Consumer Finance Litigation

In You et al. v. JP Morgan Chase Bank, N.A. et al., No.S13Q0040(Ga. May 20, 2013), the Supreme Court of Georgia ruled that the holder of a security deed seeking to exercise a power of sale is not required to also hold the underlying promissory note. Further, the Court held that a party exercising its right to foreclose as a holder of the security deed does not need to identify the holder of the note in the statutorily-mandated notice to debtor. The borrowers in this case primarily argued that JP Morgan Chase Bank, N.A. did not have the right to exercise power of sale because it was not the holder of the underlying promissory note, but instead was simply the holder of the security deed. In responding to this argument, the Court noted that it is common practice for the security deed and promissory note to be split as a result of the securitization of mortgages. Further the Court acknowledged that the Georgia General Assembly, which amended the code sections pertaining to nonjudicial foreclosures in 2008, did not make an express reference to the practice of splitting the note and security deed. Thus, the Court concluded that the Georgia General Assembly had no intention of making fundamental changes to the nonjudicial foreclosure process. Because Georgia courts have historically allowed parties to exercise power of sale as holder of the security deed, without also holding the promissory note, the Georgia Supreme Court held that there are no grounds to forbid such practice now. Finally, the Court addressed an issue regarding the statutorily-mandated pre-foreclosure notice by which the foreclosing party notifies the borrower of the foreclosure sale. The certified question the Court considered was the following: Does O.C.G.A. Section 44-14-162.2(a) require that the secured creditor be identified in the notice described by the statute? The Court concluded that O.C.G.A. section 44-14-162.2(a) only requires that the notice identify "the individual or entity [with] full authority to negotiate, amend, and modify all terms of the mortgage with the debtor." Thus, if the party who is exercising the power of sale is the holder of the security deed, the notice only needs to identify the security deed holder. If the party who is exercising the power of sale is the holder of the promissory note, the notice only needs to identify the note holder. Chief Justice Carol W. Huntstein, writing for a unanimous court, acknowledged that this lender-friendly ruling does nothing to halt the ease with which foreclosures proceed in Georgia. Justice Huntstein stated that it is the role of the General Assembly, not the judiciary, to undertake reform of the foreclosure process if such reform is needed. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.