IN RE CODRINGTON

• Decision Date: 10 December 2009
• Docket Number: Bankruptcy No. 08-70899.,Adversary No. 08-6612.
• Citation: 430 B.R. 287
• Parties: In re Denise CODRINGTON, Debtor. Neil C. Gordon, Trustee, Plaintiff, v. Wells Fargo Bank, N.A., Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

430 B.R. 287

In re Denise CODRINGTON, Debtor.

Neil C. Gordon, Trustee, Plaintiff, v. Wells Fargo Bank, N.A., Defendant.

Bankruptcy No. 08-70899. Adversary No. 08-6612.

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

December 10, 2009.

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Michael F. Holbein, Neil C. Gordon, Arnall Golden Gregory LLP, Atlanta, GA, for Plaintiff.

Edward D. Burch, Smith, Gambrell & Russell, LLP, Elizabeth A. George, John D. Schlotter, Aldridge Connors LLP, Atlanta, GA, for Defendant.

ORDER DENYING MOTION OF DEFENDANT FOR SUMMARY JUDGMENT AND GRANTING SUMMARY JUDGMENT TO PLAINTIFF

JAMES E. MASSEY, Bankruptcy Judge.

The issue in this adversary proceeding is whether under Georgia law a filed and recorded deed to secure debt that lacks the signature of an unofficial witness on the deed's signature page provides constructive notice of the grantee's lien to a bona fide purchaser. If it does not, as the Plaintiff contends, the lien asserted can be set aside under section 544 of the Bankruptcy Code. The facts are not disputed.

In 2006, Denise Codrington, who is the Debtor in this case, and Alvina Codrington executed a security deed to Wells Fargo Bank to secure a loan. The deed, dated September 21, 2006, conveyed real property described as Lot 1, Block A, Kensington Heights as per Plat Book 269, Pages 28-367, Fulton County, Georgia records (the "Property"). Page 8 of the security deed is the signature page of the deed. At the top of that page is the following language: "BY SIGNING BELOW, Borrower accepts and agrees to the terms contained in this Security Instrument and in any rider(s) executed by Borrower and recorded with it." The signatures of the grantors appear on lines labeled "Borrower." Below the signatures of the grantors is the signature and seal of a notary public. A signature line, labeled "Unofficial Witness," is blank. Other than the notary's signature and seal, there is no language or other signal to indicate that anyone saw the grantors sign the deed. The deed was recorded in the real estate records of Fulton County, Georgia on October 13, 2006.

The security deed as a whole consists of 14 pages. The first nine pages constitute the security instrument conveying title to Defendant to secure the debt, including an exhibit ("Exhibit A") containing the legal description of the property. Paragraph 23 on page 7 of the security instrument provides:

If one or more riders are executed by Borrower and recorded together with this Security Instrument, the covenants of each such rider shall be incorporated into and shall amend and supplement the covenants and agreements of this Security Instrument as if the rider(s) were a part of this Security Instrument.

Following Exhibit A is a 3-page adjustable rate rider ("ARM"), a single-page planned unit development rider, and on the last page a waiver of borrower's rights form, a closing attorney's affidavit, and a foreclosure closing disclosure.

The waiver of borrower's rights form contains five numbered terms, none of which conveys the Property. The fifth term provides that "Grantor expressly ... (5) agrees that the provisions hereof are incorporated into and made a part of the security deed." Beside the signatures of the grantors are the signatures of an unofficial witness and the signature and seal of the same notary that attested page 8 of the security instrument.

This notary was also the closing attorney, and below the waiver form is a separate instrument entitled "closing attorney's affidavit." The affidavit is signed by the closing attorney as affiant and notarized by a different notary. Finally, below the affidavit is a "foreclosure closing disclosure" executed by the grantors. The riders and the waiver of rights page were filed and recorded contemporaneously with the security instrument.

On June 9, 2008, Denise Codrington filed this Chapter 7 case under case number 08-70899. Neil C. Gordon was appointed as the Chapter 7 Trustee.

I.

Mr. Gordon, as Trustee, brings this adversary proceeding against Defendant Wells Fargo Bank, N.A. pursuant to 11 U.S.C. § 544(a)(3), seeking to avoid its interest in the Property. Section 544(a)(3) of the Bankruptcy Code grants to a bankruptcy trustee so-called "strong-arm" powers that may enable the trustee to set aside or avoid transfers of the debtor's real property. That section provides:

(a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by—...

(3) a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists.

11 U.S.C. § 544(a)(3). State law determines the extent of the powers of a bona fide purchaser of real property. Butner v. U.S., 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979) ("Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding."); In re Hedrick, 524 F.3d 1175, 1182 (11th Cir. 2008).

Plaintiff contends that under Georgia law, a deed to secure debt not attested by an unofficial witness is not properly recordable and therefore cannot provide constructive notice of its existence to a subsequent bona fide purchaser. He further contends that because the security deed at issue lacks the signature of an unofficial witness, he is entitled to a judgment avoiding the transfer of the Property to Defendant pursuant to section 544(a)(3) of the Bankruptcy Code and preserving the avoided lien for the benefit of the estate pursuant to section 551 of the Bankruptcy Code.

Defendant contends that a 1995 amendment to O.C.G.A. § 44-14-33 changed the law to enable an unattested security deed to provide constructive notice of its existence to a subsequent bona fide purchaser. In the alternative, Defendant argues that Plaintiff is constructively aware of the security deed regardless of its record status, because the waiver of borrower's rights is itself properly attested pursuant to O.C.G.A. § 44-14-33 and is therefore in recordable form. According to Defendant, the waiver of borrower's rights puts the world on notice of its contents, which would necessarily compel further inquiry that would, in turn, result in the discovery of the security deed.

Defendant moves for summary judgment. Because the material facts are not in dispute, summary judgment is appropriate. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).

II. A.

In Georgia, before any deed, mortgage, or other recordable instrument may be recorded, "it must be attested or acknowledged as provided by law." O.C.G.A. § 44-2-14(a) (emphasis added). Despite these requirements, clerks file unattested or otherwise improperly attested deeds, though presumably not very often.

There are two types of testimonial defects. First, a deed may have a latent defect, meaning that the defect is not apparent on the face of the deed. One example is a deed signed by a person who, otherwise intending to serve as a witness, did not actually observe the grantor execute or acknowledge the deed. Notwithstanding a lack of clarity on this point in a few cases decided prior to 1995, the Georgia Supreme Court held in Leeds Building Products, Inc. v. Sears Mortgage Corp., 267 Ga. 300, 477 S.E.2d 565 (1996) that a security deed with a latent defect provided constructive notice of its existence to a bona fide purchaser.

Second, a deed may have a patent defect, meaning that the defect is obvious and easily detectable. An example is a deed missing the signature of an unofficial witness. Georgia law has long provided that a patently defective deed does not provide constructive notice to a bona fide purchaser. See, e.g., Donalson v. Thomason, 137 Ga. 848, 74 S.E. 762 (1912). There is no dispute between the parties that this was the law prior to 1995.

Defendant argues that an amendment to O.C.G.A. § 44-14-33 in 1995 changed the law to provide that a recorded deed with a patent defect provides constructive notice to a subsequent bona fide purchaser. The amended statute (Ga. Laws 1995, p. 1076) reads as follows:

In order to admit a mortgage to record, it must be attested by or acknowledged before an officer as prescribed for the attestation or acknowledgment of deeds of bargain and sale; and, in the case of real property, a mortgage must also be attested or acknowledged by one additional witness. In the absence of fraud, if a mortgage is duly filed, recorded, and indexed on the appropriate county land records, such recordation shall be deemed constructive notice to subsequent bona fide purchasers.

O.C.G.A. § 44-14-33. The amendment added the second sentence. O.C.G.A. § 44-14-61 provides that "in order to admit deeds to secure debt or bills of sale to record, they shall be attested or proved in the manner prescribed by law for mortgages."¹

Defendant's argument that the amendment to § 44-14-33 changed Georgia law with respect to patently defective deeds was raised in Gordon v. Terrace Mortgage Co. (In re Kim), 571 F.3d 1342, 1345 n. 4 (11th Cir.2009), but the Court of Appeals resolved the appeal without addressing the issue. Without question, the amendment clarified the pre-amendment law that a latently defective deed provides constructive notice, as the Supreme Court held in the Leeds case.

B.

Defendant argues that its construction of § 44-14-33, as...