and actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision. Loren, at 606-07.
To show standing, then, in a foreclosure action, the plaintiff must show that it is the holder of the note and the mortgage at the time the complaint was filed. The foreclosure plaintiff must also show, at the time the foreclosure action is filed, that the holder of the note and mortgage is harmed, usually by not having received payments on the note.
Diversity Jurisdiction
In addition to standing, a court may address the issue of subject matter jurisdiction at any time, with or without the issue being raised by a party to the action. Community Health Plan of Ohio v. Mosser, 347 F.3d 619, 622 (6th Cir.2003). Further, as with standing, the plaintiff must show that the federal court has subject matter jurisdiction over the foreclosure action at the time the foreclosure action was filed. Coyne v. American Tobacco Company, 183 F.3d 488, 492-93 (6th Cir.1999). Also as with standing, a federal court is required to assure itself that it has subject matter jurisdiction and the burden is on the plaintiff to show that subject matter jurisdiction existed at the time the complaint was filed. Id. Finally, if subject matter jurisdiction is questioned by the court, the plaintiff cannot rely solely upon the allegations in the complaint and must bring forward relevant, adequate proof that establishes subject matter jurisdiction. Nelson Construction Co. v. U.S., 79 Fed.Cl. 81, 84-85 (Fed.Cl.2007) (citing McNutt v. General Motors Acceptance Corp. of Indiana, 298 U.S. 178, 56 S.Ct. 780, 80 L.Ed. 1135 (1936)); see also Nichols v. Muskingum College, 318 F.3d 674, (6th Cir.2003) ("in reviewing a 12(b)(1) motion, the court may consider evidence outside the pleadings to resolve factual disputes concerning jurisdiction ...").
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The foreclosure actions are brought to federal court based upon the federal court having jurisdiction pursuant to 28 U.S.C. § 1332, termed diversity jurisdiction. To invoke diversity jurisdiction, the plaintiff must show that there is complete diversity of citizenship of the parties and that the amount in controversy exceeds $75,000. 28 U.S.C. § 1332.
Conclusion
While the plaintiffs in each of the above-captioned cases have pled that they have standing and that this Court has subject matter jurisdiction, they have submitted evidence that indicates that they may not have had standing at the time the foreclosure complaint was filed and that subject matter jurisdiction may not have existed when the foreclosure complaint was filed. Further, this Court has the responsibility to assure itself that the foreclosure plaintiffs have standing and that subject-matter-jurisdiction requirements are met at the time the complaint is filed. Even without the concerns raised by the documents the plaintiffs have filed, there is reason to question the existence of standing and the jurisdictional amount. See Katherine M. Porter, Misbehavior and Mistake in Bankruptcy Mortgage Claims 3-4 (November 6, 2007), University of Iowa College of Law Legal Studies Research Paper Series Available at SSRN: http://ssrn.com/abstract-1027961 ("[H]ome mortgage lenders often disobey the law and overreach in calculating the mortgage obligations of consumers.... Many of the overcharges and unreliable calculations ... raise the specter of poor recordkeeping, failure to comply with consumer protection laws, and massive, consistent overcharging.")
Therefore, plaintiffs are given until not later than thirty days following entry of this order to submit evidence showing that they had standing in the above-captioned cases when the complaint was filed and that this Court had diversity jurisdiction when the complaint was filed. Failure to do so will result in dismissal without prejudice to refiling if and when the plaintiff acquires standing and the diversity jurisdiction requirements are met. See In re Foreclosure Cases, No. 1:07CV2282, et al., 2007 WL 3232430 (N.D.Ohio Oct. 31, 2007) (Boyko, J.)
COMPLIANCE WITH GENERAL ORDER 07-03
Federal Rule of Civil Procedure 83(a)(2) provides that a "local rule imposing a requirement of form shall not be enforced in a manner that causes a party to lose rights because of a nonwillful failure to comply with the requirement." Fed.R.Civ.P. 83(a)(2). The Court recognizes that a local rule concerning what documents are to be filed with a certain type of complaint is a rule of form. Hicks v. Miller Brewing Company, 2002 WL 663703 (5th Cir.2002). However, a party may be denied rights as a sanction if failure to comply with such a local rule is willful. Id.
General Order 07-03 provides procedures for foreclosure actions that are based upon diversity jurisdiction. Included in this General Order is a list of items that must accompany the Complaint. [1] Among the items listed are: a Preliminary Judicial Report; a written payment history verified by the plaintiff's affidavit that the amount in controversy exceeds $75,000; a legible copy of the promissory note and any loan modifications, a recorded
Page 655
copy of the mortgage; any applicable assignments of the mortgage, an affidavit documenting that the named plaintiff is the owner and holder of the note and mortgage; and a corporate disclosure statement. In general, it is from these items and the foreclosure complaint that the Court can confirm standing and the existence of diversity jurisdiction at the time the foreclosure complaint is filed.
Conclusion
To date, twenty-six (26) of the twenty-seven (27) foreclosure actions based upon diversity jurisdiction pending before this Court were filed by the same attorney. One of the twenty-six (26) foreclosure actions was filed in compliance with General Order 07-03. The remainder were not. [2] Also, many of these foreclosure complaints are notated on the docket to indicate that they are not in compliance. Finally, the attorney who has filed the twenty-six (26) foreclosure complaints has informed the Court on the record that he knows and can comply with the filing requirements found in General Order 07-03.
Therefore, since the attorney who has filed twenty-six (26) of the twenty-seven (27) foreclosure actions based upon diversity jurisdiction that are currently before this Court is well aware of the requirements of General Order 07-03 and can comply with the General Order's filing requirements, failure in the future by this attorney to comply with the filing requirements of General Order 07-03 may only be considered to be willful. Also, due to the extensive discussions and argument that has taken place, failure to comply with the requirements of the General Order beyond the filing requirements by this attorney may also be considered to be willful.
A willful failure to comply with General Order 07-03 in the future by the attorney who filed the twenty-six foreclosure actions now pending may result in immediate dismissal of the foreclosure action. Further, the attorney who filed the twenty-seventh foreclosure action is hereby put on notice that failure to comply with General Order 07-03 in the future may result in immediate dismissal of the foreclosure action.
This Court is well aware that entities who hold valid notes are entitled to receive timely payments in accordance with the notes. And, if they do not receive timely payments, the entities have the right to seek foreclosure on the accompanying mortgages. However, with regard the enforcement of standing and other jurisdictional requirements pertaining to foreclosure actions, this Court is in full agreement with Judge Christopher A Boyko of the United States District Court for the Northern District of Ohio who recently stressed that the judicial integrity of the United States District Court is "Priceless."
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Notes:
[1] The Court views the statement "the complaint must be accompanied by the following" to mean that the items listed must be filed with the complaint and not at some time later that is more convenient for the plaintiff.
[2] The Sixth Circuit may look to an attorney's actions in other cases to determine the extent of his or her good faith in a particular action. See Capitol Indemnity Corp. v. Jellinick, 75 Fed.Appx. 999, 1002 (6th Cir.2003). Further, the law holds a plaintiff "accountable for the acts and omissions of [its] chosen counsel." Pioneer Inv. Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 397, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993).

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New California Statute Requires PreForeclosure Notice

Georgia should consider enacting a similar version of California’s new statute.

California's new Preforeclosure statute, Cal. Civ. Code § 2923.5, requires lender to contact residential borrowers thirty (30) days before filing a Notice of Default. It places the loan servicer in the middle (not as an advocate merely for the lender) if a loan modification is agreed to by the lender and borrower. The person living in the property gets a statutory notice of the foreclosure. It gives residential tenants sixty (60) days to move out after foreclosure. California now requires purchasers of foreclosure property to maintain the exterior of purchased residential property or they can be fined $1,000 per day.

And, California requires that a new foreclosure notice be tacked on the property to be foreclosed. That notice states:

Foreclosure process has begun on this property, which may affect your right to continue to live in this property. Twenty days or more after the date of this notice, this property may be sold at foreclosure. If you are renting this property, the new property owner may either give you a new lease or rental agreement or provide you with a 60-day eviction notice. However, other laws may prohibit an eviction in this circumstance or provide you with a longer notice before eviction. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any rights you may have. Cal. Civ. Code § 2924.8. (This notice must be posted in Six (6) languages stated in the Code.)

Georgia:

Many states are moving to more advance notice to borrowers and tenants prior to tenants - well except, perhaps, Georgia. Unless you consider an additional fifteen (15) days to be "additional notice." OCGA § 44-14-162.2, Georgia has not moved. (Georgia).

For a number of years now, I have written on and encouraged the Bar and the General Assembly to include more notice in the foreclosure statutes. Other than the recent addition of fifteen (15) days to the process, there has been little change in Georgia law.

While many commentators write that California's notice statute has been a failure (I disagree), consider how it differs from Georgia law.

Georgia has no requirement that the lender contact the borrower. All Georgia requires is that the address and phone number of a contact appear in the legal address. California requires actual (or attempts at actual) contact and discussion with the borrower whether they can enter into a loan modification.

Georgia allows a lender to accelerate and send a notice of default with a 10 day notice to pay 100% or suffer all attorney's fees with the foreclosure. Under California's new statute, no default notice may even be mailed until the borrower has been contacted.

Georgia does not require the property to be posted, thus neighbors and third parties have no idea the property is headed to the courthouse stairs. California (perhaps challenging borrower's privacy concerns) now requires the property be tacked prior to foreclosure.

Georgia requires no notice to tenants; however, most all firms provide notice to "occupant." California requires specific notice to the tenants, which in my opinion is a significant deficiency of the Georgia law.

Thousands and thousands of marginally educated Georgians, some of whom I have represented, have been cheated out of millions and millions of dollars collectively, by failure of this one provision of the foreclosure law. The fraud (or bad credit in the absence of fraud) goes like this: Owner of home wants to move out. He/she convinces individual to move in under a "pay to own" scheme. That is the credit poor individual makes payments to the "Owner," and the "Owner" makes payment to the lender (first deed to secure debt holder). Eventually, due to the "Owners" drug habit, Vegas gambling losses or some other calamity, the "Owner" quits paying the first deed lender. The occupant purchaser still pays the "Owner," unaware that the first mortgage is in serious default. No one opens the Certified Mail to the "Owner," and the house goes into default and foreclosure. The purchaser makes 3, 4, 5 or 6 more payments to "Owner," after the foreclosure until the foreclosing lawfirm gets around to filing an eviction. Sometime at or near eviction, the purchaser becomes aware that they have been scammed. The house is gone and now owned by some other party and the "Owner" has converted 10+ to 12+ months of mortgage payments made by the purchaser in "good faith."

If Georgia would simply require formal legal notice to occupants and tenants and require proof of service, this type of fraud and scam would cease or be substantially curtailed.

Georgia has no move out "safe harbor" for tenants (except the seven (7) days in the eviction statute). California specifically allows for a sixty (60) day move out period post foreclosure. While this provision could be "gamed," [enter into a six (6) month lease with your cousin "Vinney," one day before foreclosure. You would get an additional 60 days post foreclosure by law], it seems better if it would happen in Georgia, rather than not exist.

Both states are severely deficient in not requiring actual notice to second mortgages of record prior the foreclosure. Why states persist in not giving notice to subordinate second and third mortgages is beyond me. I am not advocating notice to lien holders - that is too cumbersome. However, giving notice to the second mortgage may get the mortgage current.

California will now fine a purchaser (up to $1,000 per day) who does not maintain the exterior of the property. All Georgia has is county code ordinance violation to police the continuing blight of foreclosed properties on Georgia municipalities.

While no "notice" statute is perfect, providing borrowers, tenants and second mortgage holders would prevent many of the harms occurring month by month on the courthouses of Georgia courthouses.

Hugh Wood
Atlanta, GA




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California Statutes

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CALIFORNIA CODES
CALIFORNIA CIVIL CODE
Division 3. OBLIGATIONS
Part 4. OBLIGATIONS ARISING FROM PARTICULAR TRANSACTIONS
Title 14. LIEN
Chapter 2. MORTGAGE
Article 1. Mortgages in General
Current through 2009
§ 2923.5.
(a) (1) A mortgagee, trustee, beneficiary, or authorized agent may not file a notice of default pursuant to Section 2924 until 30 days after contact is made as required by paragraph (2) or 30 days after satisfying the due diligence requirements as described in subdivision (g).
(2) A mortgagee, beneficiary, or authorized agent shall contact the borrower in person or by telephone in order to assess the borrower's financial situation and explore options for the borrower to avoid foreclosure. During the initial contact, the mortgagee, beneficiary, or authorized agent shall advise the borrower that he or she has the right to request a subsequent meeting and, if requested, the mortgagee, beneficiary, or authorized agent shall schedule the meeting to occur within 14 days. The assessment of the borrower's financial situation and discussion of options may occur during the first contact, or at the subsequent meeting scheduled for that purpose. In either case, the borrower shall be provided the toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency. Any meeting may occur telephonically.
(b) A notice of default filed pursuant to Section 2924 shall include a declaration from the mortgagee, beneficiary, or authorized agent that it has contacted the borrower, tried with due diligence to contact the borrower as required by this section, or the borrower has surrendered the property to the mortgagee, trustee, beneficiary, or authorized agent.
(c) If a mortgagee, trustee, beneficiary, or authorized agent had already filed the notice of default prior to the enactment of this section and did not subsequently file a notice of rescission, then the mortgagee, trustee, beneficiary, or authorized agent shall, as part of the notice of sale filed pursuant to Section 2924f, include a declaration that either: (1) States that the borrower was contacted to assess the borrower' s financial situation and to explore options for the borrower to avoid foreclosure.
(2) Lists the efforts made, if any, to contact the borrower in the event no contact was made.
(d) A mortgagee's, beneficiary's, or authorized agent's loss mitigation personnel may participate by telephone during any contact required by this section.
(e) For purposes of this section, a "borrower" shall include a mortgagor or trustor.
(f) A borrower may designate a HUD-certified housing counseling agency, attorney, or other advisor to discuss with the mortgagee, beneficiary, or authorized agent, on the borrower's behalf, options for the borrower to avoid foreclosure. That contact made at the direction of the borrower shall satisfy the contact requirements of paragraph (2) of subdivision (a). Any loan modification or workout plan offered at the meeting by the mortgagee, beneficiary, or authorized agent is subject to approval by the borrower.
(g) A notice of default may be filed pursuant to Section 2924 when a mortgagee, beneficiary, or authorized agent has not contacted a borrower as required by paragraph (2) of subdivision (a) provided that the failure to contact the borrower occurred despite the due diligence of the mortgagee, beneficiary, or authorized agent. For purposes of this section, "due diligence" shall require and mean all of the following: (1) A mortgagee, beneficiary, or authorized agent shall first attempt to contact a borrower by sending a first-class letter that includes the toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.
(2) (A) After the letter has been sent, the mortgagee, beneficiary, or authorized agent shall attempt to contact the borrower by telephone at least three times at different hours and on different days. Telephone calls shall be made to the primary telephone number on file.
(B) A mortgagee, beneficiary, or authorized agent may attempt to contact a borrower using an automated system to dial borrowers, provided that, if the telephone call is answered, the call is connected to a live representative of the mortgagee, beneficiary, or authorized agent.
(C) A mortgagee, beneficiary, or authorized agent satisfies the telephone contact requirements of this paragraph if it determines, after attempting contact pursuant to this paragraph, that the borrower's primary telephone number and secondary telephone number or numbers on file, if any, have been disconnected.
(3) If the borrower does not respond within two weeks after the telephone call requirements of paragraph (2) have been satisfied, the mortgagee, beneficiary, or authorized agent shall then send a certified letter, with return receipt requested.
(4) The mortgagee, beneficiary, or authorized agent shall provide a means for the borrower to contact it in a timely manner, including a toll-free telephone number that will provide access to a live representative during business hours.
(5) The mortgagee, beneficiary, or authorized agent has posted a prominent link on the homepage of its Internet Web site, if any, to the following information: (A) Options that may be available to borrowers who are unable to afford their mortgage payments and who wish to avoid foreclosure, and instructions to borrowers advising them on steps to take to explore those options.
(B) A list of financial documents borrowers should collect and be prepared to present to the mortgagee, beneficiary, or authorized agent when discussing options for avoiding foreclosure.
(C) A toll-free telephone number for borrowers who wish to discuss options for avoiding foreclosure with their mortgagee, beneficiary, or authorized agent.
(D) The toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.
(h) Subdivisions (a), (c), and (g) shall not apply if any of the following occurs: (1) The borrower has surrendered the property as evidenced by either a letter confirming the surrender or delivery of the keys to the property to the mortgagee, trustee, beneficiary, or authorized agent.
(2) The borrower has contracted with an organization, person, or entity whose primary business is advising people who have decided to leave their homes on how to extend the foreclosure process and avoid their contractual obligations to mortgagees or beneficiaries.
(3) The borrower has filed for bankruptcy, and the proceedings have not been finalized.
(i) This section shall apply only to loans made from January 1, 2003, to December 31, 2007, inclusive, that are secured by residential real property and are for owner-occupied residences. For purposes of this subdivision, "owner-occupied" means that the residence is the principal residence of the borrower.
(j) This section shall remain in effect only until January 1, 2013, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2013, deletes or extends that date.
History. Added by Stats 2008 ch 69 (SB 1137), s 2, eff. 7/8/2008, op. 9/6/2008.


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Georgia Statutes

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§ 44-14-162.2. Sales Made On Foreclosure Under Power Of Sale -- Mailing Of Notice To Debtor -- Procedure For Mailing Notice.
(a) Notice of the initiation of proceedings to exercise a power of sale in a mortgage, security deed, or other lien contract shall be given to the debtor by the secured creditor no later than 30 days before the date of the proposed foreclosure. Such notice shall be in writing, shall include the name, address, and telephone number of the individual or entity who shall have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor, and shall be sent by registered or certified mail or statutory overnight delivery, return receipt requested, to the property address or to such other address as the debtor may designate by written notice to the secured creditor. The notice required by this Code section shall be deemed given on the official postmark day or day on which it is received for delivery by a commercial delivery firm. Nothing in this subsection shall be construed to require a secured creditor to negotiate, amend, or modify the terms of a mortgage instrument.
(b) The notice required by subsection (a) of this Code section shall be given by mailing or delivering to the debtor a copy of the notice of sale to be submitted to the publisher.
History. Amended by 2008 Ga. Laws 576, § 2, eff. 5/13/2008.
§ 44-14-162. Sales Made On Foreclosure Under Power Of Sale -- Manner Of Advertisement And Conduct Necessary For Validity.
(a) No sale of real estate under powers contained in mortgages, deeds, or other lien contracts shall be valid unless the sale shall be advertised and conducted at the time and place and in the usual manner of the sheriff's sales in the county in which such real estate or a part thereof is located and unless notice of the sale shall have been given as required by Code Section 44-14-162.2. If the advertisement contains the street address, city, and ZIP Code of the property, such information shall be clearly set out in bold type. In addition to any other matter required to be included in the advertisement of the sale, if the property encumbered by the mortgage, security deed, or lien contract has been transferred or conveyed by the original debtor to a new owner and an assumption by the new owner of the debt secured by said mortgage, security deed, or lien contract has been approved in writing by the secured creditor, then the advertisement should also include a recital of the fact of such transfer or conveyance and the name of the new owner, as long as information regarding any such assumption is readily discernable by the foreclosing creditor. Failure to include such a recital in the advertisement, however, shall not invalidate an otherwise valid foreclosure sale.
(b) The security instrument or assignment thereof vesting the secured creditor with title to the security instrument shall be filed prior to the time of sale in the office of the clerk of the superior court of the county in which the real property is located.
History. Amended by 2008 Ga. Laws 576, § 1, eff. 5/13/2008.


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Hugh Wood
hwood@woodandmeredith.com
404-633-4100
Fax 404-633-0068

Major Lenders Suspend Residential Foreclosures

Citigroup, Morgan Stanley, Fannie Mae and JPMorgan Chase announced that they have committed to a temporary halt of some residential foreclosures.

Rep. Barney Frank (D-Mass.), the chairman of the House Financial Services Committee, had suggested such a moratorium, in order to give the Treasury Department more time to implement its own foreclosure-reduction plan. Treasury Secretary Timothy Geithner on Tuesday released outlines of an economic-revival effort that are slated to include about $50 billion in assistance to "prevent avoidable foreclosures" of some owner-occupied homes, and this moratorium would serve as a lead-in to the federal plan.

Frank suggested the moratorium on Wednesday, the day the CEOs of eight major financial-services companies testified before Congress about their roles in the economic downturn.

Frank released a letter sent to him by JPMorgan CEO Jamie Dimon on Thursday, in which he said his company would have a foreclosure moratorium through March 6 for any owner-occupied residential loans that are owned and serviced by JPMorgan Chase.

"We believe three weeks is adequate time for the Treasury to announce -- and for us to implement -- a new plan," Dimon's letter said. He continued, "We stand ready to work with you to put the appropriate processes in place, including a national modification standard, to reduce the incidence of foreclosure and to encourage long-term, sustainable home mortgages.

A JPMorgan spokesman said that in the last two years, the company has helped around 330,000 foreclosures be avoided on about $50 billion in mortgages. He said that the company already has a number of programs in place to help homeowners, in addition to this one just implemented.

Citigroup said on Friday that it's expanding a foreclosure moratorium already in place that's effective through March 12 or until the government's new loan modification program is finalized, "whichever is earlier."

Citi's foreclosure moratorium will apply to Citi-owned first-mortgage loans that are the principal residence of the customer "as well as all loans Citi services where we have reached an understanding with the investor," the company said in a press release.

Citi said that since the housing crisis started in 2007, it has worked with 440,000 homeowners to avoid potential foreclosure on combined mortgages totaling around $43 billion.

A Morgan Stanley spokeswoman confirmed that it also has a moratorium on foreclosures that started this week and will last through March 6, which will apply to the bank's Saxon unit, which collects payments on loans.

Fannie Mae also said in a statement that it is suspending all foreclosure sales and evictions of occupied properties through March 6.

Joanna Ossinger, FOXBusiness

Washington Post's Graphic of Stimulus Spending

There is no way to understand the spending provisions of the 2nd round of "stimulus" (a misnomer at best). Here the best overviewwe could find concerning where the money is going.

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"Taking Apart the $819 billion Stimulus Package
The centerpiece of President Obama's domestic agenda is an $819 billion economic stimulus plan. The Senate will consider the measure this week, with an eye toward the amount of tax cuts and spending. Republicans and Democrats spar over what to consider a tax cut. An analysis by the nonpartisan Congressional Budget Office tallies the tax-cut portion to be significantly less than the one-third Democrats claim it to be."

Hugh Wood

Atlanta, GA

Entire Real Estate “Aggregator Bank,” Bailout Remains Murky

This Blog has been following the twisted path of the Real Estate Bailout for Six (6) Months. Even now the outlines of the “bailout,” remain murky. My initial belief (as did many other authors at the time) was that the Feds would create a 2nd RTC. This avenue seems to be closing in the new US Treasury administration.

From the selfish perspective of helping the local Georgia Real Estate Brethren obtain work in cleaning up this economic mess, I have looked for landing zone where the “2ndRTC,” will land – or make landfall – or make splashdown or materialize. It seems like it is not coming. That is, there will be no “2nd RTC.”

Though lost in the gloam of well-placed newspapers with only partial information, we only know the broadest of outlines of the coming Aggregator Bank. It appears the Feds will create an “Aggregator Bank,” and that Bank will become the repository of the “bad,” assets. How it acquires them and at what price is anyone’s guess. How it disposes of those assets is further muddied by the “price” of disposal. If disposal (sale) is to occur at “any market,” or “auction without reserve,” then the disposal will resemble the old RTC’s auction. This cannot work, unless the taxpayer is being set up to take a massive fall.

Consider: the Aggregator books assets at Good Bank’s book value; Good Bank gets an inflated value for its “toxic” asset from the US Treasury and moves on -- having ditched its toxic asset. The Aggregator Bank then holds the inflated toxic asset and sells it at a public auction. The loss (Inflated Book Value – Auction Price = Actual Loss). If the taxpayers paid the Good Bank its full “book value,” then the taxpayers will take a huge bath on the sale of the toxic assets.

To avoid a “firesale,” the Treasury may require the Aggregator Bank to hold the asset until the market recovers. However, this will place a significant additional “carry cost,” on the money fronted to the pay the Good Bank.

Work for Georgia lawyers and real estate professionals could come out of this model based on their ability to assist in the legal packaging, management, marketing and sale (or auction) of the toxic assets. However, my intuition (from reading the chards of information coming out of Washington) is that this Bank is going to be an inside job. The Aggregator Bank will tightly control the sale and tightly dole out the work. If you work for the Aggregator Bank or are a firm “picked” by it or Treasury to assist, then your firm may participate in the work out.

If not, then not – is my guess.

We will know the answer to the “professionals assisting the Aggregator Bank,” question when they issue the proposal in a few weeks. If there is no ability to bid on the work of the Aggregator Bank or offer proposals to assist the Aggregator Bank on the sale of assets, then we will have our answer.

Stay Tuned.

Hugh Wood
Atlanta, GA

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Relevant Clips from a recent February 9, 2009 WSJ are as follows:

Bank Bailout Plan Revamped
Treasury Secretary to Unveil Private-Sector Partnership to Buy Troubled Assets

Treasury Secretary Timothy Geithner is expected to announce that the government will become a partner with the private sector to purchase banks' troubled assets, according to people familiar with the matter.
The plan for a so-called aggregator bank, a variation on a theme that Obama administration officials have wrestled with for weeks, is among four main components of Mr. Geithner's bailout revamp, which he is expected to announce Tuesday.

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The administration hasn't settled on exactly how it will work and intends to hash out the structure with the private sector over the next few weeks, the people familiar with the matter said. Investors would likely buy a stake in the entity, which would then buy mortgage-backed securities and other troubled assets.

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The government would also be an investor, but the terms aren't yet decided. The entity might also raise funds by selling government-backed debt or through financing from the Fed, the people familiar with the matter said.
The Obama administration views the private bank as a way to get around the thorny issue of having to determine a price for soured assets such as certain mortgage-backed securities, many of which are illiquid and hard to value. The government has long worried that if it bought toxic assets and paid too much for them, banks would benefit at the expense of taxpayers -- while if the price was too low, it would force banks to take further write-downs and exacerbate their woes.

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The Treasury's working theory for the government/private-sector partnership is that investors wouldn't overpay, because if they did, they'd stand to lose money; but they also wouldn't underpay, since the selling banks wouldn't be willing to part with their assets too cheaply.

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A second round of cash injections in financial firms but with tougher terms, such as a requirement to modify troubled mortgages and better track the federal funds. The government is looking to get money into banks by buying preferred shares that convert into common shares in seven years; the idea is to avoid diluting current shareholders' stakes while helping banks better withstand losses. The Treasury may also allow banks that have already received capital to convert the Treasury's preferred shares to common stock over time.
Giving the Federal Deposit Insurance Corp. power to help dismantle troubled financial firms beyond the depository institutions over which it now has authority. This could require legislation.

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Mr. Geithner, his predecessor Mr. Paulson and Fed Chairman Ben Bernanke have said there needs to be a government entity empowered to wind down failed financial institutions that aren't banks. Regulators have said one problem the government faced when Lehman Brothers Holdings Inc. and American International Group Inc. ran into trouble was that no federal body had authority to step in and steer the firms toward an orderly demise.

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Having the FDIC guarantee a wider range of debt that banks issue to fund loans is also a likely element of the plan, said people familiar with the matter. The guarantees could help free up credit to both companies and consumers. Currently, the FDIC temporarily backs certain debt with a three-year maturity. Government officials could increase this to maturities up to 10 years.

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-- Heidi N. Moore and Robin Sidel wrote the WSJ article
Write to Deborah Solomon at deborah.solomon@wsj.com and Damian Paletta at damian.paletta@wsj.com

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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
Phone: 404-633-4100
Fax: 404-633-0068

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Tax Sales: No Trespassing on Your Own Property

Part of our businesses concerns advising investors (and sometimes wanna-be-investors) on the ins and outs of Georgia Tax Sale property. Every two months or so, a client (investor) will pose a question, "We need to make repairs to the property." Or, "We want to store our equipment for a month or so on the property." Or, "You need to help us get an eviction going, people are living in our tax sale house."

What am I supposed to tell my Tax Sale clients? "Let me call the Court and get the eviction papers."

Unequivocally, "No."

Investors who acquire a Georgia Tax Deed may not go upon the property or take action associated with the property until they have "barred the right of redemption," under Chapter 48 of the Georgia Code.

The granddaddy of all cases (in Georgia) in this area is Elrod v. Groves et al., 116 Ga. 468, 42 S.E. 731 (1902).

"The purchaser has no title to the land until the time for redemption has expired. He has consequently no constructive possession of the premises, and no more right to go upon and make use of them than any stranger to the title would have. His entry upon the premises would be a trespass upon the possession, actual or constructive, of the owner, who might recover against him for any injury committed." Elrod, supra, at 468. [1]

Whitaker Acres, Inc., et al. v. Schrenk, 170 Ga.App. 238, 316 S.E.2d 537 (1984), made clear that the real "owner," not the owner of tax deed could maintain an action for Trespass. [2]

See also, Moultrie v. Wright, 266 Ga. 30, 464 S.E.2d 194 (1995).

"Although the purchaser at a tax sale receives a deed to the property, this tax deed does not vest in the purchaser absolute title to the property. Whitaker Acres, Inc. v. Schrenk, 170 Ga.App. 238, 240(2), 316 S.E.2d 537 (1984). The "title" that the purchaser acquires is subordinate to the right of the defendant in fi. fa. to redeem the property, "and until the expiration of the period which the law fixes in which [the defendant in fi. fa.] might exercise this right [his] title as owner [is] not divested." Morrison v. Whiteside, 116 Ga. 459, 462, 42 S.E. 729 (1902)."

A gray area that tax investors sometimes are bullied into concerns "code enforcement." Notwithstanding the fact that the tax purchaser has no right to go on the land, many of my clients over the years have caved to demands to "cut the grass," and take other remedial action associated with properties. [Don't expect any title company to answer this question; they hate tax deeds. [3]]

One thing that we do advise investors to do is pay the "next," years ad valorem taxes when they come due. If the subsequent years taxes are not paid, the tax sale purchasers are "subordinate" to whoever purchases a future years taxes. Weird but true.

So, if you purchase tax sale in Georgia, wait until you bar the right of redemption; otherwise, whether you like it or not, you may be considered a "trespasser," on your own property.

Hugh Wood
Atlanta, GA


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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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[1]

ELROD
v.
GROVES et al.
42 S.E. 731
116 Ga. 468
Supreme Court of Georgia.

Oct. 30, 1902.

Syllabus by the Court.
1. The purchaser of land at a tax sale is not entitled to be placed in possession until after the time for redemption has expired.
Error from superior court, Murray county; A. W. Fite, Judge.
Action by D. M. Elrod against W. C. Groves and others. Judgment for defendants, and plaintiff brings error. Affirmed.
COBB, J.
This was a suit upon a sheriff's bond. The petition alleged that the sheriff had levied a tax execution upon a tract of land, and had sold the same in the manner prescribed by law, and that after the sale, and before the time for redemption had expired, the sheriff had ejected the defendant in the tax execution from the premises, and placed the purchaser at the tax sale in possession. It was alleged that this constituted a breach of the bond. The defendants demurred to the petition upon the ground that under the law of this state it was the duty of the sheriff, upon the application of the purchaser at the tax sale, to place him in possession of the property at any time after the sale had taken place and a deed had been delivered. The judge sustained the demurrer and dismissed the case. The plaintiff excepted.
What effect has a tax sale of land upon the title to the property and the right of possession? Is the right of the purchaser to the possession of the property postponed until after the time for redemption has expired? In the case of Jones v. Johnson, 60 Ga. 260, it was distinctly ruled that the rents accruing during the period allowed for redemption belonged to the owner, and not to the purchaser at the tax sale. It is true that that case was dealing with a tax sale had under the provisions of a municipal charter, but the principle in such a case is equally controlling in a case arising under a sale had under the general tax laws of the state. It was said in that case that for a year the purchaser at a tax sale has no absolute title, but a defeasible or conditional title only. In Lamar v. Sheppard, 84 Ga. 561, 567, 10 S. E. 1084, it was said that the owner had a legal right to occupy the premises during the first year after a tax sale without paying rent. While the question as to who was entitled to possession was not directly involved in the case last referred to, it is at least settled by the rulings in the two cases that the owner is entitled to the rents during the time allowed for redemption. If this is true, it would seem to follow that the owner is entitled to the possession during that time. The right to collect rents from one in actual possession necessarily carries with it the right to determine who shall be the possessor during the time for which the rents are collected. If the owner can during the period allowed for redemption place a tenant in possession, certainly the owner can himself be the possessor during that time. Judge Cooley says: "The purchaser has no title to the land until the time for redemption has expired. He has consequently no constructive possession of the premises, and no more right to go upon and make use of them than any stranger to the title would have. His entry upon the premises would be a trespass upon the possession, actual or constructive, of the owner, who might recover against him for any injury committed." Cooley, Tax'n, p. 542 (11). See, also, Black, Tax Tit. §§ 169, 171; 25 Am. & Eng. Enc. Law (1st Ed.) p. 716; Hibbard v. Brown, 51 Ala. 469; Shalemiller v. McCarty, 55 Pa. 186; Mayo v. Woods, 31 Cal. 269; Morrison v. Whiteside (this day decided) 116 Ga. 459, 42 S. E. 729. Our Code provides that the officer selling at tax sales "has the authority to put purchasers in possession of land sold, as in other cases." Pol. Code, § 914. Under the general law of this state, when real estate is sold by the sheriff or other officer, it is provided that the officer conducting the sale may put the purchaser in possession; and ordinarily the purchaser at such a sale acquires the right to be placed in possession *732 by the officer immediately upon paying the amount of his bid, and receiving a deed from the officer conducting the sale. It is argued from this that, under the section of the Political Code above quoted, the purchaser at a tax sale is entitled to immediate possession if he demands it. We do not think this a proper construction to be placed upon that section. Properly construed, that section simply means that the officer selling at a tax sale is authorized to put the purchaser in possession of the land sold in the same manner in which other purchasers at judicial sales are put in possession, whenever such purchaser is entitled, under the law, to the possession of the land. This section does not purport to fix the rights of the purchaser, but simply to give him an appropriate remedy whenever he is entitled to demand possession of the property bought.
Judgment reversed. All the justices concurring, except LUMPKIN, P. J., absent on account of sickness.

[2]

" 'To maintain an action for trespass or injury to realty, it is essential that the plaintiff show either that he was the true owner or was in possession at the time of the trespass.' [Cits.]" Coffin v. Barbaree, 214 Ga. 149, 151, 103 S.E.2d 557 (1958). "[The] true owner (that is, the person holding the legal title) may maintain an action of trespass, though he was not in possession at the time the wrong was committed; but ..., the burden is upon him to show
Page 539 that he is the true owner; and this he can do only by showing title. [Cits.]" Gaskins v. Gray Lumber Co., 6 Ga.App. 167, 168, 64 S.E. 714 (1909). Thus, the issue for resolution in the instant case is who was the "true owner" of the unoccupied property at the time the alleged damage occurred.

It is true that the purchaser at a tax sale receives a deed to the property. OCGA § 48-4-6. However, it is also clear that this tax deed does not represent the purchaser's absolute title to the property. "While under the law of this State, where property is sold for taxes, the officer making the sale executes a deed to the purchaser before the time for redemption has lapsed, yet the title acquired by such purchaser is not a perfect fee-simple title, but an inchoate or defeasible title, subject to the right of the owner to redeem within the time prescribed by the statute." Bennett v. Southern Pine Co., 123 Ga. 618(1), 51 S.E. 654 (1905). "The nature of the title which he has may be compared to an estate which will ripen upon a condition, or rather perhaps to one which will be defeated upon the happening of a condition. In either event, it is not a perfect title, but one subject to the right of redemption." Bennett v. Southern Pine Co., supra at 622-623, 51 S.E. 654.

Moreover, it is clear that whatever "title" the purchaser at a tax sale may acquire, it is "in subordination to [the] right of [the owner to redeem his property], and until the expiration of the period which the law fixes in which [the owner] might exercise this right [his] title as owner [is] not divested." (Emphasis supplied.) Morrison v. Whiteside, 116 Ga. 459, 462, 42 S.E. 729 (1902). The purchaser at a tax sale "is not entitled to possession, or to rents, issues, and profits during the time allowed for redemption." Bennett v. Southern Pine Co., supra 123 Ga. at 622, 51 S.E. 654. " 'He has consequently no constructive possession of the premises, and no more right to go upon and make use of them than any stranger to the title would have. His entry upon the premises would be a trespass upon the possession, actual or constructive, of the owner, who might recover against him for any injury committed.' [Cits.]" (Emphasis supplied.) Elrod v. Groves, 116 Ga. 468, 470, 42 [170 Ga.App. 241] S.E. 731 (1902).

If, prior to the expiration of the time for redemption, the owner's title is not divested and the purchaser himself may be considered a trespasser on the premises, it logically follows that the owner cannot be said to lack standing to sue for a trespass which occurs during this period. The owner has "the right to determine who shall be the possessor" before the expiration of the redemption period. Elrod v. Groves, supra at 469, 42 S.E. 731. Accordingly, we find that appellee had sufficient standing to recover for a trespass to the property. Whitaker Acres, Inc., supra, at 240 - 241.

[3]

Title Ins. Companies Hate Tax Deeds.

1.
Title to the estate or interest described in Schedule A being vested other than as stated therein;
The first paragraph of the owner's policy generally states the coverage provided. Subject to the Exclusions from Coverage, the Exceptions contained in Schedule B, and the provisions of the Conditions and Stipulations, the insurer insures the insured against loss or damage that the insured shall sustain by reason of three (Form A) or four (Form B) areas of affirmative coverage stated in the policy. This first area of affirmative coverage provides that the insurer will reimburse or indemnify the insured for loss sustained by reason of the fact that the title to the estate or interest that is described in Schedule A is not vested as stated in Schedule A of the policy, subject always to the Exclusions, Exceptions, and Conditions and Stipulations. In Schedule A, the title insurance company will describe the estate or interest that the policy covers and will specify in whom the title to such estate or interest is vested. See §3.49 below. In the event the company errs in describing the manner in which title to the estate or interest described in Schedule A is vested, and if the insured sustains a loss by reason of the title being vested otherwise than as stated, then, subject to the Exclusions, Exceptions, and Conditions and Stipulations, the title insurer will reimburse the insured. Generally speaking, it should be a relatively simple matter for the title insurance company to ascertain in whom the title to the estate or interest described in Schedule A is vested. Of course, 100-percent failures of title do occur. A 100-percent title failure would occur if the estate or interest described in Schedule A is that of fee simple absolute and the title insurer names as the individual vested with such title someone other than the owner. This could happen, for example, when a valid tax deed has been issued to other than the insured but the title insurance company personnel failed to pick up the tax sale or tax deed proceedings in the title search. As a result, the title insurer may issue a policy to the record owner, insuring fee simple title in him, when, in fact, the grantee named in the tax deed is the fee simple title holder. Since title to the estate or interest described in Schedule A would be vested otherwise than as stated therein, the title insurer would, subject to the other limitations of the policy, be liable to indemnify or reimburse the insured for loss sustained as a result of the error. More typical situations involve those in which an undisclosed heir may have an undivided fractional interest in the fee simple title that is not taken into account in Schedule A of the policy. Title may also be "vested other than as stated" by reason of adverse possession. See, e.g., Laabs v. Chicago Title Insurance Co., 72 Wis.2d 503, 241 N.W.2d 434, 438 (1976). Generally speaking, other areas of coverage afforded by the policy result in greater losses to the title insurance industry than are occasioned by coverage afforded in this paragraph. The ALTA Owner's Policies :: SingleSource not updated after July 2007

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