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 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 on June 6, 2006, was executed by the Warrens and notarized, but it does not contain an attestation by an unofficial witness.” BNY Mellon was then assigned the security deed in 2010. Five years later, WW3 Ventures successfully bid on the Warren’s home after the homeowners’ association secured a judgment against their $13,500 in unpaid homeowner assessment liens.

A quiet title action ensured after WW3 became aware of BNY Mellon’s interest. “BNY Mellon denied WW3’s allegations, and the trial court appointed a special master. BNY Mellon eventually moved for summary judgment, asserting that WW3, by virtue of its prior declaratory judgment action and its acknowledgment of BNY Mellon’s security interest, was not ‘entitled to the equitable remedy of cancellation of a security deed on the same real property [for which it failed to satisfy the security deed] via a quiet title action.’” Additionally, 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.” 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. WW3 stated that its principal did not conduct a title search prior to purchasing the property.

The special master concluded that the title must vest in WW3 but subject to BNY Mellon’s security deed. The special master concluded that the security deed was defective due to the missing signature. However, WW3 did have 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, legal title was awarded to WW3, subject to BNY Mellon’s security deed. Special master fess 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. The Court agreed; however, because the trial court correctly concluded that WW3 was under inquiry notice of BNY Mellons’ security interest, the Court affirmed with the trial court’s judgment.

The Court found that BNY Mellon’s security interest deed did not itself provide constructive notice of security interest. “If 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 (Lexis Advance through the 2023 Regular Session of the General Assembly)

“Although the security deed is signed by the maker and is attested by a notary public, it lacks the attestation of an unofficial witness. See OCGA §§ 44-14-33, 44-14- 61; Gordon II, 292 Ga. at 475 (1). 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.’…In sum, neither the security deed itself nor the 2010 assignment provided WW3 with constructive notice of BNY Mellon’s security interest.”

Regarding inquiry notice, “Independent of the security deed’s lack of constructive notice, however, other documents in the chain of title referenced the security deed, and those documents placed future purchasers — including WW3 — on inquiry notice. Ultimately, then, the trial court did not err in awarding title to WW3 subject to BNY Mellon’s security interest.”

Finally, in its cross-appeal, BNY Mellon asserts that “the trial court ‘discard[ed] basic equity’ in concluding that equitable relief is not available to WW3 without first satisfying BNY Mellon’s security deed.” The Court responded, “In Division 1, we determined that WW3’s interest in the property is subject to BNY Mellon’s security interest. Accordingly, we need not consider this enumeration since no instrument has been canceled as a result of WW3’s quiet title action.”

Additionally, “BNY Mellon also asserts that the trial court erred in ‘apportioning an indefinite and non-fixed sum’ of special master’s fees against it. In view of our decision in Division 1, and because we cannot evaluate the trial court’s exercise of discretion as to the special master fee assessment, we vacate that portion of the trial court’s judgment and remand this case for further proceedings.” Georgia Law states that “the [trial] court shall fix a reasonable compensation, not less than $50.00, to be paid to the master appointed under this part and shall fix the compensation to be paid to any representative in the nature of a guardian ad litem appointed under this part. These fees are to be taxed in the discretion of the court as a part of the costs.” The trial court previously ruled that “special master’s fees will “be assessed and paid by Respondent BNY [Mellon] within 30 days from the entry of this Order.” This statement, not indicating if the trial court exercised discretion, prompted the Court to “vacate the trial court’s special master fee assessment and remand this case for further proceedings.

Takeaways

This case is important in it clarifies whether a security deed lacking the necessary signature can still provide inquiry notice to the purchaser if the purchaser fails to conduct due diligence and investigate the chain of title. The Court found that the trial court erred when it found that the defective security deed did put the purchaser on notice; that said, “other documents in the chain of title referenced the security deed, and those documents placed future purchasers — including WW3 — on inquiry notice.” The takeaway is that just because constructive notice is absent from the transaction, inquiry notice is still possible. The Court relies on Wells Fargo Bank, N.A. v. Gordon, 292 Ga. 474, 749 S.E.2d 368 (2013) in its conclusion that “because the security deed was not attested by an unofficial witness and, therefore, was not in recordable form and did not provide constructive notice as a matter of law…other documents in the chain of title that referenced the property and BNY Mellon’s security interest, provided WW3 with inquiry notice such that it ‘would be prompted to make inquiries as to the existence of a security deed in the property’s chain of title…’” The Court diverted from the trial court’s reasoning but ultimately affirmed its verdict, awarding title to WW3 subject to BNY Mellon’s security interest.