In a case of first impression, the Georgia Court of Appeals has held that a foreclosure notice must identify both the secured lender and the "individual or entity who shall have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor."  Reese v. Provident Funding Associates, LLP, 2012 Ga. App. LEXIS 666; 2012 Fulton County D. Rep. 2374, 2012 WL 2849700 (July 12, 2012) (click here for the .pdf of the opinion).

While the Court of Appeals’ interpretation of the statute is very reasonable and, one might argue, common sense, the ruling will likely invalidate a significant number of previous or pending foreclosures in the state of Georgia. 

This is a longer post than normal, but given the importance of the case and the likely ramifications, the reasoning and holding are important. 

The facts of the case are rather straightforward.  Plaintiffs borrowed $650,000 from Provident and executed a promissory note and security deed. 

Pursuant to the Security Deed, Mortgage Electronic Registration Systems, Inc. ("MERS"), acting solely as the nominee for Provident and its successors and assigns, was designated as the grantee of the Security Deed. After Provident funded the loan, Provident sold and delivered the Note to Residential Funding Company, LLC ("RFC"). Although RFC succeeded Provident as the holder of the Note, Provident nevertheless remained as the loan servicer, retaining the right to collect payments and perform all other mortgage loan servicing functions authorized by the Security Deed…On June 24, 2009, Provident obtained from MERS an assignment of all MERS’s rights, title, and interest in the Security Deed.

Plaintiffs defaulted in January 2009, and Provident sent a foreclosure notice on June 3, 2009.  The property was sold at  foreclosure sale on July 7, 2009. On July 30, 2009 Plaintiffs filed a complaint, alleging wrongful foreclosure.  The grounds for Plaintiffs’ complaint were:

(i) Provident failed to comply with the Security Deed terms requiring that Plaintiffs be given notice that they had a right to bring a court action to assert the non-existence of default or any other defense to acceleration and sale; and

(ii) the notice of foreclosure provided by Provident did not include information on the "secured creditor," which violated OCGA § 44-14-162.

The trial court granted summary judgment in favor of Provident and Plaintiffs appealed.  Plaintiffs argued that Provident was not the "secured creditor" for purposes of sending the foreclosure notice and that the identity of the true secured creditor was never revealed.  

The statute at issue, OCGA § 44-14-162.2 (a), provides:

[n]otice 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[.]

It was undisputed that when Provident sent the foreclosure notice dated June 3, 2009, it was not the secured creditor.  RFC was the secured creditor until the assignment on June 24, 2009 and Provident was the servicer. 

It is also undisputed that Provident made misrepresentations in the contents of the notice of foreclosure sale. First, the notice misidentified Provident as the holder of the Note and the Security Deed. Second, the notice misidentified Provident as the "Lender," rather than as the loan servicer. Indeed, the notice made no mention whatsoever of RFC, the secured creditor, resulting in a complete failure to properly reflect that the notice was sent by, or on behalf of, the proper secured creditor.

The Court of Appeals held that these defects were fatal, and ordered the trial court to enter summary judgement in favor of the Plaintiffs (after the jump).

The Court of Appeals found persuasive a recent opinion of the District Court in the case of Stubbs v. Bank of America,  2012 U.S. Dist. LEXIS 19846, 2012 WL 516972  (N.D. Ga. Feb. 16, 2012) (click here for .pdf of order). There, the District Court held:

While it may be of no consequence who actually sends the notice, and that task may properly be delegated to a servicing agent (or, as is often the case, an attorney), the amendments of sections [OCGA § 44-14-]162 and [OCGA § 44-14-]162.2 in 2008 make clear that the identity of the secured creditor conducting the sale is a material element of that notice…

[t]he legislature enacted the 2008 amendments of the foreclosure statute with the goal of making transparent both the identity of the secured creditor with authority to foreclose and the identity (and contact information) of the party with authority to agree to a loan modification. Often, the secured creditor and the entity with full authority to modify the loan will be one and the same. At times a servicing agent may have full authority to modify the loan, but the fact that it is merely a servicer acting on behalf of a loan holder, and the identity of that holder, is relevant to that factual question. In any event, these two sections were amended simultaneously with a clear purpose — to increase transparency and clarity in what can otherwise be a quite bewildering process, both in order to avert any avoidable foreclosures through loan modifications and to protect the integrity of Georgia’s real property records.

Based upon the express language, and its agreement with the reasoning of the District Court in Stubbs, the Court of Appeals held that Provident’s failure to identify the true secured creditor, and misrepresentation that it was the lender rather than servicer, was fatal to the foreclosure notice.

Like the notice in Stubbs, the notice in this case was sent by the loan servicer, rather than the secured creditor. While a loan servicer may be permitted to send the notice on behalf of the secured creditor, Provident’s fatal mistake was in sending a notice that failed to properly identify the secured creditor. Although the notice disclosed that Provident had the "authority to negotiate, amend and modify all terms of the Note and Security Deed[,]" such "is materially different from disclosing that [the loan servicer] has full authority to modify on behalf of a creditor, … within whatever guidelines that creditor may have imposed." … This is especially so when the notice fails to ever identify the true secured creditor. The notice in this case contained material misrepresentations, and we agree with the federal court’s sentiment that "[s]ending a foreclosure notice that misidentifies the secured creditor violates the spirit and intent of OCGA § 44-14-162.2."

 The Court also noted the practical problems arising when the proper disclosures are not provided:

Indeed, a debtor has a right to know which entity has the authority to foreclose, and there should be no confusion about the identity of that entity. The practical ramifications are troubling if it were otherwise. For example, in a case such as the instant one, where the debtor knows that the loan servicer is no longer the holder of the note or the security deed, it is certainly conceivable that the debtor could be misled or confused by, or simply disregard, a notice of foreclosure which is sent by an entity different from the secured creditor, and which fails to properly identify the secured creditor. The misrepresentation in this case illustrates how transparency can be obfuscated in the Georgia foreclosure process. Finally, a notice that discloses the true identity of the secured creditor is a simple requirement, and one that does not impose an undue burden upon the banks or other entities authorized to send the notice of foreclosure sale.

Foreclosure is typically a very important event for all parties involved. No one disputes that a bank must be able to foreclose on its properties for non-payment of the mortgage per the contract, and our conclusion today does not impede this process. As Provident’s notice of foreclosure failed to comply with the requirements of OCGA § 44-14-162.2, insofar as it failed to properly identify the secured creditor, and in fact misidentified the secured creditor, the foreclosure was invalid, see OCGA § 44-14-162 (a), and the Reeses are entitled to summary judgment on this ground. We therefore reverse the decision below and remand this case with direction to enter summary judgment in favor of the Reeses.

Other lawyers have weighed in with an analysis of the case, including articles by Sarah Reise and Ballard Spahr, Troutman Sanders, and David Pardue. Scott Truby also covered the ruling in an Atlanta Journal article.