17.1 Foreclosure in General
Foreclosures in Georgia may be conducted in equity; pursuant to statutory procedures; by execution, levy and sheriff’s sale; and by non-judicial power of sale. The non-judicial power of sale is the most common method of foreclosure in Georgia. The most common security instrument in Georgia is the deed to secure debt also referred to as a security deed.
When a foreclosure appears in the chain of title, an examination of the security instrument which was foreclosed is necessary. The security instrument and succession of transfers to the current holder authorized to conduct the sale should be recorded. A foreclosure sale conducted after the statute of limitations has run on the security instrument is void. Failure to pay intangible recording tax applicable to the security instrument constitutes a bar to foreclosure. Such bar to foreclosure may be removed by payment of the tax plus penalty and interest. Since non-judicial power of sale is a contractual remedy, the terms and procedures for conducting the foreclosure sale must be set forth in the security instrument to be foreclosed. The instrument must also contain a valid power of attorney empowering the grantee to conduct the foreclosure sale and execute the deed under power of sale as the attorney in fact for the grantor. While there is no statutory procedure for conducting non-judicial foreclosure sales, it is required that a non-judicial foreclosure sale be advertised and conducted in the same manner as sheriffs’ sales. Written notice of the sale must be given to the debtor by registered or certified mail sent no later than 30 days prior to the foreclosure sale date. Comment: For a comparison of security deeds with other security instruments, see Pindar and Pindar, Ga. Real Est. Law, Section 21-4 (4th ed.).
Security deeds and transfers recorded after July 1, 1989, should include the mailing address of the grantee or transferee. However, failure to include the mailing address is not a defense to foreclosure (O.C.G.A. Sections 44-14-63 and 64). O.C.G.A. §44-14-162(b) requires that the assignment into the foreclosing lender must be recorded prior to the time of the foreclosure sale.
O.C.G.A. Section 44-14-80 establishes a 7-year reverter following maturity of the debt or recording or delivery if no maturity is stated and a 20-year reverter from the date of the conveyance if no maturity is stated and the conveyance contains an affirmative statement that the parties intend to establish a perpetual or indefinite security interest in the property conveyed to secure a debt or debts. (See Standard 14.6). Prior to the 1994 amendment, this Code Section established a 20-year reverter following maturity of the debt or recording or delivery if no maturity was stated. The amended Code Section should not be relied upon as to security deeds executed prior to the effective date, April 19, 1994, of the 1994 amendment. O.C.G.A. Section 44-14-81 bars a foreclosure after the reversion period. The expiration of the statute of limitations on a note secured by a security deed does not bar foreclosure (O.C.G.A. Section 44-14-43).
O.C.G.A. Section 48-6-61 imposes a tax of $1.50 for each $500.00 or fraction thereof of the face amount of a long-term note secured by real estate as defined at O.C.G.A. Section 486-60 (2). O.C.G.A. Section 48-6-77(a) bars foreclosure unless applicable intangible recording tax is paid. This same Code Section imposes a penalty of 50% of the amount of the tax plus interest if such tax is not paid within 90 days of the date of the instrument. For standards regarding powers of attorney, see Standard 8.5. See O.C.G.A. Section 23-2-114 for power of sale in deed to secure debt and O.C.G.A. Section 44-14-162 for conducting as a sheriff’s sale. See O.C.G.A. Sections 44-14-162.1 through 162.4 for notice requirements to debtor and deed recitals.
17.2 Deed Under Power of Sale
A deed under power of sale executed by the grantee of a security instrument or any subsequent assignee thereof pursuant to a valid power of attorney contained in the security instrument conveys marketable title (provided title was marketable at the time the security instrument was given) to the property described therein if the deed under power of sale contains recitals as to the security instrument containing the power of sale, default, proper legal advertisement, the time, place and results of the sale and compliance with notice requirements of O.C.G.A. Section 44-14-162.2 or facts which render such notice inapplicable. All such recitals in a deed under power of sale may be relied on if there is no irregularity on its face and no other matters appear of record which would render any such recital questionable and necessitate further inquiry. The deed under power of sale should be cross-referenced to the foreclosed security instrument. Inconsequential scrivener’s errors in the legal description in the security instrument can be corrected in describing the property in the deed under the power of sale. However, an invalid legal description in the security instrument cannot be corrected by a foreclosure sale.
A deed under power of sale resulting from the foreclosure of a junior security instrument should reference senior security instruments. If a deed under power of sale of a junior security instrument does not reference senior security instruments, it should be established that reference to such senior instruments in the foreclosure advertisement was made and a corrective deed under power of sale required. Such inquiry and corrective work is not necessary if in the opinion of the examiner sufficient time following the foreclosure sale has elapsed to render an action to set aside the foreclosure sale unlikely. Comment: The deed under power of sale should be executed by the holder of the security instrument as attorney in fact for the debtor. However, a deed under power of sale executed by the holder in its own name will not render title unmarketable if sufficient recitals in the deed indicate that it was executed in representative capacity of the debtor. [Garrett v. Crawford, 128 Ga. 519, 57 S.E. 792 (1907)]. Unless expressly prohibited by the security instrument, successors may exercise the power of sale. (O.C.G.A. Section 23-2-114). For requirements of transfers see O.C.G.A. Section 44-14-64.
The foreclosed security instrument should be notated as “foreclosed” and reference should be inserted to the deed book and page of the deed under power of sale. See O.C.G.A. Section 44-14-160.
O.C.G.A. Section 9-13-140 requires the legal advertisement to give a full and complete description of the property to be sold. [Shantha v. West Georgia National Bank, 145 Ga. App. 712, 244 S.E.2d 643 (1978)].
Failure to include existence of senior security interests creates a question of fact as to chilling of the bidding. [Smith v. Citizens & Southern Financial Corporation, 245 Ga. 850, 268 S.E.2d 157 (1980)].
The 20-year statute of limitations found in O.C.G.A. Section 9-3-23 has been conversely applied to actions for breach of covenants against the holder of a security deed. [Brice v. National Bondholders Corporation, 187 Ga. 511, 1 S.E.2d 426 (1939)]. Other factors such as subsequent sales to bona fide purchasers may reduce this period. [O.C.G.A. Section 9-3-3].
17.3 Effect of Foreclosure Sale
A valid foreclosure sale terminates the debtor’s interest in the property sold at the foreclosure sale and there is no right of redemption in favor of the debtor or junior lienholders, except those of the United States as discussed herein. A foreclosure sale does not require judicial confirmation in order to convey marketable title. However, if a confirmation action is pending or subject to appeal, title is considered to be unmarketable. Except as noted herein a foreclosure sale eliminates all interests and liens against the property which were junior to the interest being foreclosed, unless the purchaser at the foreclosure sale is the debtor.
Comment: See Mutual Loan & Banking Co. v. Haas, 100 Ga. 111, 27 S.E. 980 (1896) Confirmation is a prerequisite to seeking a deficiency following a foreclosure sale. [O.C.G.A. Section 44-14-161].
Repurchase, even after intervening third party owners, by the debtor promotes the priority of liens from the debtor which were junior to the foreclosed security interest. [Bowlin v. Hemphill, 180 Ga. 435, 179 S.E. 341 1935)]. Purchase money security interests used by the debtor to repurchase the property may be afforded priority over pre-existing junior liens. [Federal Land Bank of Columbia v. Bank of Lenox, 192 Ga. 543, 16 S.E.2d (1941)].
17.4 Federal Tax Liens
An exception of the effect of a foreclosure sale of a senior security interest exists with respect to federal tax liens. If a federal tax lien is properly filed more than 30 days prior to the foreclosure sale date, written notice of the foreclosure sale must be given to Internal Revenue Service at least 25 days prior to the sale date. If such notice is not given, a federal tax lien is not eliminated by the foreclosure sale of a senior security interest. If a junior federal tax lien is of record more than 30 days prior to a foreclosure sale date, the better practice is to record evidence of proper notice to the Internal Revenue Service. If a federal tax lien is eliminated by the foreclosure sale, the United States has a period of 120 days from the date of sale to redeem the property. If foreclosed property to which a junior federal tax lien attached is sold by the purchaser at the foreclosure sale within 120 days following the foreclosure sale within 120 days following the foreclosure sale date, evidence of waiver of the right of redemption by the Internal Revenue Service should be recorded. Comment: Federal tax liens are established pursuant to 26 U.S.C. Section 6321. Federal tax liens are perfected against real property by filing pursuant to 26 U.S.C. 6323(f) and O.C.G.A. Sections 4-14-571 through 574. See 26 U.S.C. Section 7425(b), (c) and (d). See Chapter 31 of these Standards.
17.5 Other Governmental Liens and Interests
Rights similar to those afforded the Internal Revenue Service are provided to the United States and federal governmental agencies. When property is foreclosed and the record indicates, or the examiner has actual knowledge, that the property was owned or a junior security interest held by the United States or a federal agency at the time of such foreclosure, inquiry as to rights and enforcement policy of the United States or the federal agency with regard to notice, consent to the foreclosure sale and right of redemption must be made. If it is determined that the agency owning the property or holding a junior security interest claimed any such rights, satisfactory evidence should be of record indicating that any required notice was given and, if applicable, consent to the foreclosure sale was obtained and, if applicable, the right of redemption must have been waived or the redemption period must have expired.
Comment: 28 U.S.C. See 2410(c) provides a one year right of redemption to the United States where real estate is sold to satisfy a lien prior to the lien held by the United States other than a federal tax lien.
12 U.S.C. Section 1825(b) provides that when acting as a receiver no property of the Corporation (FDIC) shall be subject to foreclosure without he consent of the Corporation. Pursuant to 12 U.S.C. Section 1441a(b)(1) the Resolution Trust Corporation has the same power and status of the FDIC.
It appears that various divisions of the United States and federal agencies do not consistently or uniformly interpret or enforce rights under 28 U.S.C. Section 2410 and 12 U.S.C. Section 1825. For example, FDIC and RTC have published policy statements on Foreclosure Consent and Redemption Rights. These policies differ in certain respects and enforcement varies depending on the capacity in which property or security interest are held by FDIC or RTC and the type of senior security interest being foreclosed. FDIC, RTC and other agency regulations and policies are published in the Federal Register and the Code of Federal Regulations.
17.6 Deed in Lieu of Foreclosure
A conveyance of property in lieu of a foreclosure sale may be made by quitclaim deed, limited warranty deed or general warranty deed. Unless a contrary result is intended by the parties, the doctrine of merger terminates the security interest in the property. Since merger is a question of intent of the parties, it is better practice to express the parties’ intent on merger in the deed. Upon subsequent conveyance of the property by a secured creditor who acquired title by a deed in lieu of foreclosure, satisfactory evidence should be placed of record that the secured creditor no longer claims an interest in the property pursuant to the security instrument unless a conveyance subject to such security interest is intended.
A deed in lieu of foreclosure to the holder of a senior security interest does not eliminate junior security interests. Unless lack of merger is shown, acceptance of a deed in lieu of foreclosure by the holder of a senior security interest promotes the priority of junior security interests.
Comment: If a mortgagee enters possession of property without a deed, the debtor retains the right to redeem the property for a period of ten years. (O.C.G.A. Section 44-1442.1). For merger, see O.C.G.A. Section 44-6-2; Fraser v. Martin, 195 Ga. 683, 25 S.E.2d 307 (1943) and Ashburn Bank v. Reinhardt, 183 Ga. App. 292, 358 S.E.2d 675 (1987). See also, Standard 14.2, supra.
If the secured indebtedness has not been fully discharged, a release or quitclaim deed may be used to release the property rather than the presentment of the original security instrument or a cancellation indicating that such indebtedness has been paid. (O.C.G.A. Section 44-14-67). See Kidd v. Kidd, 158 Ga. 546, 124 S.E. 45 (1924) for the basis of the last paragraph of this standard.