Real Estate law in Georgia differs from that of every other state. We generally offer Secutiry Deeds instead of Mortgages. Equitable Conversion transfers the risk of loss to the Buyer immediately upon signing of a contract. Foreclosure is a relatively quick remedy against non-paying debtor, which, conversely is a high risk for a financially troubled homeowner. In part for these reasons Georgia is also among the decreasing number of states which require an attorney to execute the closing process.
The Statute of Frauds requires that certain contracts including those regarding the transfer of land be in writing in order to be enforceable. It also requires that certain terms of the contract be explicit. The Georgia Association of Realtors has developed a great standard Sales Contract. It avoids many of the pitfalls individuals make when attempting to "draw up" their own agreement. One to these pitfalls is Equitable Conversion. Equity is a part of the legal system which cushions law. It generally gives judges the right to make decisions contrary to law so that legalism does not result in decisions contrary to the intent of the law or to common understanding or what is right or just. Since the Buyer has the right and obligation to be deeded the property, the Buyer becomes equitable owner of the property even prior to the actual legal sale. One of the ironies of this is that in early American history, land was considered the valuable commodity in a land sale contract, therefore, the house, building or other improvements simpley were conveted with it. Judges in their inifinite wisdom decided that should be holme or building be destroyed and only the land remain the Buyer is still obligated to contiue with the purchase fo the property; as the contract was for the land. The holdover of this law can have devastating effect and thus the drafting of a contract is crucial.
The term Mortgage is loosely used in Georgia usually to refer to a Deed to Secure Debt or Security Deed. While the difference may seem unimportant to the parties in an agreemebnt where both sides are acting as they should, the difference is striking where a wrongful foreclosure takes place or a financially strapped debtor defaults. Simply said, a Mortgage passes no title while a Security Deed does. A mortgage is simply a lien agaist property as collateral with ownership rights remaining exclusive to the true owner. A Security Deed, however, passes title to the property to the lender protecting them to the amount of money they have invested. Should the Borrower default, the lender simply forecloses their interest and sales the property as prescribed by law. There is no need to burden the court with such issue. If the Borrower feels that this action was taken in error or illegally, then the Borrower must petition the court to rectify the error.
One of the most difficult pruchases for home buyers is owner's title insurance. They often feel that the attorney checked the title, the lenders are accepting of it, and that should be enough for them. Lenders, however, generally do require title insurance to cover their risk and the purchaser pays for it. There are several types of policies, but two general distinctions are Lender's Policy and Owner's Policy. A Lender's Policy will only cover a defective title to the value a lender is owed. If, for example, you purchase a $150,000.00 home and pay 20% down, the lender would lend and obtain a policy for $120,000.00. If your home goes up in value to $200,000.00 and you pay your note down to $100,000.00 and then find out you have a totally defective title, the lender woudl receive their $100,000.00 and you would simply lose the $100,000.00 in home equity. Similarly, if while selling your home for $200,000.00 you discover that your storage building must be removed for setback violations or yoru neighbor has added a garage which encroaches onto your property and the cost of either correction is $15,000.00, the lender would receive their $100,000.00 and your equity would be reduced to $85,000.00. In any of the above cases, had you purcahsed an Enhanced Owner's Policy, your full investment including equity would be protected.
The difference in cost as of August 2006, shows the required Lender's Policy for a $130,000.00 loan to be $260.00, while the Owner's Policy for the $150,000.00 purchase would be $468.00. Instead of $268.00, you would buy the $468.00 owner's policy and attach a lander rider for $75.00. Thus a one time only extra charge of $283.00 at the purchase of your home may save thousands later. Of course, one consideration must be whether there is a genuine risk of defective title after thorough investigation by professionals. Most tile examiners adn Real Estate attorneys are very thorough in their examinations, but some defeats are not readily apparent. Many titles are passed through inheritance. An Administrator of a loved one's estate may have neglected to mention an unfavored sibling. A Power of Attorney may have been relied upon and subsequently lost leaving questions as to the validity of a signature. A judgement against the owner may have been overlooked on the General Court docket and may have attached for the value of the judgement and interest against the property. In addition to all of the above, Georgia has experienced a remendous amount of Real Estate fraud with regard to conveyance of clear title. The risk is still relatively low that your individual title will be defective, however, someone's likely will be.
If you are Buying or Selling a home, please consider us when choosing an attorney to assist you through the closing process. Call
our office or ask your Real Estate or Mortgage Loan Officer to contact us or email us at close@jameswdavislaw.com. You have a choice!
Thank you,
James W. Davis