Insights

Complying with the law governing mortgage foreclosures can be a challenge – especially when the rules seem to shift. In a recent Georgia case, the Georgia Court of Appeals, in a 5-to-4 decision, decided that a lender’s statutory foreclosure notice wasn’t good enough. Here’s what happened.

Izell and Raven Reese borrowed $650,000 from Provident Funding Associates, L.L.P. to buy their property. The loan was secured by a security deed naming Mortgage Electronic Registration Systems, Inc. as nominee for Provident as the secured party. After funding the loan, Provident sold the note to Residential Funding Company, LLC. However, Provident remained the servicer for the loan.

After the Reeses defaulted on the loan, Provident sent them a notice of default. The Reeses failed to cure the default and Provident’s attorney sent the Reeses a notice stating that Provident was commencing foreclosure proceedings, as required by Ga. Code Ann. § 44-14-162.2. Provident held a non-judicial foreclosure sale, at which it bought the property. Provident then sued the Reeses to evict them from the property. In response, the Reeses sued Provident for wrongful foreclosure. The trial court granted summary judgment to Provident, finding that it had full authority to foreclose and had done so properly. The Reeses appealed. The Georgia Court of Appeals reversed the trial court’s decision. The appellate court held that the foreclosure was invalid because Provident had failed to properly give the Reeses the notice required by Ga. Code Ann. § 44-14-162.2.

Ga. Code Ann. § 44-14-162.2 provides as follows: “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. . . .”

The appellate court concluded that this language requires the notice to identify the secured creditor and state whether the notice is being sent by the secured creditor or by an entity with authority on behalf of the secured creditor. As a result, the notice that Provident sent to the Reeses was defective because it did not state that Residential Funding Company was the secured creditor or that Provident was acting in a representative capacity. Acknowledging that the language in Ga. Code Ann. § 44-14-162.2 seems unambiguous on its face, the appellate court nonetheless found that the statute was ambiguous, and looked to legislative intent to come to this conclusion. The appellate court noted that the legislature’s intent was to increase transparency in the foreclosure process. Accordingly, the appellate court concluded that the statute requires the notice to include the “true identity” of the secured creditor.

The dissent criticized the majority opinion as judicial re-writing of Ga. Code Ann. § 44-14-162.2. The dissent also stated that if the Georgia legislature wanted to require the notice to state the identity of the secured creditor, it would have said so in the statute.

That’s cold comfort for the lender.

Reese v. Provident Funding Associates, L.L.P., 2012 Ga. App. LEXIS 666 (Ga. App. July 12, 2012)

Katherine C. Fisher is an associate in the Maryland office of Hudson Cook, LLP. Kate can be reached at 410-782-2356 or by email at kfisher@hudco.com.