Remember, Just Because You Have a Safety Net Does Not Mean That You Should Purposefully Fall Off of a High Wire

By T. Matthew Mashburn

Closing Attorneys still need to be mindful of Justice Nahmias’ admonition that formed the basis of the Gordon I and Gordon II opinions. To paraphrase: “It’s just one witness and one unofficial witness, why can’t you get this right?” On the other hand, closing attorneys will be greatly rejoicing when the news of three recent cases make the rounds (well, one very recent case, one fairly recent case and one case at the beginning of last year). These three cases form a safety net for closing attorneys but should be seen as a safety net for tight rope walkers (i.e. the kind that saves your life at the very last second and is one’s very last hope) and not as a safety net for trapeze artists (i.e. the kind that you intentionally launch into and do tricks during the rebound).

Standard Facts

Mr. and Ms. Gazaway took out two loans with Bank of America in 2002 and secured the loans with 5288 Brown’s Bridge Road, Gainesville, Georgia.

In 2005, Ms. Gazaway passed away. She was survived by her spouse and four adult children. Ms. Gazaway’s Will gave everything to her husband, Mr. Gazaway, but the Will was not probated.

In 2006, Sunshine Mortgage made a loan that paid off the Bank of America loans and Bank of America cancelled its security deeds.

In 2013, Mr. Gazaway passed away.

In 2014, Sunshine Mortgage assigned the Note and Security Deed to PNC.

Non-Standard Facts

The Security Deed for Sunshine Mortgage was recorded but it was missing the notary’s seal or the notary seal was not apparent on the deed records.

PNC filed to quiet title and the Special Master found that (1) “…when Ray Gazaway executed the Sunshine security deed, Sunshine ‘…failed to account for the interests of’ the Gazaway’s children as heirs at law of Betty Gazaway;” (2)1“…because the security deed lacked a notary’s seal, the deed failed to convey legal title to PNC;”2 and (3) “…the doctrine of equitable subrogation is not applicable to the facts of this case.”3

The Status of the Case

The trial court entered judgment in accordance with the special master’s findings (without holding a hearing first) and PNC appealed.

Black Letter Law on Recording

Judge Ellington recited Black Letter Law with regard to Recording:

1. A security deed that is not properly attested, that is, by a notary and an additional witness, may not legally be recorded and does not count as constructive notice even if it makes it into the deed records because it was not “duly recorded.”: Id. at 6 citing OCGA § 44-14-61, Wells Fargo Bank, N.A. v. Gordon, 292 Ga. 474, 475 (749 SE2d 368)(2013)(“Gordon II”) and OCGA § 44-14-33.

2. An unrecorded deed is enforceable against the Grantor of the deed. Id. at 6-7 citing Bramblett v. Bramblett, 252 Ga. 21, 22(2)(b)(310 SE2d 897)(1984).

3. “[A] deed with a patent defect in attestation is not a nullity. Rather, it is still binding between the parties to the assignment.”Id. at 7 ft 4 citing Baxter v. Bayview Loan Servicing, LLC, 301 Ga. App. 577, 583 (688 SE2d 363)(2009)(accord); Hooten v. Goldome Credit Corp., 224 Ga. App. at 581 (accord); Haynes v. McCalla Raymer, LLC, 793 F3d 1246, 1252 (11th Cir. 2015).

4. The basic requirements of an enforceable deed are that “…the deed is written, identifies the land being conveyed, is supported by consideration, is signed by the grantor, and is delivered to the grantee [and is accepted by the grantee].” Id. citing Z & Y Corp. v. Indore C. Stores, Inc., 282 Ga. App. 163,173 (638 SE2d 760)(2006).

5. The failure of a notary to place the notary’s official seal on the deed does not make the deed improperly attested “because such failure ‘did not defeat the effect of [the notary’s] signature as a witness in [the notary’s] notarial capacity.’” Id. at 6

Judge Ellington ruled that even under a clearly erroneous standard, the special master got it totally wrong and the trial judge was wrong to adopt the totally wrong findings of the special master. Note that the trial court did not hold a hearing after the special master issued the special master’s report as is customary so the trial judge did not hear any objections to the special master’s report.

Judge Ellington therefore held that to the extent that the missing notary seal was a cloud on PNC’s title, it was removed as a cloud.

The Three Amigos, Gazaway, In Re Perry And In Re Krieg

When Gazaway is coupled with In re Perry and In re Krieg, Closing Attorneys will be sleeping well for the first time since Gordon I.

In re Perry holds (consistently with Gordon II) that while the Waiver of Borrower’s Rights does not cure the lack of the attesting or acknowledging witness, a properly drafted Closing Attorney’s Affidavit DOES! Note also that In re Perry was decided after the 2015 Amendment that took acknowledgements out of the witnessing statutes. In this regard, In re Perry can be seen as re-affirming In re Kim, 571 F.3d 1342 (11th Cir. 2009) which was pre-Gordon I and was also a missing notary seal case.

The reason that the Closing Attorney’s Affidavit saves the security deed against a BFP is that the remedial statute O.C.G.A. § 44-2-18 says that a DSD lacking an official attesting witness can be cured by a statement of an attesting witness before a notary public as long as the statement “shall testify to the execution of the deed and its attestation according to law.” Id. at 444. This is exactly what a properly drafted Closing Attorney’s Affidavit does in establishing that the closing attorney explained the non-judicial foreclosure and then watched the borrower sign the security deed. The notary’s signature on the Closing Attorney’s Affidavit does not take the place of the missing attesting witness. Rather, the Closing Attorney’s signature and the notary’s signature on it meet the standards for a curative affidavit under O.C.G.A. § 44-2-18.

It is super important for Closing Attorneys to recognize that neither In re Perry nor In re Kim held “…that the attestation or the notary’s seal on the Affidavit substitutes for the necessary attestation in the Security Deed.” In re Kim, 571 F.3d at 1345 ft. 7. Rather, In re Kim and In re Perry both stand for the proposition both before and after Gordon I and Gordon II and before and after the 2015 Amendment “…that the [Closing Attorney’s] Affidavit meets the requirements under § 44-2-18 to cure a defective official witness attestation and that the [Closing Attorney’s] Affidavit testifies to both the execution and the attestation of the Security Deed as required by the statute.” Id. In re Krieg was decided on March 21, 2018. It involved a pre-2015 Amendment Deed to Secure Debt where the unofficial witness signed the attestation twice and the notary executed an acknowledgement instead of an attestation.5

The Best High-Wire Safety Net Is The One That Is Never Used.

Accordingly, while it is a time of great rejoicing for Closing Attorneys, it is also a time for circumspection.

In re Krieg only applies to pre-2015 Amendment acknowledgements.

HOWEVER, In re Perry might save you if you have a properly worded Closing Attorney’s Affidavit.

FURTHER, Gazaway might save you if you can get to a quiet title action before the case hits bankruptcy where In re Krieg might save you.

BUT, wouldn’t it just be better to remember Judge Nahmias’ admonition in Gordon II and just get it right in the first place? No document leaves the closing room unless and until the borrower has signed, sealed and delivered the deed in front of an unofficial witness and an official witness.

Wouldn’t that be better and easier not to use Gazaway at all rather than risk becoming Gordon III?

If The Borrower Meant For You To Be A First And You Meant To Be A First, What’s The Damage To The Borrower If You Are A First After You Pay Off The First?

Judge Ellington provides more than just undiluted clarity for recording issues in Gazaway, he provides a refreshing insight to equitable subrogation.6

The purpose of equitable subrogation is to allow a new creditor who is paying off a previous creditor to “step into the shoes” of the previous creditor as long as that was everybody’s intention in the first place. Gazaway at 9-10 quoting Chase Manhattan Mortgage Corp. v. Shelton, 290 Ga. 544, 549 (4)(722 SE2d 7430(2012).

Again, it is an equitable doctrine. It’s still not equitable, at least yet, for the lender to provide the borrower with a free house (or an unsecured loan for a house that was not intended to be unsecured) (or a free house as long as the borrower is willing to eat a bankruptcy to do it).

The special master seems to have held that the failure to search the title (and thus discover the potential interests of the Gazaway siblings) was inexcusable neglect. Bill Dodson and Marcus Calloway would no doubt agree that the failure to search the title was really not the most wise path to take.

HOWEVER (and it’s a big however because it’s in all caps), the question is “Should the Gazaway siblings get an unencumbered house even if the lender did a dumb thing in not having the title searched?” “[T]he special master found that ‘a search of the Hall County, Georgia deed records would have revealed that Ray C. Gazaway did not own a 100% interest in the property offered as collateral…” Id. at 10-11. That part is unmistakably true as a matter of law. However, the doctrine is not called “Subrogation by Operation of Law.” It is called Equitable Subrogation. Thus, it goes beyond a simple analysis of race-notice constructive knowledge. It seeks to answer the question, “If we intended to have a first and you intended to give me a first and I paid off your first to get to be the first, how are you damaged if the courts make me a first? (and especially if you signed a borrower’s affidavit saying that I was going to be a first?).”

HOWEVER, (and again it is a big however) that’s the result if you get to the Security Deed before a bankruptcy gets filed. After all, bankruptcy is a strange place. Its purpose is to allow people not to pay their just debts. “To refuse to recognize the priority of Sunshine’s secured interest on the basis that it failed ‘to account for’ the interests of the younger Gazaways would be a windfall for them (and potentially other claimants against Ray Gazaway’s estate). Such a windfall does not comport with the principles of equity.” Id. at 13.

But, it does comport with the principles of bankruptcy!

Conclusion

Sometimes it feels like being a Closing Attorney is like performing on a high wire in a circus. And just like a high wire artist, it’s always nice to have a safety net but it’s always best if you don’t have to use it. Instead of risking becoming Gordon III, it’s just best not to let a document that is going to be recorded leave the closing room and the presence of the borrower without being signed, sealed and delivered in the presence of an unofficial witness and a notary public who affixes the notary public’s stamp and seal. In the non-words of Justice Nahmias (remember we’re just paraphrasing the lesson of the case in Gordon II and not quoting his exact words) “It’s just one unofficial witness and one notary public, how hard is it to get that right?”

Matthew Mashburn

T. Matthew Mashburn is an attorney at Aldridge Pite LLP.

Endnotes

1 Id. at 4. Thus, one half of the Gazaway property was owned by Mr. Gazaway and the four Gazaway children as the heirs at law of Ms. Gazaway at the time of the Sunshine loan and mortgage.

2 Id. We have previously coined the phrase “constructive notice myopia” for the Special Master and Trial Court’s failure to recognize the distinction between the requirements for a deed to be recorded (and thus valid against a BFP) and the requirements for a deed to be enforceable against the grantor/borrower (but not valid against a BFP, or a hypothetical BFP like a Trustee in Bankruptcy, after Gordon I and Gordon II). See Mashburn, Inquiry Notice is the Most Dangerous Notice of All , UNDILUTED CLARITY June 25, 2015 reviewing Caraway v. Spillers, A15A0162 (2015) Branch, J. writing for Andrews, P.J. and Miller, J.

3 Id.

4 Not required but as we will see, would have probably been a good idea to have had one.

5 Mashburn , In an attempt to create Gordon III, did Acknowledgements just get approved and one of the “jewels” get ripped out of the crown? Only for pre-2015 Security Deeds which was already the case and maybe. Gordon II gets major disrespected in bankruptcy court UNDILUTED CLARITY April 4, 2018 reviewing In re Krieg , 2018 WL 1448743 (March 21, 2018)(North District of Georgia Atlanta Division) Judge Baisier, U.S. Bankruptcy Court Judge.

6 I have certainly evolved a long way in my understanding of equitable subrogation from my position in 2003 when a colleague asked me my opinion on equitable subrogation and I said “I don’t believe in it” (although my title company still appreciates any closing attorney who holds to the former position and transacts business as if there was no such thing as equitable subrogation).

7 Mashburn, Keep your “Gordons” out of bankruptcy court and out of the Georgia Supreme Court UNDILUTED CLARITY (June 26, 2014) reviewing Vibert v. Bank of America, A14A0696 (2014) Andrews, P. J. writing for McFadden and Ray, JJ (reforming a Security Deed that was missing a borrower’s signature relying on Kim v. First Intercontinental Bank A13A1628 (2014)).\