Two recent bankruptcy cases involved the application of Georgia law on deed attestation.  In both cases, the trustee was attempting to set the lien pursuant to section 544 of the Bankruptcy Code.

In Gordon v. Wells Fargo, Adv. No. 08-6612, 430 B.R. 287 (December 10, 2009)(J. Massey), the issue was "whether under Georgia law a filed and recorded deed to secure debt that lacks the signature of an unofficial witness on the deed’s signature page provides constructive notice of the grantee’s lien to a bona fide purchaser," such as a Chapter 7 Trustee pursuant to section 544.  Judge Massey ruled in favor of the Trustee and thus set aside the lien.

… a deed may have a patent defect, meaning that the defect is obvious and easily detectable. An example is a deed missing the signature of an unofficial witness. Georgia law has long provided that a patently defective deed does not provide constructive notice to a bona fide purchaser. See, e.g., Donalson v. Thomason, 137 Ga. 848, 74 S.E. 762 (1912). There is no dispute between the parties that this was the law prior to 1995.

Defendant argues that an amendment to O.C.G.A. § 44-14-33 in 1995 changed the law to provide that a recorded deed with a patent defect provides constructive notice to a subsequent bona fide purchaser. 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.

O.C.G.A. § 44-14-33.

The amendment added the second sentence. O.C.G.A. § 44-14-61 provides that "[i]n order to admit deeds to secure debt or bills of sale to record, they shall be attested or proved in the manner prescribed by law for mortgages."…

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."

Because the security deed was patently defective, it was not "duly filed," and thus could be set aside in favor of the Trustee.  Judge Massey went into great detail on the arguments raised by the lender with respect to statutory construction and the meaning of the amendments, and the full opinion should be consulted for the discussion.

The second case is Brown v. American General Financial Services, Adv. No. 09-1016, 430 B.R. 300 (January 19, 2010)(J. Drake).  In this case, the deed to secure debt at issue was notarized, but the notary stated that only one party, the debtor, and not the non-debtor spouse (and co-owner), signed the deed before the notary.   The Trustee asserted that this defect rendered the entire deed incapable of being recorded and prevented it from providing constructive notice of any transfer.

Judge Drake disagreed with the Trustee.

In Nalley Chevrolet, [100 Ga. App. 197 (Ga. App. 1959)] the Georgia Court of Appeals held that a bill of sale was recordable and provided constructive notice, notwithstanding the fact that the bill of sale contained two signatures, only one of which was attested properly. See id. at 200. The court stated that, because the purchaser who asserted that it lacked constructive notice of the bill of sale purchased the vehicle from the individual whose signature was properly attested, the fact that the bill of sale also contained an additional unattested signature was irrelevant and did not "prevent the recordation of the contract as the contract of" the individual whose signature was properly attested. Id. The Trustee disputes the applicability of Nalley Chevrolet to this case, as Nalley Chevrolet concerned a bill of sale and this case concerns the recording of a security deed. The Defendant, however, points out that the same statutory requirements for recording a security deed apply to the recording of a bill of sale. See O.C.G.A. 44-14-61 ("In order to admit deeds to secure debt or bills of sale to record, they shall be attested or proved in the manner prescribed by law for mortgages.").

The Court agrees with the Defendant and concludes that, under Georgia law, the existence of the unattested signature of Mrs. MacArthur does not prevent the security deed from being recorded as to the transfer of the Debtor’s interest in the properties. Accordingly, the security deed provided constructive notice of the Defendant’s interest in the properties. For this reason, the Trustee’s complaint should be dismissed, and the Defendant should be granted relief from the automatic stay in the Debtor’s main bankruptcy case.