Alert! Change in Foreclosure Law – Reese v. Provident Funding Overturned

Many real estate investors dealing with foreclosures, pre-foreclosures or foreclosure workouts are familiar with the case Reese v. Provident Funding Associates.[1]  In Reese, the Court of Appeals of Georgia held that failure to follow a notice requirement identifying the foreclosing lender was fatal to the foreclosure process.  Many real estate law scholars believed this ruling was correct and provided consumer protection.  Additionally, many real estate professionals saw this ruling as an opportunity to level the playing field in foreclosure and pre-foreclosure negotiation.  This ruling, however, is no longer good law.  It has been overturned.

Georgia law requires that a foreclosing lender give notice to a homeowner 30 days before foreclosing.[2]  It also requires that this notice correct identify the “secured creditor.”  In Reese, the Court of Appeals of Georgia interpreted this in a technical fashion.  It found that notice sent by a loan servicer which did not identify the lender was “fatal” to the foreclosure: “While a loan servicer may be permitted to send the notice on behalf of the secured creditor, [the servicer’s] fatal mistake was in sending a notice that failed to properly identify the secured creditor.”[3]

According to the Daily Report[4], this ruling led many homeowners to file suit for wrongful foreclosure.  Additionally, many real estate professionals used this ruling as leverage in their negotiations with lenders.  However on May 20, 2013, the Supreme Court of Georgia handed down You v. JP Morgan Chase Bank, N.A.[5] This case effectively overturned Reese in its entirety.

In You, the Supreme Court of Georgia considered the issue of notice as it related to one particular situation: where one party held the note and another held the security deed.[6]  This situation is common when loans are securitized.  The servicer often holds the security deed while the note is held by a mortgage-backed security (MBS).  In You, the Court held that the foreclosing party did not need to own or have possession of the note along with the security deed.  The security deed was sufficient to foreclose.  Additionally, the Court went one step further and held that the required 30-day notice did not need to identify the secured creditor.  It only needed to include identification information of a party that had authority to negotiate on behalf of a lender.

The ruling in You effectively dismantled the technical requirement that Reese set forth.  To lenders this ruling gives certainty and will reduce litigation.  As to borrowers, consumer advocates will argue that this ruling leaves the foreclosure process, especially who owns the loan, unchecked.  Regardless, real estate professionals who work in this area must be aware of this change in law.

You can read the entire ruling at: http://law.justia.com/cases/georgia/supreme-court/2013/s13q0040.html. 

Disclaimer: The information contained in this article is for informational purposes only and is not legal advice or a substitute for legal counsel. It does not constitute advertising or solicitation. The information in this article may or may not reflect the most current legal developments; accordingly, this article is not guaranteed to be complete, and should not be considered an indication of future results.

[1] Reese v. Provident Funding Assocs., LLP, 317 Ga. App. 353, 730 S.E.2d 551 (2012).

[2] O.C.G.A. § 44-14-162.2.

[3] Reese, 317 Ga. App. at 358.

[4] Alyson M. Palmer, Lenders win on foreclosures, Daily Report, May 21, 2013.

[5] You v. JP Mortgage Chase Bank, N.A., No. S13Q0040, 2013 Ga. Lexis 454 (May 20, 2013).

[6] In Georgia, this is almost always a Deed to Secure Debt.