11th Circuit Court of Appeals clarifies Georgia foreclosure notice requirements

The 11th Circuit Court of Appeals, in Carr v. U.S. Bank, N.A., 2013 U. S. App. LEXIS 16997 (August 16, 2013) clarified the status of Georgia foreclosure notices in light of the recent Georgia Supreme Court ruling in You v. JP Morgan Chase Bank, N.A., 293 Ga. 67, 743 S.E.2d 428 (2013).¹

In all of the excitement over the You decision and its companion case, Reese v. Provident Funding Associates, 317 Ga. App. 353, 359, 730 S.E.2d 551 (2012) vacated and remanded Provident Funding Associates v. Reese, 2013 Ga. LEXIS 466 (Ga. May 20, 2013) many people lost sight of a second thread of cases that involved a similar question regarding foreclosure notice letters. This second thread did not address the question of whether one has to identify the “secured creditor” in a foreclosure notice, but rather whether one has to identify the “individual or entity who shall have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor” using those specific and exact words.

In TKW Partners, LLC v. Archer Capital Fund, L.P. Crossing Park Properties, LLC, 302 Ga. App. 443, 691 S.E.2d 300 (2010), the Court of Appeals was thought to have settled that second thread by holding that “OCGA Section 44-14-162.2 does not require the individual or entity to be expressly identified as having ‘full authority to negotiate, amend, and modify all terms of the mortgage,’ and we cannot conclude that...[the]…notice was legally deficient for failure to do so.”

In TKW, the lender’s attorney sent the notice and gave her contact information but did not state that the attorney or any other person or entity had “full authority to negotiate, amend, and modify all terms of the mortgage.” The Court of Appeals ruled that this was of no consequence because the lender was identified and the trial court found that “a person of reasonable intelligence would have construed that…[the lender’s attorney]… was the proper agent for …[the lender]…in this case.” The Court of Appeals found that substantial reliance was all that was needed.

Then things got exciting (or very confusing if you were a lender or represented a lender).

The next case in the series, Stowers v. Branch Banking & Trust Co., 317 Ga. App. 893 (2012) was based on a truly bizarre set of facts. In Stowers, the notice of foreclosure was sent by the attorney and included the language “the following person has full authority to negotiate, amend and modify all terms of the mortgage…” and listed the lender’s attorney and his contact information. The undisputed evidence, however, was that the attorney only was authorized to receive communications from the debtor, to convey them to the bank, to make recommendations, and to convey the bank’s position to the debtor. In other words, the right words were used but there was no authority and certainly not full authority.

While TKW was being litigated, the lender in Stowers became worried that substantial compliance might not be sufficient (since that was the exact issue that was being litigated in TKW). The lender then sought to rescind its own foreclosure sale so as to avoid the risk that substantial compliance might not be sufficient.

Interestingly, Stowers was not the borrower complaining about a wrongful foreclosure. Rather, Stowers was the purchaser at the foreclosure sale who brought an action to stop the bank from rescinding the foreclosure sale. Stowers argued that there was nothing wrong with the lender’s foreclosure and therefore the lender had no right to rescind it.

In the meantime, Reese v. Provident Funding Associates, 317 Ga. App. 353, 359, 730 S.E.2d 551 (2012) appeared wherein the Court of Appeals rejected a trial court’s ruling that substantial compliance was sufficient and found that OCGA Section 44-14-162.2 required the secured creditor with the authority to foreclose to be identified in the foreclosure notice rather than, for example, a servicer. In essence, the Court of Appeals appeared to be taking what seemed to be mutually exclusive positions. In TKW, the Court of Appeals found that substantial compliance was sufficient as to the identity of the person or entity with authority to negotiate, amend or modify the mortgage. In Reese, the Court of Appeals found that substantial compliance was NOT sufficient as to the identity of the secured creditor (even though there was no requirement in the statute that the secured creditor be identified in the first place).

Judges McFadden, Barnes and Adams stepped in to try to reconcile the two opinions as well as make sense as to whether lenders (who were utterly confused at this point) could rescind their own foreclosures based on all of the confusion. In Stowers, the Court of Appeals ruled (1) the notice did not comply with the statute (so the notice was bad) however (2) the notice doesn’t have to fully comply with the statute in that substantial compliance is sufficient (so the notice was fine).

Accordingly, the Court turned to the essential question before it. Was the bank right or wrong in rescinding its foreclosure on the (mistaken) belief that its notice of foreclosure was defective? The Court found that the bank was justified in rescinding the foreclosure based on doubts as to whether strict compliance or substantial compliance with the statute was required (TKW decided that substantial compliance was sufficient three weeks after the foreclosure rescission was undertaken).

Following Stowers and Reese, lenders in Georgia were in a quandary as to whether TKW had been overruled by either Stowers or Reese. The federal courts were splitting on the issue of strict compliance versus substantial compliance as well.

And then the Georgia Supreme Court stepped in, albeit in a different case. You v. JP Morgan Chase Bank, N.A., 293 Ga. 67, 743 S.E.2d 428 (2013). The Georgia Supreme Court answered the questions posed to it by the federal courts as follows: No, the lender did not have to possess the note in order to foreclose. The holder of the security deed could foreclose. No, the statute did not require the secured creditor to be identified. No, the exact words “secured creditor” did not have to appear in the foreclosure letter. Finally, if the individual with authority to negotiate, amend, and modify the terms of the mortgage is the holder of the security deed, then the deed holder must be identified in the notice, if the individual with the authority is the note holder, then the note holder must be identified. If that individual is someone other than the deed holder or the note holder, such as an attorney or servicing agent, then that person must be identified.

Even with the clarity provided by the Georgia Supreme Court, foreclosure practitioners remained puzzled. While the Georgia Court of Appeals did not overrule TKW, lenders’ counsel were worried and borrowers’ counsel were only too eager to suggest that the Georgia Supreme Court might have overruled TKW.

Apparently not, according to the 11th Circuit Court of Appeals.

In Carr v. U.S. Bank, N.A., 2013 U. S. App. LEXIS 16997 (August 16, 2013), the 11th Circuit held that OCGA Section 44-14-162.2(a) does not require the secured creditor be identified at all. 2013 U.S. App. LEXIS 16997 at 4. The 11th Circuit continued that only the entity with authority to modify the mortgage is required to be identified in the foreclosure notice letter. Id. citing You (“You explains that Section 44-14-162.2(a) only requires notice letters to identify the entity with the authority to modify the mortgage.”). The Court of Appeals found that TKW is still very much alive in requiring only substantial compliance in identifying the individual or entity with full authority to modify the mortgage. Id. (“Section 44-140162.2(a) does not require the individual or entity be expressly identified as having full authority to modify the mortgage.”). Id. citing TKW, 691 S.E.2d at 303 (“Instead, the notice only needs to inform the debtor of the contact information if he wishes to pursue a modification of the security deed.”). Id.

The 11th Circuit provided a complete paragraph of undiluted clarity. “Carr’s two notice letters include the name, address, and telephone number of the loan servicer, and instruct Carr to contact the loan servicer if he has servicing questions or if he intends to pay the full amount, and are thus in compliance with Georgia law. The two letters also fulfill the terms of the security deed. Both letters are thus valid notices.” Id. (emphasis added).

If you are keeping a scorecard, as of August 16, 2013 the following bullet points appear to summarize the status of foreclosure law in Georgia:

• Foreclosing entity not required to possess note. You. Georgia Supreme Court.
• Secured Creditor not required to be identified in 30 day foreclosure notice. You. Georgia Supreme Court.
• “Secured Creditor” exact words not required in 30 day foreclosure notice. You. Georgia Supreme Court. Footnote 7.
• Attorney with no authority to modify, amend or negotiate identifies self as person with full authority to modify, amend or negotiate is not in full compliance with statute but substantial compliance is all that is necessary. Stowers. Georgia Court of Appeals.
• Attorney with no authority to modify, amend or negotiate identifies self as person with full authority to modify, amend or negotiate where no one person really has full authority to modify, amend or negotiate = Sufficient. TKW. Georgia Court of Appeals.
• Servicer identifies self as person to contact if debtor has servicing questions or intends to pay the full amount of the loan = Sufficient. Carr. 11th Circuit Court of Appeals.
• One does not have to use the exact words “full authority to negotiate, amend or modify” in 30 day notice of foreclosure. TKW as interpreted by Carr. 11th Circuit Court of Appeals.
• TKW is still good law after the Georgia Court of Appeals decision in Reese and the Georgia Supreme Court decision in You. Carr. 11th Circuit Court of Appeals.

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¹For our earlier client alert regarding the Reese and You opinions, click here.