Chase Manhattan Mortg. Corp. v. Shelton

• Decision Date: 27 February 2012
• Docket Number: No. S11A1468.,S11A1468.
• Citation: 12 FCDR 580,722 S.E.2d 743,290 Ga. 544
• Parties: CHASE MANHATTAN MORTGAGE CORPORATION et al. v. SHELTON et al.
• Court: Georgia Supreme Court

12 FCDR 580

290 Ga. 544

722 S.E.2d 743

CHASE MANHATTAN MORTGAGE CORPORATION et al.

v.SHELTON et al.

No. S11A1468.

Supreme Court of Georgia.

Feb. 27, 2012.

Dickenson Gilroy, Monica K. Gilroy, Tania T. Trumble, Alpharetta, McCurdy & Candler, John D. Andrle, Decatur, Weissman, Nowack, Curry & Wilco, Jeffrey H. Schneider, Kitchens, Kelley & Gaynes, Mark A. Kelley, Atlanta, for appellants.

Neville & Cunat, John R. Neville, David R. Trippe, for appellees.

NAHMIAS, Justice.

This appeal involves title to a house and lot in a residential subdivision in Forsyth County. The trial court granted the plaintiffs' motion for summary judgment, and the defendants appealed. For the reasons that follow, we affirm.

1. On June 30, 1998, Marcus Shelton acquired the property at issue by warranty deed. The same day, Shelton executed security deeds, which were later recorded, totaling $213,750 (the “Original Security Deeds”). In September 1998, Shelton executed and recorded a quitclaim deed conveying the property to his wife and two young children in three equal parts.

Two years later, Shelton decided to refinance the property. The new lender, Choice Capital Funding, Inc. (“Choice Capital”), advised Shelton that it would not refinance the property unless the children's names were removed from the chain of title. Choice Capital instructed Shelton to hire a particular attorney to accomplish this task. On July 20, 2000, the attorney filed petitions in the Forsyth County Probate Court for letters of guardianship of property of a minor with respect to each child, requesting that Shelton's wife be appointed as guardian of their interest in the property. However, the process was never completed. It is undisputed that the probate court never appointed the children's mother as their conservator,¹ nor did it enter an order allowing the children's two-thirds interest in the property to be conveyed as security for a new loan.

Nonetheless, on September 27, 2000, Shelton's wife executed and recorded a quitclaim deed that purported to convey her interest in the property, as well as the children's, back to Shelton, signing the deed once for herself and twice more as “Guardian of” each child. Two months later, Shelton signed an affidavit asserting full ownership of the property and executed a $252,000 security deed to Choice Capital (the “Choice Capital Security Deed”), which then loaned him that amount. The loan proceeds were used to pay off the Original Security Deeds, which were cancelled of record.

In August 2001, Choice Capital assigned the Choice Capital Security Deed to Mortgage Electronic Registration Systems, Inc. (“MERS”), as nominee for Household Finance Corporation (“HFC”). See Taylor, Bean & Whitaker Mtg. Corp. v. Brown, 276 Ga. 848, 848, n. 1, 583 S.E.2d 844 (2003) (describing the MERS system). Three months later, Shelton filed for bankruptcy, listing the property as his subject to Choice Capital's secured interest of $252,000. The bankruptcy court granted relief from the automatic stay in bankruptcy, and HFC (through MERS) foreclosed on the property on December 3, 2002. At this point, HFC's interest in the property was unencumbered.

On August 25, 2003, HFC conveyed the property by limited warranty deed to defendants Brian and Keily Johnson, who financed the purchase with a loan from defendant Chase Manhattan Mortgage Corporation (“Chase”) and a Chase affiliate. The Johnsons executed a security deed in favor of Chase for $195,920 and a second security deed in favor of the Chase affiliate. In 2004, the Johnsons paid off the security deed to Chase affiliate and executed a $50,000 security deed to defendant USAA Federal Savings Bank, which was later modified to increase the Johnsons' credit line to $105,600.

On March 14, 2005, the probate court appointed attorney Richard Neville as guardian ad litem for the Shelton children in connection with the property. See OCGA § 29–9–2(a) (authorizing appointment of a guardian ad litem to represent the minor's interests at any time in a conservatorship proceeding). The same day, the probate court wrote to advise the attorney who had prepared the quitclaim deed in 2000 that the conservatorship petitions were still pending, that the children's mother had not been appointed as their conservator, and that no order been entered authorizing conveyance of the children's two-thirds interest in the property. A copy of this letter was sent to HFC.

On August 24, 2006, after a series of hearings, the probate court found that the children's mother lacked the authority to act on the children's behalf with respect to the property when she executed the 2000 quitclaim deed. The probate court appointed Neville and another attorney, Osgood Williams, to represent the children together in pursuing their claims to the property. On June 27, 2007, Neville wrote to Chase about the possibility of settling the children's claims. Four months later, on October 15, 2007, Chase responded by fax, stating that it was “in the process of gathering documents and investigating the issue” and would contact Neville soon. On December 3, 2007, Neville wrote Chase about an upcoming status conference in the probate court, but Chase did not respond.

On April 21, 2008, Neville and Williams filed a petition to quiet title on behalf of the Shelton children ² in the Forsyth County Superior Court, naming the Johnsons and the holders of the two outstanding security deeds, Chase and USAA, as defendants. Chase and the Johnsons answered the petition and were granted permission to file a third-party complaint for indemnity and contribution against Shelton and the children's mother. On March 25, 2009, Chase and the Johnsons filed a counterclaim for unjust enrichment. A year later, the plaintiffs filed a motion for summary judgment seeking a declaration that the Shelton children each own a one-third undivided interest in the property free and clear of any lien, security interest, or other cloud of title, as well as summary judgment on the counterclaim. On April 8, 2010, the trial court entered a consent order opening a previous default judgment against USAA, and USAA waived any counterclaim or third-party claims it might have against Shelton and his wife. On December 13, 2010, the court granted summary judgment to the plaintiffs and dismissed Chase and the Johnsons' counterclaim. Chase, USAA, and the Johnsons (collectively, “Appellants”) filed a timely joint notice of appeal. See OCGA § 9–11–56(h) (authorizing direct appeal of an order granting summary judgment on any issue or as to any party). Chase and the Johnsons' third-party complaint against Shelton and the children's mother remains pending in the trial court.

2. Appellants contend that the trial court erred in denying them bona fide purchaser status with regard to the Shelton children's interest in the property. See OCGA § 23–1–20 (“A bona fide purchaser for value without notice of an equity will not be interfered with by equity.”). However, lack of actual or constructive notice of the outstanding interest in the property is a prerequisite for application of the bona fide purchaser doctrine. See Farris v. Nationsbanc Mtg. Corp., 268 Ga. 769, 770, 493 S.E.2d 143 (1997). A purchaser of land is charged with notice of the recorded instruments in the property's chain of title, and “[n]otice sufficient to excite attention and put a party on inquiry shall be notice of everything to which it is afterwards found that such inquiry might have led.” OCGA § 23–1–17. See Deljoo v. SunTrust Mtg., 284 Ga. 438, 439, 668 S.E.2d 245 (2008) (holding that purchasers are “ ‘presumed to know every other fact which an examination suggested by the records would have disclosed’ ” (citation omitted)).

The 2000 quitclaim deed showed on its face that the children's mother signed as their purported “Guardian.” Although the law treats parents as the natural guardians of their children, it does not give parents an unfettered right to dispose of their children's interests in real property. See Lynn v. Wagstaff Motor. Co., 126 Ga.App. 516, 518, 191 S.E.2d 324 (1972) (“As merely a natural guardian, a parent may not act as a representative of his child's property interests. To do this, he must qualify with the [O]rdinary [court] as guardian of the property.”). In order for a parent to divest a minor of an interest in property, former OCGA §§ 29–2–3, 29–2–4, and 29–2–20 required a court order appointing the parent as guardian of the property and another court order approving any actual conveyance. See United Cos. Lending Corp. v. Coates, 238 Ga.App. 716, 718, 520 S.E.2d 236 (1999). See also Dickey v. Sweeney, 16 Ga.App. 559, 559, 85 S.E. 766 (1915) (“A guardian has no authority to sell his ward's property except by order of the judge of a Superior Court, or by order of the ordinary.”). This has long been the law. See, e.g., Wells v. Chaffin, 60 Ga. 677, 679 (1878).

Thus, the designation of a “guardian” in the chain of title put Appellants on notice of the need to confirm the mother's legal authority to convey her children's interest in the property. See 3 Daniel F. Hinkel, Pindar's Ga. Real Estate Law & Procedure § 26–49 (6th ed. 2004) (“Pindar's Ga. Real Estate Law”) (“The validity of the guardian's appointment is the first point to be examined.”). Had Appellants inquired, they would have learned that the probate court never entered an order appointing the mother as the children's conservator or an order approving a conveyance of the children's two-thirds interest in the property back to Shelton. “The purchaser at a guardian's sale is undoubtedly bound, at his peril, to look to the legality of the latter's appointment and his authority to sell,” and “[i]f he fails to exercise these precautions, no amount of good faith or fairness on his part can make his title a good one if, in fact, there was no lawful guardian and, consequently, no authority to sell.” Dooley v. Bell, 87 Ga. 74, 77, 13 S.E. 284 (1891). Ac...