On February 18, 2013, the Georgia Supreme Court issued its opinion in Wells Fargo Bank. N.A. v. Gordon, No. S12Q2067, 2013 Ga. LEXIS 158 (Feb 18, 2013). The case was certified to the Georgia Supreme Court by the Eleventh Circuit Court of Appeals in In re Codrington, 691 F3d 1336 (11th Cir. 2012) (click here for order).
The Court, in short, held that deeds that are not signed by an unofficial witness are not eligible for recording and, if recorded, do not constitute proper notice to put a hypothetical bona fide purchaser (such as a Bankruptcy Trustee) on inquiry notice of the deed. The effect of this opinion (and the U.S. Bank opinion discussed below) is unclear at this point, but the Georgia Supreme Court has made it clear that the rules regarding deeds are subject to a strict compliance standard and deeds not in compliance are not eligible for recording. There is little doubt that many Bankruptcy Trustees in Georgia will begin to closely inspect deeds filed with respect to property of bankruptcy estates. If a security deed is defective, the lien may be avoided and the property sold for the benefit of all creditors.
In this case, the Debtor executed a Security Deed with Wells Fargo in 2006, and it was recorded with the Fulton County Superior Court Clerk on October 13, 2006. The Security Deed was signed by the Debtor, the co-debtor on the loan and a notary. However, the line for the official witness was left blank. Another document, the “Waiver of Borrower’s Rights,” which expressly stated that it was incorporated in and made part of the Security Deed, was signed by the Debtor, non-debtor, notary and an unofficial witness.
In June 2008 the Debtor filed a Chapter 7 Bankruptcy. The Chapter 7 Trustee then sued Wells Fargo to avoid Wells Fargo’s interest in the property pursuant to 11 U.S.C. § 544 based on the Security Deed’s lack of the signature from an unofficial witness. The Bankruptcy Court, in an opinion discussed here, granted judgment in favor of the Trustee. The District Court affirmed the judgment and the Eleventh Circuit subsequently certified the questions to the Georgia Supreme Court.
The following questions were certified to the Court:
1. Whether a security deed that lacks the signature of an unofficial witness should be considered “duly filed, recorded, and indexed” as required by OCGA §44-14-33, such that a subsequent bona fide purchaser would have constructive notice when the deed incorporates the covenants, terms, and provisions of a rider that contains the attestations required by OCGA §44-14-33 and said rider is filed, recorded, and indexed with the security deed?
2. If the answer to question one (1) is in the negative, whether such a situation would nonetheless put a subsequent hypothetical bona fide purchaser on inquiry notice?
The Court answered both questions in the negative. Section 44-14-33 of the Official Code of Georgia states the following:
In order to admit a mortgage to record, it must be attested by or acknowledged before an officer as prescribed for the attestation or acknowledgment of deeds of bargain and sale; and, in the case of real property, a mortgage must also be attested or acknowledged by one additional witness. In the absence of fraud, if a mortgage is duly filed, recorded, and indexed on the appropriate county land records, such recordation shall be deemed constructive notice to subsequent bona fide purchasers.
O.C.G.A. § 44-14-33 (emphasis added). In a previous case, U.S. Bank, N.A. v. Gordon, 289 Ga. 12, 15 (2011) (see discussion of this case here), the Court held that “a security deed is ‘duly filed, recorded, and indexed’ only if the clerk responsible for recording determines, from the face of the document, that it is in proper form for recording, meaning that it is attested or acknowledged by a proper officer and (in the case of real property) an additional witness” and that a deed not properly attested is ineligible for recording.
The Court therefore held that “because the eight-paged security deed lacked the signature of an unofficial witness, it was not in recordable form as required by O.C.G.A. § 44-14-33 and did not provide constructive notice”
The Court disagreed with Wells Fargo’s argument that because the Waiver was properly signed, and incorporated in the Security Deed, the Security Deed was in recordable form. The Court quoted the Bankruptcy Case of In re Fleeman, 81 B.R. 160 (M.D. Ga. 1987) in rejecting the argument:
By attesting a document, an individual signifies that he has witnessed the execution of the particular document. Black’s Law Dictionary 117 (5th ed. 1979) (citations omitted). Thus the
signature of [the unofficial witness], which appears on the adjustable rate rider, attests to the proper execution of that document only. Although the adjustable rate rider is incorporated into the terms of the deed to secure debt, the deed to secure debt itself remains improperly attested and ineligible for recordation.
81 B.R. at 163. The Georgia Supreme continued:
As in Fleeman, the attestation of the waiver in this case cannot be substituted for the proper attestation of the security deed. Such a construct would be false and contrary to the purpose of attestation, namely for the witness to verify that the document in question has been executed by the signatories. Allowing a more lenient rule as Wells Fargo urges would likely lead to more complications than it would resolve for lenders, debtors, and subsequent purchasers alike. As we admonished in U.S. Bank N.A. v. Gordon, supra, 289 Ga. at 17, it costs nothing for lenders or their agents to review their paperwork to make sure the proper signatures are in place before submitting documents to the superior court clerk for recording. Accordingly, we answer the first certified question in the negative.
See also O.C.G.A. § 23-1-17.
In this case, while the waiver identifies the lender and grantors (debtor and co-debtor), it only generically references a security deed and fails to identify or describe the property purportedly to be conveyed or encumbered by the referenced security deed. In the total absence of identification or description of the property subject to the security deed, the waiver itself would not place a bona fide purchaser on notice that he should make further inquiry. Accordingly, we answer the second certified question in the negative.
Thanks to Michael Holbein, attorney for Chapter 7 Trustee Neil Gordon, for pointing out this opinion. Michael was counsel to the Trustee in this case and U.S. Bank, N.A. v. Gordon, both of which were significant opinions in Georgia and victories by the Trustee.
Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, creditor committees, trustees, court-appointed receivers and other interested parties in bankruptcy cases and bankruptcy litigation. For more information, click here.