WW3 Ventures, LLC v. The Bank of N.Y. Mellon as Successor Tr. Under Novastar Mortg. Funding Tr. Series 2006-2

• Docket Number: A23A0719,A23A0720
• Decision Date: 03 November 2023
• Parties: WW3 VENTURES, LLC v. THE BANK OF NEW YORK MELLON AS SUCCESSOR TRUSTEE UNDER NOVASTAR MORTGAGE FUNDING TRUST SERIES 2006-2 THE BANK OF NEW YORK MELLON AS SUCCESSOR TRUSTEE UNDER NOVASTAR MORTGAGE FUNDING TRUST SERIES 2006-2 v. WW3 VENTURES, LLC
• Court: Georgia Court of Appeals

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WW3 VENTURES, LLC v. THE BANK OF NEW YORK MELLON AS SUCCESSOR TRUSTEE UNDER NOVASTAR MORTGAGE FUNDING TRUST SERIES 2006-2

THE BANK OF NEW YORK MELLON AS SUCCESSOR TRUSTEE UNDER NOVASTAR MORTGAGE FUNDING TRUST SERIES 2006-2 v. WW3 VENTURES, LLC

Nos. A23A0719, A23A0720

Court of Appeals of Georgia, Second Division

November 3, 2023

MERCIER, C. J., MILLER, P. J., and HODGES, J.

HODGES, JUDGE

In this quiet title action, we must consider whether a defective security deed, which does not provide constructive notice to future bona-fide purchasers of the property it encumbers, may yet provide "inquiry notice" in view of a purchaser's failure to inquire into the chain of title prior to purchasing the subject property. Here, WW3 Ventures LLC ("WW3") - which, by its own admission, did not conduct a title search prior to its purchase of property at a Gwinnett County sheriff's sale^[1] sought to confirm its title to the property despite a security deed held by The Bank of New York Mellon as Successor Trustee under Novastar Mortgage Funding Trust Series 2006-2 ("BNY Mellon") that had not been attested by an unofficial witness.^[2]WW3 and BNY Mellon filed competing motions for summary judgment, with WW3 arguing that BNY Mellon's security interest did not provide constructive notice and BNY Mellon seeking dismissal of WW3's quiet title action and an order recognizing its security interest as a valid first priority lien. The Superior Court of Gwinnett County appointed a special master,^[3] who recommended that title vest in WW3 subject to BNY Mellon's security interest. The trial court adopted the special master's report and recommendation in full as the trial court's judgment and awarded title to the property to WW3 subject to BNY Mellon's security interest, and both WW3 and BNY Mellon appeal.

In Case No. A23A0719, WW3 contends that BNY Mellon's security deed did not provide constructive notice and was, therefore invalid. In Case No. A23A0720, BNY Mellon argues that its security deed provided constructive notice to WW3 and that WW3's efforts to obtain title are barred by equity. We have consolidated these cases for purposes of appeal and, in view of controlling precedent from the Supreme Court of Georgia, we conclude that BNY Mellon's security deed did not provide constructive notice to prospective purchasers of BNY Mellon's security interest; therefore, to the extent the trial court found that WW3 had constructive notice of BNY Mellon's security deed, it erred. However, other documents in the chain of title each referenced the property and BNY Mellon's security interest and, therefore, independent of the lack of constructive notice provided by the security deed itself, we conclude that the trial court correctly determined that WW3 was under inquiry notice of BNY Mellon's security interest. Accordingly, we affirm the trial court's grant of summary judgment in Case No. A23A0719. In Case No. A23A0720, we vacate that portion of the trial court's order assessing the special master's fees against BNY Mellon, remand that portion of the case for further proceedings, and affirm the remainder of the trial court's judgment.

"On appeal from the grant of summary judgment this Court conducts a de novo review of the evidence to determine whether there is a genuine issue of material fact and whether the undisputed facts, viewed in the light most favorable to the nonmoving party, warrant judgment as a matter of law." (Citation and punctuation omitted.) Giles v. Swimmer, 290 Ga. 650, 651-652 (1) (725 S.E.2d 220) (2012).^[4] So viewed, the largely undisputed evidence revealed that Laurie and George Warren purchased a residential property located at 4504 Allen Hollow Place, Suwanee, Gwinnett County, on May 25, 1999 ("the property").^[5]

In March 2006, the Warrens refinanced their mortgage on the property with Novastar Mortgage, Inc. ("Novastar"); as a result, the Warrens conveyed a security deed to Mortgage Electronic Registration Systems, Inc. as nominee for Novastar ("MERS"). The security deed, recorded in the Gwinnett County land records on June 6, 2006, was executed by the Warrens and notarized, but it does not contain an attestation by an unofficial witness.^[6] Thereafter, MERS assigned the security deed to BNY Mellon in December 2010; the assignment referenced the March 2006 security deed.^[7]

In March 2015, the Warrens' homeowners' association secured a judgment against the Warrens because they failed to satisfy $13,500 in unpaid homeowners' assessment liens. A levy and sheriff's sale followed in August 2015, at which WW3 was the successful bidder.

At some point after its purchase of the property,^[8] WW3 became aware of BNY Mellon's interest and filed the present quiet title action in April 2021 to obtain "a decree that the subject property is free and clear of the [security deed] held by . . . BNY Mellon...." BNY Mellon denied WW3's allegations, and the trial court appointed a special master. BNY Mellon eventually moved for summary judgment,^[9]asserting that WW3, by virtue of its prior declaratory judgment action and its acknowledgment of BNY Mellon's security interest, was not "entitled to the equitable remedy of cancellation of a security deed on the same real property [for which it failed to satisfy the security deed] via a quiet title action." In support of its motion, BNY Mellon offered affidavits from the notary public who witnessed the security deed and a purported unofficial witness who was present when the Warrens executed the security deed but "erroneously failed to sign [the security deed] in the designated spaces as unofficial witness." WW3 filed its own motion for summary judgment, asserting that its principal had neither actual nor constructive knowledge of BNY Mellon's security interest prior to the August 2015 sheriff's sale. To support its motion, WW3's principal averred that he did not have any actual notice of BNY Mellon's lien and did not conduct a title examination prior to purchasing the property at the sheriff's sale.

Following a hearing on the competing summary judgment motions, the special master issued a report and recommendation, in which he recommended that "title vest in [WW3], but subject to [BNY Mellon's] security deed...." In reaching his conclusions, the special master acknowledged that the security deed was defective due to the missing unofficial witness signature, adding that the closing attorney's affidavit, executed contemporaneously with the security deed, did not cure the deficient security deed. Nevertheless, the special master found that WW3 had constructive notice of the security deed because it was cross-referenced in a plat and in the 2010 assignment. The special master also determined that BNY Mellon's equitable arguments were irrelevant. Although WW3 objected to the special master's report and BNY Mellon moved to modify the report in part, the trial court approved and adopted the report in full as its final judgment. As a result, the trial court awarded legal title to the property to WW3 subject to BNY Mellon's security deed and assessed the special master's fees against BNY Mellon. These cross-appeals follow.

Case No. A23A0719

1. WW3 first contends that the trial court erred in awarding it title to the property subject to BNY Mellon's interest because a defective security deed does not provide constructive notice or inquiry notice under Georgia law. To the extent the trial court determined that the security deed itself provided constructive notice, we agree with WW3 that the trial court erred. However, because the trial court correctly concluded that WW3 was under inquiry notice of BNY Mellon's security interest, we affirm the trial court's judgment.

To reach his conclusion that the security deed provided WW3 with constructive notice, the special master relied upon references to the security deed in a plat and in the 2010 assignment. Citing Deljoo v. SunTrust Mtg.,284 Ga. 438, 439 (668 S.E.2d 245) (2008), the special master found that both the plat and the 2010 assignment cross-referenced the security deed and that, because these documents were part of the chain of title, WW3 was "charged with notice of every fact shown by the records, and is presumed to know every other fact which an examination suggested by the records would have disclosed." (Emphasis omitted.). The trial court adopted the special master's report in full as its judgment.

At the outset, we note that "before any deed to realty or personalty or any mortgage, bond for title, or other recordable instrument executed in this state may be recorded, it shall be an original instrument and shall be attested or acknowledged as provided by law." OCGA § 44-2-14 (a). To that end, "[i]n order to admit a mortgage to record, it shall be signed by the maker, attested by an officer as provided in [OCGA § ] 44-2-15,^[10] and attested by one other witness." (Emphasis supplied.) OCGA § 4414-33. Similarly, "[i]n order to admit deeds to secure debt or bills of sale to secure debt to record, they shall be signed by the maker, attested by an officer as provided in [OCGA § ] 44-2-15, and attested by one other witness." (Emphasis supplied.) OCGA § 44-14-61. As a result, nothing in OCGA § 44-2-14 "shall dispense with another witness where an additional witness is required." OCGA § 44-2-14 (a).

(a) Constructive Notice. For the following reasons, we conclude that BNY Mellon's security deed did not itself provide constructive notice of a security interest.

(i) Constructive Notice Generally and the Effect of a Defective Instrument. "In the absence of fraud, if a mortgage is duly signed, witnessed, filed, recorded, and indexed on the appropriate county land records, such recordation shall be deemed constructive notice to subsequent bona...