You v. JP Morgan Chase Bank, N.A.

• Decision Date: 20 May 2013
• Docket Number: No. S13Q0040.,S13Q0040.
• Parties: YOU et al. v. JP MORGAN CHASE BANK, N.A., et al.
• Court: Georgia Supreme Court

293 Ga. 67

743 S.E.2d 428

YOU et al.

v.JP MORGAN CHASE BANK, N.A., et al.

No. S13Q0040.

Supreme Court of Georgia.

May 20, 2013.

David Charles Ates, Atlanta, for the Appellant.

Ellis, Painter, Ratterree & Adams, Paul W. Painter, Jr., Sarah B. Akins, Megan U. Manly, Wargo & French, Joseph D. Wargo, Shanon J. McGinnis, Michael Wolak III, Julie C. Jared, Amy L. Hanna, for appellees.

Charles R. Bliss, Karen E. Brown, John R. Bartholomew IV, David A. Webster, Dickenson Gilroy, Monica K. Gilroy, Tania T. Trumble, amici curiae.

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 Georgia ¹ 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 § 44–14–162.2, 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.

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 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 Court.

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 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 this case?

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 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 non-judicial foreclosure is governed primarily by contract law. Id.; see also Moseley v. Rambo, 106 Ga. 597, 600(1), 32 S.E. 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 S.E.2d 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 F.Supp. 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 § 44–14–162(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 delivery, return receipt requested, to the property address or to such other address as the debtor may designate by written notice to the secured creditor.

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 S.E.2d 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 S.E.2d 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 § 44–14–162.1. 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 S.E. 701 (1932) (affirming validity of non-judicial foreclosure sale conducted by party who held title to property but not underlying promissory note). See also Shumate v. McLendon, 120 Ga. 396(10), 48 S.E. 10 (1904) (recognizing possibility that grantee in...