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A Monthly Update of Georgia and Federal Real Estate Development

Jeffrey H. Schneider, Editor

In This Issue Covenant Enforcement: Injunctions: Mandatory Injunction Compelling Removal of Pool Was Barred by Laches, Waller v. Golden Quiet Title: Claims Regarding Undeveloped Roadbeds Properly Dismissed, Turner v. City of Tallapoosa Quiet Title: Islands in Navigable Rivers: Title Established by a Land Grant from State or Crown Grant from King, State of Georgia v. Rozier, et al. Legal Description: Reformation: Lender Acquiesces to Judgment, Mortgage Electric Registration Systems, Inc. v. Samuel Constructive Notice: Bankruptcy: Trustee Prevails over Secured Lender, U.S. Bank National Association v. Gordon Legal Malpractice: Court Dismisses Malpractice Action for Lack of Proximate Cause, Howard v. Sellers and Warren, P.C. Materialman’s Lien: Lien Not Limited Just to Unit Named, 3400 Partners, LLC v. Chavez

Volume 24, Issue 5 May 2011

Covenant Enforcement: Injunctions

Mandatory Injunction Compelling Removal of Pool Was Barred by Laches Craig and Jena Golden’s neighbors, collectively referred to as the Wallers, appealed a trial court’s order denying their request for an injunction to force the Goldens to remove their swimming pool from the side yard of their property. The Supreme Court of Georgia affirmed the trial court’s order. The record reveals that the Goldens reside in the Eagles Landing Country Club community. Eagles Landing is governed by restrictive covenants, one of which limits the construction of swimming pools to areas behind residential units. The Goldens submitted a proposal for a swimming pool in their side yard to the Architectural Review Board (ARB) of the Eagles Landing Homeowners Association (HOA). Although the proposed plan was not in compliance with the Eagles Landing restrictive covenants, it was approved on August 7, 2009, because neither the Goldens nor the ARB was aware of the restriction. The Goldens signed a contract with a builder for the construction of the pool and made a $1,975 payment upon the execution of the contract. The construction was projected to be completed in 60 days at a cost of $39,500. A few days later, when construction equipment arrived at the Goldens’

property, at least one of the neighbors involved in the appeal knew that a pool was to be constructed, and several days after that, one neighbor voiced her objection to the pool’s location. After other concerned neighbors began to realize that the Goldens were constructing a pool in their side yard, they started lodging complaints with the HOA. After an HOA board meeting on the issue, the HOA board members informed the Goldens of their neighbors’ discontent and the pool’s noncompliance with community restrictions. However, fearing a lawsuit, the HOA decided to allow the construction to continue because it had already been approved. In fact, the HOA decided that the construction proc­ess should be expedited to minimize the negative impact of the pool construction on the community aesthetic and informed all parties to this litigation of its belief. In furtherance of this goal, the HOA decided to use up to $4,000 in association funds to help the Goldens purchase mature shrubbery that would hide the pool from view from the street. Soon after, the Goldens made a $15,800 progress payment on the pool. The Wallers sent a letter on August 31 demanding that construction on the

GEORGIA REAL ESTATE LAW LETTER (ISSN 1040-4805) is published monthly for $397 per year by M. Lee Smith Publishers LLC, 5201 Virginia Way, P.O. Box 5094, Brentwood, TN 37024-5094, (800) 274-6774 or or © 2011 M. Lee Smith Publishers LLC. Photocopying or reproducing in any other form is a violation of federal copyright law and is strictly prohibited without the publisher’s consent. Editorial inquiries should be directed to Jeffrey H. Schneider, Weissman, Nowack, Curry & Wilco, P.C., One Alliance Center, 4th Floor, 3500 Lenox Road, Atlanta, Georgia 30326, (404) 926-4500.

pool halt and filed a lawsuit on September 3. The Goldens were served with the lawsuit the following day. In the suit, the Wallers sought (1) an injunction against further construction of the pool, (2) a mandatory injunction compelling the Goldens to remove the pool and return their property to its original state, (3) attorneys’ fees, and (4) damages for injury to property values and misappropriation of HOA funds. On September 18, the trial court reversed an earlier decision and issued a temporary injunction preventing the Goldens from proceeding further on the pool construction, but on December 17, the trial court entered a final judgment removing the temporary injunction and denying the Wallers’ claims. The court reasoned that although the pool’s location violated the Eagles Landing covenants, the doctrine of laches prevented the grant of a permanent injunction because the harm suffered by the Goldens would outweigh the speculative harm suffered by the Wallers. The claims against the board members for misappropriation of HOA funds were denied because the Wallers did not demonstrate that the board was prohibited from using funds to benefit a particular association member when the HOA as a whole benefited from the expenditure as well. In this case, the common benefit was protecting the community aesthetic. Following the decision, the Wallers failed to seek supersedeas. Thus, when the temporary injunction was removed on December 19, the Goldens continued construction of the pool and completed the project soon after. On January 15, 2010, the Wallers timely filed a notice of appeal with the Georgia Court of Appeals, which then transferred the appeal to the Supreme Court of Georgia. On appeal, the Wallers contended that the trial court erred in concluding that their action for an injunction to remove the Goldens’ pool was barred by laches. According to the Supreme Court, “[T]he question of laches is addressed to the sound discretion of the trial court, and on appeal[,] the exercise of that discretion will not be disturbed unless it is so clearly wrong as to amount to an abuse of discretion.” The trial court may bar a complaint based on laches when the lapse of time and the claimant’s neglect in asserting rights results in prejudice to the adverse party. “Whether laches should apply depends on a consideration of the particular circumstances, including such factors as the length of the delay in the claimant’s assertion of rights, the sufficiency of the excuse for the delay, the loss of evidence on 2

disputed matters, the opportunity for the claimant to have acted sooner, and whether the claimant or the adverse party possessed the property during the delay. . . . [L]aches is not merely a question of time, but principally the question of the inequity in permitting the claim to be enforced.” Courts should consider all the facts presented when balancing the equities to determine which party’s rights are superior. The Wallers contended that the trial court failed to give proper weight to their August 16 verbal objection to the construction of the Goldens’ pool because that objection, lodged only a few days after construction on the pool began, indicated that they did not engage in any unreasonable delay in the assertion of their rights. However, “[a] mere objection or protest, or a mere threat to take legal proceedings, is not sufficient to exclude the consequences of laches or acquiescence.” Holt v. Parsons, 118 Ga. 895, 899, 45 S.E. 690 (1903). In any event, the trial court was not required to give more weight to the Wallers’ verbal objection than to any of the other facts that it was also required to consider in reaching its conclusion regarding the proper equitable outcome between the parties. In addition, the two cases cited by the Wallers in which laches was found to be inapplicable are distinguishable from the present case. In both cases, the defendant involved in the disputed activity did not have permission from the relevant authorities to engage in the activity in question. In this case, the Goldens received the express permission of the ARB to build their pool and were twice reassured by the HOA that they could continue the construction after the HOA heard and addressed the Wallers’ complaints. Further, at least one of the Wallers knew on August 11 that a pool was to be built at the proposed location, and following the first HOA meeting on August 21, the Wallers were well aware that the HOA had decided to allow the Goldens to proceed with construction and encouraged them to expedite the completion of the project. Despite everything the Wallers knew, they nevertheless did not actually file a lawsuit and serve the Goldens until 24 days after receiving notice that the pool was being constructed. By that time, the Goldens were nearly halfway into a project that was estimated to take only 60 days to complete, had expended more than $20,000 on pool construction and related landscaping, and were committed to paying the remaining balance on their contract. Under those circumstances, the trial court did not abuse its discretion in concluding that the Wallers’ lawsuit was barred by laches. May 2011

The trial court was also correct to deny the Wallers’ claims against the board members. When, as in this case, restrictive covenants delegate decision-making authority to an HOA and that group acts, the only judicial issues are whether the exercise of authority was procedurally fair and reasonable and whether the substantive decision was made in good faith and was reasonable and not arbitrary or capricious. There was no evidence that the board members were not acting in good faith when they authorized the expenditure of association funds in pursuit of the reasonable goal of protecting the community aesthetic. Nor was there any evidence that the HOA’s actions were procedurally unfair. Waller v. Golden, Georgia Court of Appeals, Case No. S10A1598, decided February 28, 2011. u

Quiet Title

Claims Regarding Undeveloped Roadbeds Properly Dismissed In this quiet title action, Charles Stanley Turner and Tim W. Turner claimed they owned certain unused roadbeds running through an adjacent property. The Turners sued the property owners, Donald Ridley and Ronald Ridley, the city of Tallapoosa, and the city manager. The trial court determined that the Turners did not own the property, and this appeal followed. The city owned two undeveloped public streets through two separate tracts of land, the “Hicks Estate” and the “Owensby Estate.” The Hicks Estate is now owned by the Turners, and the Ridleys own the Owensby Estate. By 2001, it was apparent that the city was not going to develop the roads, and the former owners of the Hicks Estate petitioned that they be closed. In the petition, the legal description appears to refer to the entire length of the two streets. However, the petition also states “if said streets were closed as it runs through or touches Petitioner’s property.” The city granted the closure petition by resolution. On appeal, the Court determined that the city closed only the portion of the streets touching the Hicks Estate, not the Owensby Estate. In addition to the resolution, the city issued a quitclaim deed to the Hicks Estate owners. The May 2011

property description appears to have been copied from the petition and erroneously refers to the entire length of the roads in question. As such, the Court found the deed was ambiguous because the city could not convey open streets to private individuals and the deed referred to an unnamed and unidentified petitioner. In May 2003, the Turners purchased the Hicks Estate. The deed included a February 2000 survey that indicated the city owned the roadbeds in their entirety and did not reflect the 2001 resolution and transfer. Later that year, the Ridleys purchased the Owensby Estate. In 2007, the Ridleys obtained a building permit and began constructing a commercial building for their propane business. The construction site included the portions of the roadbeds located on the Ownesby Estate. The construction work was also contiguous to a lake located on the Hicks Estate. The Turners objected to the construction, claiming the lake was being polluted with sediment and silt and that the city had deeded the roadbeds, including the portion over the Ownesby Estate, to their predecessor in interest. The city attorney determined the Turners owned only the portion of the roadbeds contained within the Hicks Estate. The Turners filed a quiet title action and raised claims of trespass, nuisance, water quality and erosion control violations, mesne profits, prescription, and mandamus. In response, the city filed motions to dismiss and for summary judgment. The Ridleys joined the motion filed by the city. The trial court considered the claims and dismissed all of them except the nuisance claim against the Ridleys. On appeal, the Court confirmed the trial court’s finding that the quiet title action had no merit. The Court recognized that the legal description in the quitclaim deed was ambiguous at best. However, if an ambiguous deed is sufficient to furnish a key to the boundary, extrinsic evidence may be used to apply the description to the true boundary intended by the parties. Specifically, the Court held the extrinsic evidence of the intent of the parties was to convey the roadbeds on the Hicks Estate only. As such, the Turners’ claims based on an interest in the roadbeds through the Owensby Estate failed. In addition to confirming the quiet title decision, the Court acknowledged that the Turners’ nuisance claim against the Ridleys remained viable. The Court affirmed the dismissal of the claims against the city for nuisance and damages based on 3

the Turners’ failure to include the claims in their ante litem notice. Turner v. City of Tallapoosa, Georgia Supreme Court, Case No. S11A0273, decided March 7, 2011. u

Quiet Title: Islands in Navigable Rivers

Title Established by a Land Grant from State or Crown Grant from King The state of Georgia, acting through the Department of Natural Resources, filed a quiet title action with regard to an island in the Altamaha River (known as “Dick’s Island” or “Rozier’s Island”). The defendants, members of the Rozier family, claimed title to the island under a series of deeds beginning in 1972. The Roziers contended that their father bought the property at a tax sale, but they have no documents to support that contention. The defendants cannot trace their claim to the island to either a crown grant from the king of England or a grant from the state of Georgia. O.C.G.A. § 50-161 provides that islands located in navigable rivers that were not deeded to an individual by a crown grant or a grant from the state are considered property of the state. Based on O.C.G.A. § 50-16-1, the state argued to a special master that it was entitled to summary judgment because the Roziers were unable to prove that they received the island from a line of title originating with a crown grant or a grant from the state. The Roziers countered that the land in contention had not always been an island, and as a result, it was not strictly governed by O.C.G.A. § 50-16-1. They claimed that the island had been recently formed by avulsion brought about by a change in the direction of the river. Although the state conceded that the flow of the Altamaha River may have changed in the past, the Roziers provided no evidence that the island was formed by avulsion. Rather, they contended that an affirmative defense must only be raised, not proven or established. The special master entered a ruling recommending that the state’s request for summary judgment be granted, finding that the Roziers’ contention that the land recently became an island was wholly speculative and unsupported by any evidence. Soon after, the Roziers attempted to appeal the special master’s findings; however, the appeal 4

was dismissed because no final judgment had yet been entered by the trial court. After the dismissal, the state asked the trial court to adopt the special master’s ruling. The trial court denied the state’s motion, finding that the defendants had raised an affirmative defense to the state’s action and that the special master had failed to determine whether the state had properly pierced this affirmative defense. Accordingly, the trial court referred the matter back to the special master for a trial on the issue. The state, under the provisions of O.C.G.A. § 5-6-34, then obtained a certificate of immediate review and filed an application for interlocutory appeal, which resulted in this appeal. The Court found that the trial court’s order remanding the case to the special master appeared to be factually inaccurate. Although the trial court maintained that the special master recommended summary judgment without considering the Roziers’ affirmative defense, the special master’s order states explicitly that no evidence had been produced to support the contention that the island was formed subsequent to a crown grant or by means of a change in the course of the Altamaha River. Therefore, the trial court’s order was erroneous because it relied on an incorrect factual premise. Additionally, the Court determined that the trial court erred by finding that any triable question of fact remained based on the evidentiary posture of the case as it had been presented. Although the Roziers contended that the island was formed by avulsion, their contention was based only on an assumption that because the path of the river changed at some point, it must have carved the island from the mainland. The Roziers provided no evidence supporting their claim and maintained that they had no obligation to show that their affirmative defense was viable. Speculation and conjecture are insufficient to preclude summary judgment. Simply raising an affirmative defense based on speculation does not alter that rule. As a result, the Court found that the Roziers failed to raise any evidence precluding the grant of the state’s motion for summary judgment. Their affirmative defense was, in effect, pierced by its facial infirmity, which the state identified, and the trial court should have entered summary judgment in favor of the state rather than ordering the parties to conduct a trial. State of Georgia v. Rozier, et al., Georgia Supreme Court, Case No. S11A0115, decided March 7, 2011. u May 2011

Legal Description: Reformation

Lender Acquiesces to Judgment In 2004, Leroy Samuel purchased a parcel of property in Clayton County. Samuel executed a promissory note in favor of Century Funding, Ltd. In connection with the loan, he executed a security deed in favor of Mortgage Electronic Registration Systems, Inc. (MERS). The security deed listed an address of 14360 Woolsey Road and described the property by reference to Exhibits A and C. Exhibit A described a 10-acre parcel, “less and except an improved 2.065acre parcel of land called Exhibit C.” Exhibit C described a 2.065-acre parcel. Later in 2004, Samuel conveyed title to the 2.065-acre parcel to May Gordon by warranty deed. Thereafter, MERS filed suit seeking reformation to establish that its security deed would attach to the 2.065-acre Gordon parcel. The trial court agreed with Gordon that the legal description was ambiguous and would not attach to the 2.065-acre tract. MERS appealed to the Court of Appeals of Georgia. From the opinion, it appears that after the entry of the trial court’s order, the lender conducted a foreclosure sale and purchased the property, less and except the Gordon parcel. Thereafter, the lender conveyed the 10-acre parcel, less and except the Gordon parcel, to Federal Home Loan and Mortgage Corporation. Gordon filed a motion to dismiss the appeal, showing that because the lender took action consistent with the trial court’s decision, it thereby acquiesced to the judgment, rendering the appeal moot. The Court of Appeals agreed, finding that “[b]y taking actions inconsistent with their position on appeal, Appellants have acquiesced in the final order and judgment of the trial court.” For those reasons, the Court of Appeals dismissed the appeal. Mortgage Electric Registration Systems, Inc. v. Samuel, Georgia Court of Appeals, Case No. A10A2001, decided March 7, 2011. u

Constructive Notice: Bankruptcy

Trustee Prevails over Secured Lender This case involves a dispute between the U.S. Bankruptcy Trustee and U.S. Bank National Association, specifically over whether the trustee was subject to a security deed executed in favor of U.S. May 2011

Bank, although it was not witnessed as required by O.C.G.A. § 44-14-61. The facts of the underlying dispute are as follows: In October 2005, Bertha Hagler refinanced her house with a loan from U.S. Bank’s predecessor-in-interest. The security deed was recorded by the Clerk of Court for Fulton County in November 2005, but it was not attested to or acknowledged by an official or unofficial witness. Thereafter, Hagler filed a Chapter 7 bankruptcy petition. The trustee in bankruptcy sought to avoid or set aside the security deed pursuant to its “strong-arm” powers and specifically under 11 U.S.C. § 544(a)(3) of the Bankruptcy Code. The trustee asserted that under O.C.G.A. § 44-14-33, a security deed that is not attested to by an official or unofficial witness cannot provide constructive notice to a subsequent purchaser. Therefore, the trustee took title to the property free and clear of the U.S. Bank loan. U.S. Bank argued that a 1995 amendment to O.C.G.A. § 44-14-33 enables an unattested security deed to provide constructive notice. In relevant part, O.C.G.A. § 44-14-33 provides as follows: In order to admit a mortgage to record, it must be attested by or acknowledged before an officer as prescribed for the attestation or acknowledgment of deeds of bargain and sale; and, in the case of real property, a mortgage must also be attested or acknowledged by one additional witness. In the absence of fraud, if a mortgage is duly filed, recorded, and indexed on the appropriate county land records, such recordation shall be deemed constructive notice to subsequent bona fide purchasers. U.S. Bank argued that a “duly filed, recorded, and indexed” deed is simply one that is in fact filed, recorded, and indexed, even if it is unattested by an officer or a witness. The trustee argued in opposition that an unattested security deed is not “duly” filed, and therefore, it is not saved by the statute. The Georgia Supreme Court rejected U.S. Bank’s argument. The Court focused on the first sentence of O.C.G.A. § 44-14-33, which provides that to admit a security deed for recording, the deed must be “attested by or acknowledged before an officer, such as a notary, and, in the case of real property, by a second witness.” Therefore, the Court concluded that the statute should be understood to mean that a security deed is “duly filed, recorded, and indexed” only if the clerk responsible for recording the deed 5

determines from the face of the document that it is in proper form for recording, meaning that it is attested to or acknowledged by a proper officer and an additional witness. The Court proceeded to draw the distinction between a security deed that on its face appears valid and fully executed and witnessed versus a deed with patent execution defects. The Court concluded that O.C.G.A. § 44-14-33, and specifically the saving language in the second paragraph of the statute, would apply only in circumstances in which a defect in the execution was latent, rather than one that was defective on its face. U.S. Bank National Association v. Gordon, Georgia Supreme Court, Case No. S10Q1564, decided March 25, 2011. u

Legal Malpractice

Court Dismisses Malpractice Action for Lack of Proximate Cause This case concerns an action for professional negligence against a closing attorney and his law firm. It also addresses the issue of claims relating to conspiracy to commit fraud against a lender’s loan officer and other parties to the transaction. The record reflects that Randy Howard entered into an agreement arranged by Michael Gregorakos in which Howard refinanced the sale of a 23.49-acre parcel of property. The buyer was to be an entity called Snellville Station Development. Gregorakos and Lamar Frady were the principals of Snellville Station. As part of the record, Howard acknowledged that the agreement required him to provide a first mortgage to Snellville Station in the amount of $1.7 million, with a $250,000 “kicker” to be paid two years later. The agreement also provided that Howard would receive $460,874 at the time of closing. The closing took place in three stages. The first stage occurred on July 28, 2000, when Gregorakos and Howard attended a closing at the law firm of Pierce Hardwick. Gregorakos executed a promissory note in the principal amount of $1,715,944.50 in favor of Howard and executed a deed to secure debt. A rider attached to the security deed reflected that the property was “conveyed subject to that certain deed to secure debt in favor of Regions Bank.” Hardwick testified that he was not told that Howard would receive a first mortgage. 6

The second stage of the closing took place in the office of Theron Warren of the law firm Sellers and Warren, P.C., on July 31. In attendance at the closing were Warren, Michael Lewis (a Regions Bank loan officer and division manager), Gregorakos, Frady, Howard, and his wife, Marie. Warren prepared a settlement statement for this closing that included the disclosure of the $2.8 million first priority loan from Regions to Snellville Station. The settlement statement also disclosed $100,000 in earnest money paid to Howard before closing, a payment of $1,125,675.60 to Howard before closing, and $979,334.64 cash to Howard at closing. The HUD-1 settlement statement contained a standard pretyped disclosure that, in relevant part, provided, “I have carefully reviewed the . . . Settlement Statement and to the best of knowledge and belief, it is a true and accurate statement of all receipts and disbursements made on my account or by me in this transaction.” The form was signed by Gregorakos and Frady on behalf of Snellville Station. Howard also signed a document titled “Acknowledgment and Receipt of Settlement Documents.” This form, in relevant part, provided: The undersigned parties acknowledge that this transaction has been closed by the closing attorney and that the closing attorney was designated to close this transaction by and on behalf of the lender. The closing attorney accordingly represented the lender in this transaction. The closing attorney did not represent purchaser/borrower or any other party (other than lender) in connection with this transaction. The undersigned finally acknowledge that they did not receive or rely upon any advice from closing attorney regarding this transaction. The record contained some conflicting evidence about Howard’s review of the settlement statement. Howard testified that he did not see the final settlement statement and signed it blank upon Warren’s advice because he had a flight to catch for a vacation. Others testified that Warren did go through the settlement statement line item by line item. Checks were disbursed out of the closing and were received and deposited in Howard’s account without objection. The third stage of the closing occurred on August 1. At this closing, Howard purchased a joint owner’s interest in the property for approximately $460,000. The record reflects that Howard claimed he first learned that he did not hold a first mortgage May 2011

in August 2003, when he was contacted by Regions Bank indicating that he should bring current the Snellville Station note to protect his second mortgage against the property. Thereafter, Howard filed suit against Sellers and Warren, P.C., Warren, Gregorakos, Lewis, Snellville Station Developers, and Regions Bank, asserting claims for fraud, conspiracy to defraud, punitive damages, and attorneys’ fees. He additionally asserted a legal malpractice claim against Warren, negligence against Warren, his law firm, and Regions Bank, a claim for conversion against Gregorakos, and a claim for negligent hiring and supervision against Regions Bank. The trial court granted summary judgment in favor of Warren, Sellers and Warren, P.C., Lewis, and Regions Bank. Howard appealed. Although the Court did determine that the acknowledgment of representation form effectively precluded any claim against the law firm, it primarily focused on the issue of proximate cause. The Court noted that as part of the three elements to prevail in a legal malpractice claim, the party must demonstrate that the failure to exercise ordinary care, skill, and diligence was the proximate cause of the damages to the client. To establish proximate cause, the client must show that but for the attorney’s error, the outcome would have been different. Howard asserted that Warren’s failure to properly complete the settlement statement was the proximate cause of his damages because “the transaction would not have otherwise closed and [he] would not have been deprived of his property.” However, the record failed to demonstrate that Warren had any knowledge of the mortgage held by Howard and closed by a previous attorney. The Court concluded that the record lacked any evidence showing that Howard gave Warren instructions about the structure of the deal before he departed for vacation. The Court noted that Howard relied on Hardwick to ensure that he obtained a first mortgage in the first phase of the transaction. As a consequence, the Court concluded that the plaintiff’s claim lacked evidence of proximate cause. Howard next challenged the trial court’s grant of summary judgment in favor of Lewis and Regions Bank on the claim of conspiracy to commit fraud. The Court noted that Howard was required to “show that two or more persons acting in concert engaged in conduct that constitutes a tort.” Without the underlying tort, there could be no liability for civil conspiracy. The opinion recites a number of inconsistencies between what was presented to May 2011

Regions Bank for approval of the loan and what actually occurred. However, the Court did not find that any of those inconsistencies supported a claim for conspiracy to commit fraud. The Court noted, “While this evidence may show that Lewis was not a very thorough loan officer and that he may have helped Gregorakos obtain the Regions Bank loan without proper documentation, it does not raise any inference that Lewis knew that Howard believed he held a first mortgage or that Lewis conspired with Gregorakos to deceive Howard into taking a second mortgage.” In so finding, the Court upheld the trial court’s decision. The Court then recited the basic rule that “the law does not authorize a finding that conspiracy exists merely because of some speculative suspicion, and the mere fact that conspiracy has been alleged does not require submission of a question to a jury where there is no evidence in the record to support the claim.” For those reasons, the Court of Appeals upheld the trial court’s decision. Howard v. Sellers and Warren, P.C., Georgia Court of Appeals, Case No. A10A1821, decided March 29, 2011. u

Materialman’s Lien

Lien Not Limited Just to Unit Named This case addresses the issue of whether a materialman’s lien that identifies only one unit in a condominium development may attach to the entire development. 3400 Partners, LLC, developed a 60-unit condominium and retail complex in Atlanta and hired MGP, Inc., as the general contractor. MGP hired Maria O. Chavez, d/b/a Parra Construction, to provide concrete and painting work as a subcontractor. 3400 Partners failed to pay the general contractor and Chavez. Chavez recorded a materialman’s lien and filed suit to perfect her lien. The only issue at trial was the sufficiency of the legal description and whether it attached to a specific unit or the totality of the development. The lien described the property as “3400 Malone Drive, Chamblee, Georgia 30341 (See Exhibit A).” The lien also added, “This lien is claimed, separately and severally, as to all buildings and improvements therein, and the said land.” However, the legal description attached as “Exhibit A” described the property as “All that tract or parcel of 7

land lying and being in Land Lot 299, 18th District, Chamblee Section, DeKalb County, Georgia, and being Unit No. 311, 3400 Malone Condominium.” The legal description additionally referred to plat book pages containing drawings of the entire complex. The trial court granted Chavez’s motion for summary judgment, finding that she had perfected a materialman’s lien against the entire parcel of property. 3400 Partners appealed the trial court’s decision to the Court of Appeals of Georgia. The issue on appeal was whether Chavez’s lien was invalid as a result of the property description’s reference to a single unit of the complex. 3400 Partners argued that as a matter of general legal principle, the materialman’s lien statute is in derogation of common law and has historically been construed against the lien claimant. The developer argued further that the legal description specifically identified only unit 311 and therefore could not attach to any area beyond the description of that unit. The Court of Appeals rejected that argument, concluding, “This description’s apparent limitation of the lien to Unit 311 of the subject property stands in contradiction to all the remaining evidence in the

case, both intrinsic and extrinsic.” The Court went on to note that the description includes “all buildings and improvements on the property” and makes reference to a plat book containing a description of the entire project. The Court further pointed to the evidence in the record, including a letter from 3400 Partners about the work done by Chavez at 3400 Malone Drive without limitation to any particular unit, and the disproportion between the nearly $186,000 worth of work she performed on all 60 units and the less than $200,000 market value of individual units in the complex. Based on these factors, the Court of Appeals upheld the trial court’s decision. This decision stands as a notable departure from case law that historically limits a materialman’s lien to the property that is specifically depicted in the legal description. Additionally, the opinion will likely result in significant confusion about a practitioner’s ability to rely on the specific reference on the face of the legal description, which has traditionally defined the area intended. 3400 Partners, LLC v. Chavez, Georgia Court of Appeals, Case No. A11A0554, decided April 11, 2011. u

This publication is designed to provide accurate information in regard to the subject matter covered. It is sold with the understanding that the publisher and editor are not engaged in rendering specific legal advice. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.


A Monthly Update of Georgia and Federal Real Estate Development Volume 24, Issue 5 May 2011 Jeffrey H. Schneider, Editor May 2011 2 May 2011...