This year was the first session of the 152nd General Assembly.    Bills introduced but neither passed nor defeated this year survive into next year.

This summary highlights only those bills, or portions of bills, selected as being of interest generally to real property lawyers.

The text of any bill may be accessed at http://www.legis.ga.gov/en-US/default.aspx, by using the drop-down menu at the top left corner of the page.

 BILLS PASSED AND SIGNED BY THE GOVERNOR

 HB 83 (Act 197) amends O.C.G.A. § 7-1-1001, relating to exemptions from licensing requirements applicable to mortgage lenders and mortgage brokers, by revising paragraph (6) of subsection 11 (a) to exclude from registration requirements a Georgia licensed real estate salesperson providing information to a lender or its agent related to a short sale transaction in which a separate fee is not received, provided that remaining in place is the proviso that a real estate broker or salesperson who directly or indirectly negotiates, places, or finds a mortgage for others shall not be exempt from registration.

HB 160 (Act 195) contains three sections:

Section 1.  Section 1 amends O.C.G.A. § 4-12-24 to provide that a right of action for legal malpractice may not be assigned.   This provision responds to the decision of the Supreme Court of Georgia in Villanueva v. First American Title Insurance Company, S12G0484 (Ga. March 18, 2013), in which the Supreme Court, on certiorari, affirmed the decision of the Court of Appeals (Villanueva v. First American Title Ins. Co., 313 Ga. App. 164, 721 S.E.2d 150, 152 (Ga. App., 2011)) that legal malpractice claims are not per se unassignable. Villanueva was a closing attorney on a transaction in which First American issued to the bank both an insured closing letter and mortgagee title insurance.  The bank loan proceeds, contrary to the lender’s closing instructions, were not used to satisfy prior outstanding loans.  First American paid those prior loans.  Under the terms of the insured closing letter, as a consequence of those payments, the title company claimed subrogation to the lender’s legal malpractice claim against Villanueva.    Villanueva argued that the subrogation actually constituted an assignment of the bank’s legal malpractice claim and that such claims are as a matter of public policy, not assignable.  The Court of Appeals agreed with the premise but held that legal malpractice claims are not per se unassignable since assignability depends on whether a particular claim sounds in tort or contract.  The Supreme Court affirmed, reasoning in part that “

[t] he legislative enactment of a statute is a conclusive expression of public policy, and the Georgia legislature, by its enactment of OCGA §§ 44-12-22 and 44-12-24, has deemed the assignment of a chose in action arising out of contract or involving a right of property to be within the public policy of Georgia, prohibiting only the assignment of a right of action for personal torts or for injuries arising from fraud.”    Villanueva (Ga), page 5.

On March 20, 2013, the sponsor of House Bill 160, Mike Jacobs, proposed Section 1 as an amendment to House Bill 160 before the Georgia Senate Judiciary Committee:

44-12-24.

Except for those situations governed by Code Sections 11-2-210 and 11-9-406, a right of action is assignable if it involves, directly or indirectly, a right of property.  A right of action for personal torts, for legal malpractice, or for injuries arising from fraud to the assignor may not be assigned.

Section 2.  Thousands of local governments throughout the country have passed ordinances requiring lenders to register foreclosed properties or owners to register vacant properties. [1]  The jurisdictions justify the registries as a means of providing contact information for owners or others responsible for maintenance, and to provide funds to monitor code compliance, of vacant and foreclosed properties. Banks and owners complained of the burden of the required information and fees and also sought some level of uniformity among the proliferating registries.

OCGA § 44-14-14, passed last year, authorizes local governments to establish registries subject to certain requirements and restrictions and preempts any conflicting requirements of pre-existing registries. A registry may elicit only specified information.  A party who acquires property pursuant to foreclosure or deed-in-lieu might avoid registration (subject to having to update required information with the registry upon any change) by including in the conveyance the specified information, filing the conveyance for record within 60 days and providing to the registry evidence of filing and the entire conveyance instrument. A registry may not require registration of a vacant or foreclosed property within 90 days after the property’s transfer pursuant to deed under power or deed-in-lieu or after the first subsequent transfer. Administrative fees imposed by the registry must reasonably approximate the cost of the operation of the registry, not to exceed $100 per registration.  The penalty for noncompliance may not exceed $1,000.   If the Department of Community Affairs promulgates a registration form, each registry must utilize it.  The Department has issued a form.[2]

Section 2 of House Bill 160 amends this statute to (a) remove the requirement of a land disturbance permit having been issued for a property to meet the definition of “foreclosed real property” and (b) clarifies that the exemption from registration based on the recording of a sufficient deed-under-power or deed-in-lieu-of-foreclosure requires that the deed must be filed within 60 days after the foreclosure sale or transfer of the deed in lieu of foreclosure, as applicable.

Section 3.  Transfer fee covenants provide that, upon each sale of a parcel of property subject to the covenants (e.g., each lot in a subdivision), a transfer fee (typically equal to 1% of the sales price) must be paid to a private third party (typically the property’s developer or its trustee), who otherwise has no connection to the property or the transaction. The developer or other seller establishes the covenant by either recording a covenant in the local public record or including the covenant in the deed for the property or any portion of it. Typically, these covenants are in effect for 99 years and are applied to residential properties, although they are also of concern in regard to commercial properties.

Proponents of these covenants, such as Freehold Capital Partners, argue that transfer fees represent a future income stream that may be monetized, and perhaps pooled and securitized (similarly as mortgages have been), thus creating an additional source of capital for development.  Opponents, including the American Land Title Association (“ALTA”), counter that these covenants:

“force consumers to pay more to own property in a less secure land transfer system. These covenants require consumers to pay thousands of dollars to third parties that hold no ownership interest in the property for the right to buy or sell real estate. These covenants provide no benefit to consumers or the public, but rather cost consumers money, complicate the safe, efficient and legal transfer of real estate and depress home prices.”

 (quoted from ALTA Private Transfer Fee Covenant One Pager).

The status of these covenants under prior Georgia law was unclear. Proponents of the covenants argued that they constituted “covenants running with the land” and were therefore enforceable. Critics countered that they did not satisfy the requirements for real covenants and therefore did not bind successors in ownership.   Many states have restricted or prohibited transfer fees.[3]    In 2012, the Execution Committee of the Real Property Law Section of the Georgia Bar proposed a ban:

The Committee believes that transfer fee covenants, if their use is not curbed by this bill or other legislation to prohibit or prescribe adequate limitations and requirements on their use, are likely to impose increased and unnecessary risk upon title examiners and title attorneys and to increase the cost and complexity of, and the time required to close, real estate transactions. In addition, these covenants are potential restraints on alienation which would impact the ability of subsequent sellers to sell the property unrestricted. They also create the opportunity for sellers to hide and camouflage fees to which they would ultimately be entitled for decades upon the subsequent resale of the same property.

In response to the Bar’s initiative, House Bill 160 enacts new OCGA § 44-14-15 to prohibit these covenants, while allowing legitimate fees and assessments payable to condominium and property owners’ associations, certain entities regulated by the PSC (especially railroads) and community land trusts. These exceptions derive from discussions with the various interest groups in the earlier effort to pass the bill.  The bill as passed also contains in subsection (c)(6) an exception for certain brokerage commissions.  The broker lobby added this exception late in the legislative session with uncertain purpose or effect.

HB 175 (Act 249) adds the following new O.C.G.A. § 44-5-59:

Except as provided in Code Section 44-5-60 and excluding covenants recorded on property solely by the property’s owner, which shall run with the title to the land, a covenant runs with the land when, for consideration and as reflected in a duly recorded instrument found in the applicable chain of title, a property owner and a third party agree to such covenant, the property is adequately described in such covenant, and such covenant does not run for more than 20 years.

By virtue of the proviso for OCGA § 44-5-60, a covenant that runs with the land remains subject to any express prohibition on assignment and, if and to the extent that it contains a use restriction, the twenty (20) year limitation applicable within areas subject to zoning ordinances.

The sponsor of this bill testified that it codifies existing law, a debatable claim since it makes no reference to the requirement that a real covenant, or a covenant “running with the land,” must “touch and concern” the land.  The ultimate import of the statute may be to move toward eviscerating the concepts of real covenants and “running with the land” and replacing it with something more akin to equitable servitudes, with “[a]dequate notice obliterat[ing] any express requirement of “touch and concern.” Davidson Bros., Inc. v. D. Katz & Sons, Inc., 121 N.J. 196, 204, 579 A.2d 288 (N.J. 1990).

Also, might the bill’s reference to “covenants recorded on property solely by the property’s owner, which shall run with the title to the land,” implicitly reverse the decision of the Court of Appeals in Gilbert v. Fine, 288 Ga. App. 20, 653 S.E.2d 775  (2007)?   Gilbert casts doubt upon the common practice by commercial developers of imposing easements by declaration on portions of property for the benefit of other portions, all while owning the entire property.  The Gilbert court took the position that no easement can exist on one’s own property, as the lesser estate is merged in the greater, ignoring the longstanding component of intent in the doctrine of merger.   A fair reading of this case is that the only way to impose an easement in this situation is by reservation in the deed conveying a portion of the property.[4]

HB 434 (Act 340) adds the following new provisions to OCGA 44-14-361:

 (c) Each special lien specified in subsection (a) of this Code section shall include the amount due and owing the lien claimant under the terms of its express or implied contract, subcontract, or purchase order subject to subsection (e) of Code Section 44-14-361.1 [“In no event shall the aggregate amount of liens set up by Code Section 44-14-361 exceed the contract price of the improvements made or services performed”].

 (d) Each special lien specified in subsection (a) of this Code section shall include interest on the principal amount due in accordance with Code Section 7-4-2 [legal rate of interest] or 7-4-16 [commercial accounts]

This bill responds in part to 182 Tenth, LLC v. Manhattan Constr. Co., 730 S.E.2d 495, in which the Court of Appeals ruled that the contract price seeking to be enforced included items that were not lienable:  i. e soft cost items such as insurance, overhead administrative expenses, interest etc.    Some commentators, such as Dan Hinkel, editor of Pindar’s Georgia Real Estate Law and Procedure, believe that this statute may work a dramatic change in the law.  Others believe that it simply a corrective to the incorrect reasoning of cases such as 182 Tenth, LLC.

HB 458 (Act 289) raises to $5,000 the deductible per casualty which a condominium association may allocate to any one unit owner.

SB 185 (Act 223) amends Article 9 of the Georgia version of the Uniform Commercial Code to align it with the current uniform act.  Of primary relevance to real property practitioners are two provisions.  First, Section 10 provides that mortgages recorded on or after July 1, 2013, may once again serve as fixture filings and that the instrument sufficiently provides the name of an individual debtor if it provides the individual name of the debtor or the surname and first personal name of the debtor, even if the debtor is an individual subject to paragraph (4) of subsection (a) of Code Section 11-9-503 [if the debtor has a Georgia driver’s license, financing statement must provide name on license; if multiplied licenses issued, must be name on latest one].

Section 11 provides that if the collateral is held in a trust that is not a registered organization, a financing statement must provide (a) if the trust agreement specifies a name for the trust, the name specified; or (2) if the organic record of the trust does not specify a name for the trust, the name of the settlor or testator.  In such event the financing statement must also, in a separate part of the financing statement, contain other information confirming trust ownership and distinguishing the trust from others, if necessary.

In Georgia, a trust may not hold title to real property in its name; any title must be vested in an individual or corporate trustee. See GA Title Standards, Sec 29.2 (“A deed or other instrument of conveyance must state that title is conveyed to a “party, as trustee,” and not to the “trust” in and of itself, as only a trustee, and not the trust, is authorized to hold legal title.”) (citing the Georgia Trust Act)Interestingly, House Bill 222, which did not make it out of the House, proposes to amend O.C.G.A. § 53-12-25 of the Georgia Trust Act to authorize transfer of legal title if the name of the trust is “ascertainable with reasonable certainty.”   Establishing a trust as a title-holding entity will require a more comprehensive legislative effort.    

 SELECTED BILLS SURVIVING TO NEXT SESSION

Mortgage Reform.   

Attempts at mortgage reform continue, although so far with little meaningful result.   Next year’s effort may have recently received impetus from the Georgia Supreme Court:

As members of this State’s judicial branch, it is our duty to interpret the laws as they are written.   This Court is not blind to the plight of distressed borrowers, many of whom have suffered devastating losses brought on by the burst of the housing bubble and ensuing recession. While we respect our legislature’s effort to assist distressed homeowners by amending the non-judicial foreclosure statute in 2008, the continued ease with which foreclosures may proceed in this State gives us pause, in light of the grave consequences foreclosures pose for individuals, families, neighborhoods, and society in general. Our concerns in this regard, however, do not entitle us to overstep our judicial role, and thus we leave to the members of our legislature, if they are so inclined, the task of undertaking additional reform.

 You  v. JP Morgan Chase Bank, N.A. , S13Q0040, p. 16 (GA. ,May 20, 2013).  Following are summaries of selected bills that remain in the queue for next year.

HB 47 would give residential borrowers the nonwaiveable right to avoid foreclosure (except upon failure to pay upon maturity) by curing all defaults not later than five days prior to the sale.  

HB 49 would require licensing of foreclosure rescue firms with the Georgia Real Estate Commission.

HB 344 and SB 126 would add a new section 44-14-161.1 to provide that, when a holder of a deed to secure debt, mortgage, or other lien contract against real estate obtains a judgment on the debt prior to a foreclosure sale of the real estate, anyone obligated on the debt may file, within 30 days after the date of the sale, a complaint against the holder to establish the true market value of the real estate. The holder must present evidence of the true market value and the court must make a finding of the true market value as of the date of the foreclosure sale. If the court determines that the real estate was sold for less than true market value, the holder may elect that either (a) the court enter an order setting aside the foreclosure sale in which case the holder may resell or (b) the court enter an order crediting the amount of the court’s finding of true market value against the remaining balance of the judgment.  If the court’s finding of true market value exceeds the remaining balance of the judgment, the credit shall be limited to the remaining balance in full satisfaction of the judgment and the holder shall not be liable for the excess.

SB 56 would render the purchaser at a foreclosure sale of a condo subject to and liable for up to six months of common area assessments. HB 502 proposes likewise for HOA’s.

SB 106 would require for confirmation an appraisal conducted within thirty days prior to the foreclosure sale.  It would also limit a deficiency judgment to the lesser of (a) the debt amount minus the appraisal amount or (b) the debt amount minus the highest accepted bid at the foreclosure sale.

SB 108 would require the transferee of any security deed (i.e., the bill proposes to delete the exceptions for servicers and institutional insured lenders) to notify the borrower of the transfer within thirty days by certified mail, statutory overnight delivery or personal delivery.  It also proposes to require the foreclosure notice to be delivered to the debtor sixty days (instead of thirty days) prior to the foreclosure, again by certified mail, statutory overnight delivery or personal delivery, and to be tacked to the property.  The notice of sale for any residential foreclosure would be required to include (a) the name, address, and telephone number of the secured party and any agent of the secured party that can be contacted for inquiries concerning the notice, including inquiries regarding alternatives to foreclosure; (b) the amount, if any, which the creditor will accept to cure the default and reinstate the loan, including all past due payments, penalties, and fees; (c) an explanation of the Georgia foreclosure process and time line, as prescribed by the Department of Banking and Finance; (d) the date on which the default occurred and the nature of the default; and (e) an abstract of the chain of title under which the foreclosing party holds the security deed, including deed book and page numbers for all recorded transfers and a copy of any unrecorded transfers.

Other Selected Bills.

HB 69 would add to the redemption price for tax deeds amounts owed to HOA’s and condo associations.

HB 82 would allow guarantors of debts originated by federally insured lenders and bought by noninsured purchasers for less than 60% of face value to purchase the debts for the amount paid by the purchaser plus a premium of either 10% or 20%, depending on the timing of the transaction.

HB 270 and SB 125, seeking to counter the position of the Restatement of Torts, would confirm that a possessor of land owes no duty of care to a trespasser except to refrain from causing a willful or wanton injury, including by a trap or pitfall.  The possessor may, however, be subject to liability for physical injury or death to a child trespasser caused by an artificial condition under circumstances specified in the bill.

HB 379 would require a landlord evicting a tenant to store the removed personalty with a convenience warehouse for up to two weeks and to mail to the tenant and file with the court a receipt containing a description of the personal property and the location and contact information of the warehouse.  The landlord shall be entitled to reimbursement by the tenant for any costs and fees incurred. The landlord shall also have a lien on the personal property to secure the costs and, upon the expiration of two weeks, shall be entitled to sell the property to satisfy the lien.

SB 123 would provide that any security instrument encumbering owner-occupied residential real property is a mortgage and shall be subject to all provisions of law relating to mortgages.  No such instrument may be foreclosed through any procedure other than that applicable to foreclosure of mortgages.

SB 269 would in effect (although inartfully) subordinate the security priority of a construction lender in the improvements to the lien of claimants under O.C.G.A. § 14 44-14-361.


[1] See, e.g., http://www.safeguardproperties.com/Resources/Vacant_Property_Registration.aspx  (national listing).

[4] Thanks to David Reid and Angie Fox at Sutherland, Asbill & Brennan for their analysis of Gilbert.