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Released Opinions

March 14, 2016
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On March 7, 2016, the Supreme Court of Georgia issued 20 opinions, of which two are within the scope of our coverage. Summaries of the cases and opinions are set forth below.

S15G1007 Ames et al. v. JP Morgan Chase Bank NA, et al.

In a unanimous opinion by Justice Nahmias, the Supreme Court of Georgia held that residential borrowers challenging the non-judicial foreclosure sale of their property lacked standing to challenge the assignment of the security deed to that property. The court affirmed the decision of the unreported decision of the Georgia Court of Appeals.

When the Ameses purchased the property, they executed a security deed in favor of Washington Mutual Bank (WaMu). WaMu later went into receivership, and its interest was transferred to the Federal Deposit Insurance Commission. The FDIC then transferred the property to Chase, giving Chase a power of attorney to transfer any realty acquired to Chase. That power of attorney was time-bound and subject to “automatic revo[cation].” After the term of the power of attorney expired, Chase assigned the Ameses’ property to itself. When the Ameses defaulted, Chase initiated non-judicial foreclosure proceedings, which the Ameses sought to block in both Georgia state court and federal court in Florida challenging, among other things, the validity of the assignment.

The state trial court dismissed the Ameses’ challenge to the assignment, holding that they lacked standing, and they appealed. The federal court dismissed their action, and the Eleventh Circuit affirmed, holding, under Georgia law, that the Ameses lacked standing.

The Eleventh Circuit acted before the Georgia Supreme Court did, making the preclusive effect of that federal judgment an issue to be addressed.

The Supreme Court noted that, in their federal lawsuit, the Ameses asserted both federal question and diversity jurisdiction. Reasoning that the preclusive effect in diversity cases follows federal law, and noting that Florida law and federal law were “not incompatible” on the point, the court held that the Ameses lacked standing. It observed that, under both Florida and federal law, a pending appeal does not deprive a lower court judgment of its preclusive effect. The court held that the Eleventh Circuit’s judgment was binding on the Ameses.

While the Ameses lacked standing, their claims implicated the interests of “many other debtors, secured creditors, and assignees of those security deeds that are affected by this legal issue.” The Georgia Court of Appeals had held that others in the position of the Ameses lacked standing to challenge the assignment of their mortgages in Montgomery v. Bank of America, 321 Ga. App. 740 S.E. 2d 434 (2013), and Jurden v. HSBC Mortgage Corp., 330 Ga. App. 179, 765 S.E. 2d 440 (2014). Neither of those holdings was presented to the Supreme Court, so the court undertook to answer the question because of the importance of the issue.

In concluding that borrowers in a position like the Ameses lack standing to challenge the assignment of their mortgage, the Supreme Court observed that, while the courts are split, it was applying the law of Georgia. It noted that the assignment did not breach a duty owed to the Ameses under the law or the security deed. Georgia law “expressly authorizes the assignment of security deeds.” The Ameses’ deed “explicitly conveyed [their] property to WaMu and its ‘successors and assigns.’” As for the assignment, the Ameses were not a party to it, and they could be a third-party beneficiary to it only in part. While the Ameses might acquire new rights as the result of the assignment, they could vindicate only those new rights, not challenge the validity of the assignment.

The court explained that, if the Ameses had a problem with the assignment, they should tell the assignor, the FDIC. The FDIC could then have “intercede[d] to assert any rights that it believe[d] it ha[d].”

Finally, the Supreme Court rejected the Ameses contention that Chase failed to comply with O.C.G.A. § 44-14-1629a), which governs notice and the procedure for planned foreclosure sales. It noted that the statute does not require that the party providing notice be the secured creditor, nor does it give the debtor a “mechanism … to assert claims that the (potentially unnamed) secured creditor does not actually have a validly assigned deed.” The court explained, “Because Chase recorded its assignment as required and the Ameses have not brought a distinct challenge under this statute, we need not decide whether § 44-14-162(b) could ever provide a debtor with standing to challenge a foreclosure based on an unrecorded or facially invalid assignment.”

S15A1684 Atlanta Development Authority d/b/a Invest Atlanta v. Clark Atlanta University, Inc.

In a unanimous opinion by Presiding Justice Hines, with Justice Benham not participating, the Supreme Court of Georgia held that restrictions in a deed transferring property from Clark Atlanta University to Morris Brown College were valid and enforceable. It affirmed the ruling of the trial court, which found the provisions valid and enforceable.

In 1940, Clark Atlanta transferred three adjoining parcels of property totaling some 13 acres to Morris Brown College subject to the condition that the property would be used for “educational purposes, to wit: Undergraduate work in the fields of Arts and Sciences, except that nothing in this clause is to be construed as prohibiting [MBC] from offering graduate courses in Theology, if it chooses to do so.” The deed also provided for the reversion of the property to Clark Atlanta “or its successors” “if at any time the said [MBC] shall cease to use said property for the particular educational purposes above set forth ….”

In August 2012, Morris Brown College filed for bankruptcy under Chapter 11. In 2014, Morris Brown College asked the bankruptcy court for permission to sell part of its campus, including the property acquired in 1940, to Invest Atlanta. The bankruptcy court approved the sale, subject to the caveats that Morris Brown College could transfer only “whatever interest it has” and that Invest Atlanta could accept title only “subject to any alleged interest held and recorded by CAU.”

Clark Atlanta filed suit seeking to enforce the reverter clause, and Invest Atlanta moved to dismiss the complaint. In denying the motion to dismiss, the trial court held that the Restriction was valid, it applied to all three parcels of the property, and the proposed sale was not an appropriate use of the property. Invest Atlanta sought an interlocutory appeal, which the Supreme Court granted.

The Supreme Court held that the Deed’s restriction on use and reverter were valid and enforceable. While restrictions on alienation like this are generally invalid, this restriction was one in favor of a charitable entity for charitable purposes. The court explained, “Public policy favors giving the donor’s distinct charitable interest [in the perpetual use of the property for the designated purpose] greater weight than general prohibitions against the remoteness of vesting and restrictions on alienation.” The deed unambiguously applied to all three of the transferred parcels. In sum, “the structure and language of the Deed reflects the parties’ clear intent that the Property, in toto, comprise a donation to MBC of a unified tract of land for the one and only purpose expressed in the Deed, i.e., for the particular aspects of education set forth therein.”

The Supreme Court also concluded that Morris Brown College’s sale of the property was not within the range of allowable educational purposes. The Deed’s language limited the potential scope of allowable “educational use” to specific fields of study. In addition, the reversion was triggered when the property was used for a purpose other than “for the particular educational purposes above set forth.” The sale of the property, transforming it into proceeds that might be put to use for educational purposes, would still have to be for the specified educational purposes. “Moreover, once the property is alienated, MBC loses control over it for any purpose, and as to the sale proceeds, their use and eventual exhaustion would be pragmatically impossible to monitor in regard to any question of application of the Restriction and the Reverter.” In sum, Clark Atlanta has a valid reversionary interest in the property.

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