Introduction

In a thorough and detailed opinion, the Court of Appeals of Georgia, Second Division, held that a security deed lacking the necessary signature can still provide inquiry notice to the purchaser even if the purchaser fails to conduct due diligence and investigate the chain of title. After competing motions were filed by the Plaintiff, WW3 Ventures, and Defendant, BNY Mellon, the Court appointed a special master who recommended that title vest in the Plaintiff, subject to the defendant’s security interest. In a two-part analysis, the Court agreed with the Plaintiff that the trial court erred when it determined that the security deed provided constructive notice. But because the Court agreed with the trial court that the Plaintiff was under inquiry notice of the defendant’s security interest, the Court affirmed the lower court’s judgment. WW3 Ventures v. Bank of N.Y. Mellon, Nos. A23A0719, A23A0720, 2023 Ga. App. LEXIS 536 (Ct. App. Nov. 3, 2023)

Background

Laurie and George Warren bought residential property in Gwinnett County, Georgia in 1999. In 2006, the couple decided to refinance their mortgage with Novastar Mortgage, Inc. and subsequently conveyed a security deed to a nominee for Novastar. The security deed, recorded in the Gwinnett County land records, was executed by the Warrens and notarized, but it did not contain an attestation by a witness. BNY Mellon was assigned the security deed in 2010. Five years later, WW3 Ventures successfully bid on the Warrens’ home after the homeowners association secured a judgment for $13,500 in unpaid homeowner assessment liens.

A quiet title action then ensued after WW3 became aware of BNY Mellon’s interest. The trial court appointed a special master to hear the matter. As its principal evidence in support of its summary judgment motion, BNY Mellon submitted “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.” In turn, WW3 filed its own motion for summary judgment asserting that it had neither actual nor constructive knowledge of BNY Mellon’s security interest before the sale in that it did not conduct a title search prior to the foreclosure.

The special master held that the security deed was defective due to the missing signature. However, WW3 had constructive notice of the security deed because it was cross-referenced in a plat and the 2010 assignment. The trial court adopted the special master’s report entirely in its final judgment. As a result, BNY Mellon’s security deed was a valid lien on the Property. Special master fees were enforced against BNY Mellon.

The Appeal

On appeal, WW3 contended that the trial court erred in awarding title to BNY Mellon’s interest because a defective security deed does not itself provide constructive notice or inquiry notice under Georgia law. However, it concluded that WW3 was under inquiry notice of BNY Mellon’s security interest and therefore affirmed the trial court’s judgment.

In so doing, the Court found first that “[i]f a mortgage is duly signed, witnessed, filed, recorded, and indexed, such recordation shall be deemed constructive notice to subsequent bona fide purchasers…a mortgage without due attestation shall not be held to be notice to subsequent bona fide purchases.” (Ga. Code Ann. § 44-14-39).  As to BNY Mellon’s security deed, the Court found that “[a]lthough the security deed is signed by the maker and is attested by a notary public, it lacks the attestation of an unofficial witness. … The absence of an official witness signature confirms that BNY Mellon’s security deed ‘was not in recordable form as required by OCGA § 44-14-33 and did not provide constructive notice.’” (citations omitted)

However, the Court of Appeals found that “[i]ndependent of the security deed’s lack of constructive notice, however, other documents in the chain of title referenced the security deed, and those documents [namely, the 2010 Assignment] placed future purchasers — including WW3 — on inquiry notice.” The Court elaborated that if the description of land in a recorded instrument is sufficient to identify the property, the purchaser is chargeable with all notice he would have if he made an inquiry into the instrument. Here, the 2010 Assignment had the property’s postal address and was indexed under the parties’ names.  In other words, the security deed would been picked up in a title search if WW3 did one.  As such, the Court affirmed and held that BNY Mellon had a valid lien on the Property.

Takeaway

This case is important in that it clarifies whether a security deed lacking the necessary signature can still provide inquiry notice to the purchaser. The takeaway is that, just because constructive notice is absent from the transaction, inquiry notice is still at issue, and buyers of real estate cannot ignore compelling evidence of liens or property interest and must conduct proper due diligence, including having a title search done on the acquired property.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, James Mazewski at jmazewski@riker.com, Thomas Persico at tpersico@riker.com, Kevin Hakansson at khakansson@riker.com, or Kori Pruett at kpruett@riker.com.