An earlier post discussed Brock v. Yale Mortgage Corp., 287 Ga. 849, 700 S.E.2d 583 (October 4, 2010), which concerned a loan secured by a property that immediately before closing was owned by a husband and wife as tenants-in-common. The wife brought to closing a forged quitclaim deed from the husband. The lender disbursed funds required to pay off a prior loan and then disbursed the remaining proceeds to the wife. The husband, having discovered what his wife had done, filed suit to, inter alia, set aside the forged deed and either set aside the security deed or limit its encumbrance to the wife’s one-half undivided interest in the property. The trial court granted the lender’s motion for summary judgment, determining that the lender held a valid security interest in the entire property. The Georgia Supreme Court affirmed the trial court’s order to the extent that it recognized the lender’s security deed as encumbering the wife’s one-half interest. Responding to the argument that the lender, as a bona fide purchaser for value, also had a security interest in the one-half interest purportedly conveyed by the fraudulent deed, the Court noted that “even a bona fide purchaser for value without notice of forgery cannot acquire good title from a grantee in a forged deed, or those holding under such a grantee, because the grantee has no title to convey.” (citing various cases). Specifically overruling precedent, the Supreme Court now concludes that the bona fide purchaser for value doctrine will not overcome a forgery. Brock was full-bench.
The Justices were also unanimous in Price v. Price, 286 Ga. 753, 692 S.E. 2d 601 (March 22, 2010). The facts, in chronological order, were:
April 1968 Deed recorded conveying Twiggs County property to Cullen Price and wife Sara as joint tenants with rights of survivorship
July 13, 1973 Prices divorce and execute Separation Agreement in final divorce decree. The agreement grants Cullen a life estate in the property and requires him to convey the remainder to Harold Lee Price and Margaret Price Jones, the couple’s two children, as tenant-in-common. Apparently, Cullen never made this conveyance.
1982 Sara Price dies
1983 Cullen records affidavit regarding title in which he claims full fee simple title by right of survivorship
September 2005 Cullen quit-claims one-half undivided interest to new wife Lorraine to accommodate loan transaction. The record does not show consideration or evidence that transfer tax was paid. The couple executed a security deed contemporaneously.
October 2005 Deed and security deed recorded
December 2005 Cullen dies intestate
September 2006 Lorraine Price applies for year’s support seeking the other one-half undivided interest in the property. Harold and Margaret object.
October 2006 Harold and Margaret, the two children, record the divorce decree, claiming that they own 100% interest in the property.
On these facts, the trial court held that (a) Cullen Price had a life estate in the property that extinguished upon his death, (b) Cullen’s affidavit of title was false, (c) Lorraine and the lender were bona fide purchasers for value, (d) Harold and Margaret owned one-half interest in the property, with Lorraine owning the other half, and (e) both interests were subject to the security deed.
The Supreme Court, affirming in part and reversing in part, reasoned as follows:
1. A final divorce decree that conveys property operates as a deed and establishes title, whether or not recorded. Therefore, the 1973 divorce decree vested a life estate in Cullen, with remainder in Harold and Margaret.
Question here: per the stated facts, the separation agreement required Cullen to convey the remainder to the children, but he apparently never did so. The Court seems to have deemed the agreement to have been self-executing. Was this proper?
2. Cullen’s deed to Lorraine conveyed only an interest in his life estate.
3. When Cullen died in December 2005, his life estate ended and the property did not go into his estate.
4. Lorraine was not a bona fide purchaser for value. There was evidence that the conveyance to her by Cullen was not for valuable consideration: grantor and grantee were husband and wife; Lorraine in her affidavit stated that Cullen executed the deed to support the couple’s mortgage loan application; the stated $1 consideration was trivial; and Lorraine failed to show that she paid consideration. The conveyance by quitclaim deed was therefore voluntary and not for value. Therefore, whatever interest Lorraine had in the property expired upon Cullen’s death and did not take priority over the subsequently recorded divorce decree.
5. The lender, on the other hand, was an innocent purchase for value.
Another question: are Brock and this case consistent? Are both of them right? The Court in Brock based its decision on the principle that “even a bona fide purchaser for value without notice of forgery[here a lender] cannot acquire good title from a grantee in a forged deed, or those holding under such a grantee, because the grantee has no title to convey.” In Price, the Court, by holding the lender to be a bona fide purchaser for value, apparently upheld the lender’s security deed as encumbering the full fee simple interest in the property, without regard to the true character of Cullen’s interest as a life estate. In Brock, the grantor of the security deed could not convey title to the interest in the property conveyed to her by the fraudulent deed, because she had no title therein to convey. The security deed was therefore ineffective against that interest. In Price, Cullen could convey only an interest in his life estate, which terminated upon his death. One might therefore expect that even a bona fide purchaser for value from him could not obtain more than an interest in the life estate, because that is all he had to convey; but that is not the result in Price. Brock may be argued as standing for the proposition that a lender, although a bona fide purchaser for value, may not obtain title from a grantor holding title under a fraudulent deed. Price, on the other hand, accurately reflects O.C.G.A. Sec 44-2-1: “a prior unrecorded deed loses its priority over a subsequent recorded deed from the same vendor when the purchaser takes such deed without notice of the existence of the prior deed.” Fraud trumps a bona fide purchaser for value. A bona fide purchaser for value trumps an unrecorded instrument from the same vendor.