Tag: foreclosure

Surplus Foreclosure Funds

In Georgia, most foreclosures are non-judicial. Meaning that the lender does not need court approval or supervision to foreclose. Thus, most foreclosures in Georgia happen “privately.” This blog post addresses the lender’s obligations to disburse surplus foreclosure funds.

A lender who forecloses on real estate assumes the obligation of properly distributing the proceeds from the foreclosure sale. Holland v. Sterling, 214 Ga. 583, 585 (1958). The lender is entitled to apply the fund from the sale first to the costs of the sale, attorney’s fees, and the interest and principal of the secured indebtedness. OCGA § 13-4-42. If there are any surplus or excess funds, the lender must pay the surplus funds to lienholders and then to the borrower.

The lender’s interest in property exists only to the extent of the amount they are owed. Thus, the lender must account to the borrower for any surplus foreclosure funds. Palmer v. Mitchell County Federal Sav. & Loan Ass’n, 189 Ga. App. 646 (1988).

If there is a legitimate dispute to the surplus foreclosure funds, the lender can file an interpleader. An interpleader is a legal action where the lender gives the money to the court. And the court decides who is entitled to the money.

If there is no legitimate dispute regarding the surplus funds, and the lender fails to timely disburse the funds, the creditor may be liable for prejudgment interest to the party entitled to such funds. OCGA § 7-4-15. Such liability will largely depend on whether the amount of such surplus is a liquidated amount. Walton Motor Sales, Inc. v. Ross, 736 F.2d 1449 (11th Cir. 1984).

In Georgia, can a security interest in real estate expire?

Yes. A security interest in real estate expires (in other words, become unenforceable) seven years after expiration of the maturity of the debt. Or, if the language in the security deed contains an affirmative statement with the intent of establishing a perpetual security interest, then the expiration date is the later of (a) seven years from the maturity of the debt or (b) 20 years from the date of the conveyance. See O.C.G.A. § 44-14-80(a).

If a security deed expires based the above paragraph, the property reverts back to the borrower. This means the lender loses its security interest in the property and cannot foreclose.

An additional consideration is what happens if the loan is extended. O.C.G.A. § 44-14-80(b) answers this: as long as the loan is extended before the seven or 20 years—and, importantly, the extension is recorded on the public record—then the security interest is also extended by seven or 20 years (depending on the language in the security deed).

The import of recording an extension was the subject of a recent Georgia appellate decision. Bell v. Freeport Title & Guaranty, A20A0133 (May 1, 2020). In Bell, the loan and security went into default in 2007. However, the borrower signed two extensions. These extensions were never recorded on the public record. The lender foreclosed on the loan in 2015. The Georgia of Court of Appeals ruled that because the two extensions were not recorded, the lender’s security interest expired in 2014. Thus, the reversion of the property back to the borrower in 2014 voided the 2015 foreclosure.

Although mentioned in a footnote, Bell makes an important point, which is the grantee (here, the lender) has the duty to record its deed. Reidling v. Holcomb, 225 Ga. App. 229, 230-231 (1997). By failing to record the extensions, the lender had no one to blame but itself.

Please call Gomez & Golomb at 404-382-9994 if you have any questions about title to your property.

How To Successfully Foreclose the Right to Redeem Following a Tax Sale

Tyner v. Edge, which was decided by the Georgia Court of Appeals on May 22, 2020 (A20A0265), provides guidance on the process of foreclosing the right of redeem following a tax sale.

The court clarifies several aspects relating to properly barring the right to redeem:

(1) With regard to foreclosure of the right to redeem, Georgia law holds that a party who owns “any right, title, or interest in or lien” on the subject property is entitled to redeem (see O.C.G.A. § 48-4-40). Therefore, because of the word “any,” even a party with an unrecorded interest is entitled to redeem a property lost at a tax sale.

(2)  A party’s failure to record its interest does, however, have consequences because the holder of an unrecorded interest is not entitled to get a notice of foreclosure of the right to redeem. See OCGA § 48-4-45(a)(1)(c) and Freeman v. Eastern Sav. Bank, 271 Ga. 439, 440 (1) (520 SE2d 902) (1999). This means a tax deed holder can successfully bar the right to redeem without notifying persons or entities not in the chain of title. For this reason, a title search and careful examination of the title search is necessary in all cases.

(3) Regarding service by publication, the court confirmed that if the name and address of an interested party can be reasonably ascertained, notice of a tax sale by publication does not meet the requirements of due process. Hamilton v. Renewed Hope, Inc., 277 Ga. 465, 466 (589 SE2d 81) (2003). Consequently, tax deed holders must make a reasonable effort to locate all interested parties to successfully complete a barment, and cannot simply rely on publication.

(4) Payment of taxes, in and of itself, does not create an interest in property sufficient to trigger the notice requirements mentioned above. Thus, in this case, the party trying to redeem, who was not in the chain of title but had paid taxes, was not entitled to receive a barment notice.

Here, the tax deed owner won and the party trying to redeem lost. However, all parties who deal with tax deeds in Georgia can learn from this case. If you own a tax deed and need a lawyer, please call us at (404) 382-9994 to discuss barring the right to redeem for your tax deed.

Does a Foreclosure Sale Determine Fair Market Value in Georgia?

The answer is a resounding yes according to an interesting case that came out recently. SeeDekalb County Board Of Tax Assessors v. Astor Atl, LLC, A19A0516 (April 1, 2019). In that case, the Georgia Court of Appeals rejected DeKalb County’s argument that it could assess property taxes in an amount higher than the price paid for the same property at a foreclosure sale.

Dekalb County argued that a foreclosure sale does not qualify under as an arm’s length, bona fide sale, and that it had appraised the property in conformity with its rules using the sales comparison approach.

In deciding the case, the Georgia Court of Appeals referenced O.C.G.A. § 48-5-2(3), which provides a limitation on the maximum allowable fair market value. Under that statute, “the transaction amount of the most recent arm’s length, bona fide sale in any year shall be the maximum allowable fair market value for the next taxable year.”

The decision concluded by holding that foreclosure sales can be arm’s length, bona fide sales. Moreover, the fact that the sale may not bring in the true market value of the property does not require a different rule; the fact that the sale results in a financial loss is not relevant.

The court noted that foreclosure sales are distinct from tax sales. While foreclosures are considered arm’s length, bona fide sales, tax sales are considered “forced sales” because owner retains a right of redemption, so the tax deed purchaser does not obtain proper title until the redemption period has run.

While this isn’t super helpful in the current market with surging property values, it would definitely help investors should the real estate market turn south down the road. Something to keep in mind.

Please call us at 404-382-9994 for real estate related questions.