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The United States District Court for the Northern District of Georgia certified three questions regarding the operation of the State's law governing non-judicial foreclosure to the Georgia Supreme Court. After careful analysis, the Georgia Court concluded that current law did not require a party seeking to exercise a power of sale in a deed to secure debt to hold, in addition to the deed, the promissory note evidencing the underlying debt. The Court also concluded that the plain language of the State statute governing notice to the debtor (OCGA 44-14-162.2), required only that the notice identify "the individual or entity [with] full authority to negotiate, amend, and modify all terms of the mortgage with the debtor." This construction of OCGA 44-14-162.2 rendered moot the third and final certified question.
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In the Supreme Court of Georgia
Decided: May 20, 2013
S13Q0040. YOU et al. v. JP MORGAN CHASE BANK, N.A., et al.
HUNSTEIN, Chief Justice.
This case is before us on three questions certified to this Court by the
United States District Court for the Northern District of Georgia1 regarding the
operation of this State’s law governing non-judicial foreclosure. After careful
analysis, we conclude that current law does not require a party seeking to
exercise a power of sale in a deed to secure debt to hold, in addition to the deed,
the promissory note evidencing the underlying debt. We also conclude that the
plain language of our statute governing notice to the debtor, OCGA § 44-14162.2, requires only that the notice identify “the individual or entity [with] full
authority to negotiate, amend, and modify all terms of the mortgage with the
debtor.” This construction of OCGA § 44-14-162.2 renders moot the third and
final certified question, which we do not address.
See OCGA § 15-2-9.
In 2003, Appellants Chae Yi You and Chur K. Bak purchased a home in
Suwanee, Georgia. To finance their purchase, they obtained a loan from Excel
Home Loans, Inc., executing both a promissory note and a deed to secure debt
in Excel’s favor. The security deed grants to Excel and its successors and
assigns the power of sale in the event of the debtor’s default under the note. At
some point after the initial transaction, Excel transferred the note to an
unidentified entity and assigned the deed to Chase Manhattan Mortgage
Corporation, which through a series of mergers was succeeded by JP Morgan
Chase Bank (“Chase”). The assignment from Excel explicitly granted to Chase
and its successors all of Excel’s “power, options, privileges and immunities” in
the security deed and the indebtedness secured by it.2
Appellants defaulted on their loan, and in June 2011, pursuant to the
deed’s power of sale provisions, Chase initiated non-judicial foreclosure
proceedings against the property by sending written notice to Appellants that the
Such assignments have become common in the current era of securitization
of mortgages, in which large numbers of loans secured by real estate are pooled
and repackaged as securities for sale to investors. See Alan M. White, Losing the
Paper - Mortgage Assignments, Note Transfers and Consumer Protection, 24 Loy.
Consumer L. Rev. 468, 471-472 (2012); Austin Hall, Note, Peach Sheets,
Property, 25 Ga. St. U. L. Rev. 265, 266-268 (2008).
property would be sold at a foreclosure auction on the first Tuesday in August
2011. On August 2, 2011, in accordance with the notice, the property was sold
at auction on the steps of the Gwinnett County courthouse, at which Chase was
the highest bidder. Accordingly, Chase executed a deed under power conveying
to itself all of Appellants’ interest in the property. Chase then quitclaimed the
property to the Federal National Mortgage Association (“Fannie Mae”), which
filed a dispossessory action against Appellants in Gwinnett County Magistrate
In November 2011, the magistrate court issued a writ of possession to
Fannie Mae. Shortly thereafter, Appellants filed suit in Gwinnett Superior Court
for declaratory relief, wrongful foreclosure, and wrongful eviction. The suit was
removed to federal court, after which Appellees Chase and Fannie Mae moved
to dismiss the action for failure to state a claim. The district court granted
Appellees’ motion to dismiss as to certain claims, including those for
declaratory relief, but denied the motion without prejudice as to other claims,
finding that their resolution depended on unsettled questions of Georgia law.3
These unsettled issues have arisen with frequency in recent years in
wrongful foreclosure suits pursued in our federal district courts. See, e.g.,
Patterson v. CitiMortgage, Inc., 2012 WL 4468750 (III) (A) (2) (N.D. Ga. Sept.
Accordingly, the district court certified the following three questions to this
Court and stayed its proceedings pending this Court’s resolution thereof:
(1) Can the holder of a security deed be considered a secured
creditor, such that the deed holder can initiate foreclosure
proceedings on residential property even if it does not also hold the
note or otherwise have any beneficial interest in the debt obligation
underlying the deed?
(2) Does OCGA § 44-14-162.2 (a) require that the secured creditor
be identified in the notice described by that statute?
(3) If the answer to the preceding question is “yes,” (a) will
substantial compliance with this requirement suffice, and (b) did
defendant Chase substantially comply in the notice it provided in
We answer “yes” to the first question and “no” to the second.
1. Georgia law clearly authorizes the use of “non-judicial power of sale
26, 2012) (denying without prejudice motion to dismiss wrongful foreclosure
claim pending this Court’s decision in the instant case); Alexis v. Mortgage Elec.
Registration Sys., Inc., 2012 WL 716161 (I) (B) (2) & (C) (N.D. Ga. March 5,
2012); Stubbs v. Bank of America, 844 FSupp.2d 1267 (IV) (A) (N.D. Ga. 2012);
Nelson v. Bank of America, 2012 WL 315400 (III) (N.D. Ga. Jan. 31, 2012);
Kabir v. Statebridge Co., 2011 WL 4500050 (II) (B) (1) (N.D. Ga. Sept. 27, 2011);
Morgan v. Ocwen Loan Servicing, LLC, 795 FSupp.2d 1370 (III) (C) (2) (N.D.
Ga. 2011); LaCosta v. McCalla Raymer, LLC, 2011 WL 166902 (II) (B) (N.D. Ga.
Jan. 18, 2011). Our Court of Appeals has likewise grappled with these issues on
recent occasions. See, e.g., Larose v. Bank of America, 2013 WL 1286692 (Ga.
Ct. App. March 29, 2013); Montgomery v. Bank of America, __ Ga. App. __ (2)
(740 SE2d 434) (2013); Reese v. Provident Funding Assocs., 317 Ga. App. 353
(1) (730 SE2d 551) (2012), cert. pending.
foreclosure” as a means of enforcing a debtor’s obligation to repay a loan
secured by real property. See generally Frank S. Alexander, Ga. Real Estate
Finance and Foreclosure Law, § 8:1 (2012-2013 ed.). Such a process, which
in Georgia dates back to the 1800s, permits private parties to sell at auction,
without any court oversight, property pledged as security by a debtor who has
come into default. Id. “As a privately authorized yet state-sanctioned remedy
available in secured real estate transactions, the form and substance of power of
sale foreclosures is determined first and foremost by the express terms of the
underlying instrument.” Id. Thus, Georgia courts have long held that nonjudicial foreclosure is governed primarily by contract law. Id; see also Moseley
v. Rambo, 106 Ga. 597, 600 (1) (32 SE 638) (1899) (power of sale “is a remedy,
therefore, by contract, intended to substitute the remedy by law”); Gordon v.
South Central Farm Credit, 213 Ga. App. 816, 817 (446 SE2d 514) (1994) (“‘a
security deed which includes a power of sale is a contract and its provisions are
controlling as to the rights of the parties thereto’”).
The scant statutory law that does exist in this area has evolved as a means
of providing limited consumer protection while preserving in large measure the
traditional freedom of the contracting parties to negotiate the terms of their
arrangement. See Law v. United States Dep’t of Agriculture, 366 FSupp. 1233,
1238 (N.D. Ga. 1973) (statutes governing non-judicial foreclosure set “minimal
requirements for the exercise of any contractual power of sale contained in
security instruments”).4 These limited statutory protections are codified in
OCGA § 44-14-160 through §44-14-162.4 and consist primarily of rules
governing the manner and content of notice that must be given to a debtor in
default prior to the conduct of a foreclosure sale. For example, OCGA § 44-14162 (a) requires that sales under power must “be advertised and conducted at the
time and place and in the usual manner of the sheriff’s sales in the county in
which [the] real estate . . . is located.” In addition,
[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, and
shall be sent by registered or certified mail or statutory overnight
The limited nature of this State’s consumer protections in this area is
reflected in the fact that “Georgia law permits secured real estate creditors to levy
upon the security more quickly than any other jurisdiction.” Alexander, Ga. Real
Estate Finance and Foreclosure Law, § 8:1.
delivery, return receipt requested, to the property address or to such
other address as the debtor may designate by written notice to the
OCGA § 44-14-162.2 (a). These two quoted Code sections form the basis of
Appellants’ argument that Chase improperly foreclosed on their residence.
Appellants’ primary argument, which relates to the first of the three
certified questions, is that Chase was not authorized to conduct the foreclosure
because, while it was the holder of the security deed, it did not also hold the note
evidencing the debt in default. Appellants claim that, because the basis for
exercising the power of sale was the default on the note, only a party who
actually holds the note is authorized to exercise such power. Appellants base
this contention in part on the fact that the above Code sections refer to the
foreclosing party as the “secured creditor,” which Appellants construe to mean
a party who holds both the deed (thereby qualifying as “secured”) and the note
(thereby qualifying as a “creditor”). While this argument has superficial appeal,
we reject it as inconsistent with the language and intent of our statutes.
“In all interpretations of statutes, the court shall look diligently for the
intention of the General Assembly, keeping in view at all times the old law, the
evil, and the remedy.” OCGA § 1-3-1 (a). Where the plain language of the
statute is clear and susceptible to only one reasonable construction, we must
construe the statute according to its terms. Hollowell v. Jove, 247 Ga. 678, 681
(279 SE2d 430) (1981). However, where there is ambiguity, the entire
legislative scheme, including its history, may be examined. See Botts v.
Southeastern Pipe-Line Co., 190 Ga. 689, 707 (10 SE2d 375) (1940).
The plain language of the non-judicial foreclosure statute nowhere
specifies whether the foreclosing party must hold the note in addition to the
deed. Moreover, the term “secured creditor,” which is used to signify the
foreclosing party, is not defined in the statute, an omission particularly notable
given the statute’s explicit definition of the term “debtor.” See OCGA § 44-14162.1. The term “secured creditor” was introduced into the statute in 1981 when
the provisions requiring notice to the debtor were first enacted. See Ga. L.
1981, p. 834. At that time, our common law appears to have allowed for the
possibility of a non-judicial foreclosure conducted by one who held legal title
to the property but not the underlying note. See White v. First Nat’l Bank of
Claxton, 174 Ga. 281 (4) (162 SE 701) (1932) (affirming validity of nonjudicial foreclosure sale conducted by party who held title to property but not
underlying promissory note). See also Shumate v. McLendon, 120 Ga. 396 (10)
(40 SE 10) (1904) (recognizing possibility that grantee in security deed may
transfer debt without transferring title to property).
Thus, while the
phenomenon of “splitting” ownership of the note from ownership of the deed
may not have been prevalent until relatively recently, this practice was not
expressly prohibited prior to the enactment of the modern non-judicial
foreclosure statute in 1981.5
In introducing the term “secured creditor” without defining it, the 1981
statute appears to have made no change in this regard. Tellingly, the legislature
plainly stated that the notice provisions it was then enacting were “procedural
and remedial in purpose.” Ga. L. 1981, p. 834, 836, § 5 (a). This statement is
a clear indication that the legislature did not intend to make substantive changes
to the law governing non-judicial foreclosures or narrow the class of parties
Neither Sammons v. Nabers, 184 Ga. 269 (191 SE 124) (1937), nor Weems
v. Coker, 70 Ga. 746 (1883), leads us to conclude otherwise, for the simple reason
that both of these cases involved judicial foreclosures, in which competent
evidence of the underlying debt is required to establish one’s cause of action. See
Alan M. White, Losing the Paper - Mortgage Assignments, Note Transfers and
Consumer Protection, 24 Loy. Consumer L. Rev. 468, 480 (2012) (distinguishing
judicial from non-judicial foreclosures in that “[i]n a judicial foreclosure, as the
plaintiff, the foreclosing party must come forward with evidence that it is the
proper transferee of the note”).
entitled to conduct such foreclosures.
Indeed, subsequent to the 1981
enactment, this Court has continued to recognize the stand-alone enforceability
of the deed, apart from the note, thus reinforcing the ability of a deed holder to
exercise its rights under the deed, independent of the note. See Decatur Federal
Sav. and Loan v. Gibson, 268 Ga. 362 (2) (489 SE2d 820) (1997) (“the security
deed stands alone so long as the underlying debt remains, . . . regardless of the
note’s enforceability”); Brinson v. McMillan, 263 Ga. 802 (2) (440 SE2d 22)
(1994) (party could exercise rights under security deed even if action on note
barred by statute of limitations).
Also revealing are the most recent amendments to OCGA § 44-14-162 and
§ 44-14-162.2, enacted in 2008 amidst the Great Recession and the burgeoning
foreclosure crisis. See Austin Hall, Note, Peach Sheets, Property, 25 Ga. St. U.
L. Rev. 265, 266-270 (2008). The amendments were a direct response to the
foreclosure crisis brought on by the growth in sub-prime lending, which had
been fueled by the rise of mortgage securitization.
Id. at 266-270.
Securitization often involves the decoupling of the loan from the deed as a
matter of course.
See Alan M. White, Losing the Paper - Mortgage
Assignments, Note Transfers and Consumer Protection, 24 Loy. Consumer L.
Rev. 468, 471-472 (2012) (explaining that securitization process involves
original lender making separate assignments of note and security deed, with the
two transfers being subject to different legal requirements); see also Taylor,
Bean & Whitaker Mortg. Corp. v. Brown, 276 Ga. 848, 848, n.1 (1) (583 SE2d
844) (2003) (explaining common practice by which borrower names a third
party, Mortgage Electronic Registration System or “MERS,” as grantee in deed
to secure debt). As Appellants conceded at oral argument, this practice has
become the norm in residential lending. See Peach Sheets, 25 Ga. St. U. L. Rev.
at 269 (noting that in 2006 more than 60% of home mortgages went into
securitization trusts). Yet the amendments made no express reference to this
practice of splitting note from deed, and there is no other evidence of any intent
to change this common practice.6 Rather, the aim of the amendments was
simply to provide more transparency in the process to assist borrowers facing
foreclosure. Id. at 272-273. Accordingly, we find no evidence from which to
divine that the General Assembly intended in 2008 to make fundamental
changes to the prevailing practice surrounding non-judicial foreclosures.
Indeed, as noted in the Peach Sheets, “[t]here was . . . concern that dramatic
change could cause turmoil in the secondary mortgage market, which in the long
run would be detrimental to borrowers.” Id. at 273.
Nor do we agree with the contention that Georgia’s Uniform Commercial
Code prohibits a party who does not hold the note from exercising the power of
sale in the deed securing the note. It is true that a promissory note is a
negotiable instrument subject to Article 3 of the UCC. See OCGA § 11-3-104
(defining “negotiable instrument”). It is also true that Article 3 provides
generally that only the holder of an instrument is entitled to enforce the
instrument. OCGA § 11-3-301. However, it is equally true that, here, Chase
does not seek to enforce the note but rather is enforcing its rights under the
security deed, which is not a negotiable instrument and is therefore not governed
by Article 3. See Alexander, Georgia Real Estate Finance and Foreclosure Law,
§ 5:3 (b) (“[a] security deed is an interest in real property subject to all of the
incidents and requirements of real property transfers under Georgia law, and a
note is a contractual obligation . . . subject to the quite different requirements of
the Uniform Commercial Code”). In fact, Georgia law governing the transfer
of security deeds expressly provides that “[t]ransfers of deeds to secure debt .
. . shall be sufficient to transfer the property therein described and the
indebtedness therein secured.” (Emphasis added.) OCGA § 44-14-64 (b). This
Code section further supports the conclusion that the deed holder possesses full
authority to exercise the power of sale upon the debtor’s default, regardless of
its status with respect to the note.
We recognize that some legal scholars take the position that because the
debt is the principal obligation and the security is incidental to the debt, see
Weems v. Coker, 70 Ga. 746, 747 (1) (1883), the deed holder should not be
authorized to exercise the power of sale unless it also holds the note. See
Alexander, Georgia Real Estate Finance and Foreclosure Law, § 5:3 (b) (noting
that “problems may arise” when the note and deed are transferred to different
transferees). Indeed, under the Third Restatement of Property, “[a] mortgage
may be enforced only by, or in behalf of, a person who is entitled to enforce the
obligation the mortgage secures.” Restatement (Third) of Property: Mortgages,
§ 5.4 (c). The comments note the section’s “essential premise . . . that it is
nearly always sensible to keep the mortgage and the right of enforcement of the
obligation it secures in the hands of the same person.” Id. at § 5.4, cmt. a.
While this approach may indeed be sensible, it is not the approach our General
Assembly has adopted.
Appellants contend that if Chase is permitted to exercise the power of sale,
Appellants will be at risk of double liability because the note holder will still
have the right to sue for default under the note. We do not believe the law
necessarily allows such a result; our law has long held that one who holds a
secured note necessarily holds an equitable interest in the security itself. See
OCGA § 10-3-1 (“[t]he transfer of notes secured by a mortgage or otherwise
conveys to the transferee the benefit of the security”); Chapman v. McPherson,
184 Ga. 613 (4) (192 SE 423) (1937) (valid transfer of note necessarily
transferred equitable title to security, even if transferee did not hold legal title);
White v. First Nat. Bank, 174 Ga. at 293 (4) (“‘[t]he grantee in a security deed
holds the legal title for the benefit of the owner of the debt’”); Shumate, 120 Ga.
at 397 (10) (if secured debt is assigned but deed is not, deed holder holds legal
title to property for benefit of note holder). Because this issue is not directly
presented here, however, we need not resolve it.
For these reasons, we answer the first certified question in the affirmative.
Under current Georgia law, the holder of a deed to secure debt is authorized to
exercise the power of sale in accordance with the terms of the deed even if it
does not also hold the note or otherwise have any beneficial interest in the debt
obligation underlying the deed.
2. In the second certified question, the district court asks whether OCGA
§ 44-14-162.2 (a) requires that the secured creditor be identified in the notice
to the debtor. We need look no further than the plain language of the statute to
determine whom the notice must name:
Such notice shall be in writing [and] 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.
(Emphasis added.) Id. If that individual or entity is the holder of the security
deed, then the deed holder must be identified in the notice; if that individual or
entity is the note holder, then the note holder must be identified. If that
individual or entity is someone other than the deed holder or the note holder,
such as an attorney or servicing agent, then that person or entity must be
identified. The statute requires no more and no less. Accordingly, we answer
the second certified question in the negative.7
3. Because the third certified question is conditioned on an affirmative
answer to the second question, we need not, and do not, reach it.
We note that the district court’s Order and Opinion states that a “dispositive
question in this case” is “whether OCGA § 44-14-162.2 (a) requires that a
foreclosure notice identify an entity as the secured creditor.” See Order and
Opinion, at 23. To the extent the second certified question was also intended to
encompass this issue, we hold that the required notice need not expressly identify
the foreclosing party as a “secured creditor.”
4. As members of this State’s judicial branch, it is our duty to interpret the
laws as they are written. See Allen v. Wright, 282 Ga. 9 (1) (644 SE2d 814)
(2007). This Court is not blind to the plight of distressed borrowers, many of
whom have suffered devastating losses brought on by the burst of the housing
bubble and ensuing recession. While we respect our legislature’s effort to assist
distressed homeowners by amending the non-judicial foreclosure statute in
2008, the continued ease with which foreclosures may proceed in this State
gives us pause, in light of the grave consequences foreclosures pose for
individuals, families, neighborhoods, and society in general. Our concerns in
this regard, however, do not entitle us to overstep our judicial role, and thus we
leave to the members of our legislature, if they are so inclined, the task of
undertaking additional reform.
Questions answered. All the Justices concur.