In this prior post, I discussed a ruling by Judge Massey, wherein he ruled in favor of a Chapter 7 Trustee who sought to set aside a security deed that did not contain the appropriate signature of an unofficial witness. Gordon v. Wells Fargo, Adv. No. 08-6612, 430 B.R. 287 (December 10, 2009) (click here for the opinion). U.S. Bank (the successor-in-interest to Wells Fargo) appealed the decision to the District Court, which in turn certified the question to the Supreme Court of Georgia.
The Georgia Supreme Court, on March 25, 2011, entered an opinion affirming the reasoning and holding of Judge Massey, and in favor of the Chapter 7 Trustee. U.S. Bank National Assoc. v. Gordon, No S10Q1564 (Ga. March 25, 2011) (click here for the opinion). This ruling will benefit Trustees and homeowners who seek to nullify defective security deeds.
The primary issue is the interpretation of the 1995 amendments to O.C.G.A. § 44-14-33. The amended statute (Ga. Laws 1995, p. 1076) reads as follows:
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.
The 1995 amendment added the second sentence. Judge Massey held that the statute, when read as a whole, means that a mortgage must be properly attested or acknowledged before it can be duly filed and serve as constructive notice:
A "duly" filed and recorded mortgage is obviously one that a clerk is authorized by law to record. The second sentence of § 44-14-33 must be read in light of the first sentence, which instructs clerks to "admit" a mortgage to record only if it is attested or acknowledged by an authorized officer and one additional witness. It is the appearance of the appropriate signatures on the deed that permits the clerk to record an attested deed. An unattested or partially attested deed, even if recorded, cannot provide constructive notice because it cannot be "duly filed, recorded and indexed.
The Georgia Supreme Court agreed. The certified question was "whether the 1995 Amendment means that, in the absence of fraud, a security deed that is actually filed and recorded, and accurately indexed, on the appropriate county land records provides constructive notice to subsequent bona fide purchasers, where the security deed contains the grantor’s signature but lacks both an official and unofficial attestation (i.e., lacks attestation by a notary public and also an unofficial witness)."
The Court reasoned as follows:
Turning back to the certified question, we note that the “recordation” that is deemed to provide constructive notice to subsequent purchasers clearly refers back to “duly filed, recorded, and indexed” deeds. U.S. Bank argues that a “duly filed, recorded, and indexed” deed is simply one that is in fact filed, recorded, and indexed, even if unattested by an officer or a witness. We disagree.
Construing the 1995 Amendment in harmony with other recording statutes and longstanding case law, we must reject U.S. Bank’s definition of “duly filed, recorded, and indexed.” Its definition ignores the first sentence of § 44-14-33, which provides that to admit a security deed to record, the deed must be attested by or acknowledged before an officer, such as a notary public, and, in the case of real property, by a second witness. See OCGA § 44-2-15 (listing the “officers” who are authorized to attest a mortgage or deed)… Indeed, U.S. Banks’ construction of the 1995 Amendment contradicts OCGA § 44-14-39, which provides that “[a] mortgage which is recorded . . . without due attestation . . .shall not be held to be notice to subsequent bona fide purchasers.”
Thus, the first sentence of § 44-14-33 and the statutory recording scheme indicate that the word “duly” in the second sentence of § 44-14-33 should be understood to mean 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 the 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…
Finally, it should be recognized that U.S. Bank’s interpretation of the 1995 Amendment to § 44-14-33 “would relieve lenders of any obligation to present properly attested security deeds” and “would tell clerks that the directive to admit only attested deeds is merely a suggestion, not a duty,” and this would risk an increase in fraud because deeds no longer would require an attestation by a public officer who is sworn to verify certain information on the deeds before they are recorded and deemed to put all subsequent purchasers on notice. Gordon, 429 BR at 51-52. Moreover, while “it costs nothing and requires no special expertise or effort for a closing attorney, or a lender, or a title insurance company to examine the signature page of a deed for missing signatures before it is filed,” U.S. Bank’s construction would “shift to the subsequent bona fide purchaser and everyone else the burden of determining [possibly decades after the fact] the genuineness of the grantor’s signature and therefore the cost of investigating and perhaps litigating whether or not an unattested deed was in fact signed by the grantor.” Id. at 52.