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Birmingham Bar Association Bulletin - Winter 2013

Real Estate Law Judd J. Anderton and Steven C. Corhern1 Th e Alabama Supreme Court Issues Th ree Decisions Th at Give Lenders More Certainty Regarding Foreclosure and Ejectment On September 13, 2013, the Alabama Supreme Court issued mortgage, like a deed, is recorded with the probate court for the county three decisions concerning the law of foreclosure and ejectment in Alabama: Ex parte GMAC Mortgage, LLC, No. 1110547, --- So. 3d ---, 2013 WL 4873071 (Ala. Sept. 13, 2013); Harris v. Deutsche Bank National Trust Co., No. 1110054, --- So. 3d ---, 2013 WL 4870808 (Ala. Sept. 13, 2013); and Ex parte BAC Home Loan Servicing, LP, --- So. 3d ---, 2013 WL 4873061 (Ala. Sept. 13, 2013). Combined, these three cases clarify certain confl icting case law and give lenders increased certainty when lenders elect to look to real property to off set some or all of an outstanding obligation. Th is article contains a brief summary of several aspects of Alabama foreclosure law, which is followed by summaries of these three decisions and their potential implications for secured lenders in Alabama. A. Foreclosure Overview (i) Secured transactions Generally speaking, most secured loan transactions include a promissory note and a mortgage. Th e promissory note usually outlines the terms by which the loan will be repaid. Th e mortgage (because Alabama is a title-theory state) passes legal title to the subject real property to the lender, leaving the borrower or mortgagor with the equitable right to redeem the property by satisfying the underlying debt.2 In addition, most mortgages contain a “power of sale” provision which authorizes the lender, in the event of a default, to conduct a foreclosure sale and sell the property to the highest bidder, apply the proceeds of the sale to the borrower’s debt, and execute a deed to the property to the purchaser—thus extinguishing the borrower’s equitable right of redemption. Th is is generally referred to as a “non-judicial” foreclosure. (If a mortgage does not contain a power of sale provision, or if a lender chooses, it may fi le a lawsuit to foreclose the mortgage judicially, which is typically a much slower and more expensive method of foreclosure.) Th e in which the property is situated. Promissory notes, however, are negotiable instruments and are commonly sold to third parties, who sometimes pool them into trusts and resell them to investors as mortgage backed-securities. Because it is impractical to re-record the mortgage every time the note is sold, the entity holding the note often is not the same entity holding the mortgage.3 (ii) Non-judicial foreclosure Th e most common type of foreclosure sale in Alabama is a non-judicial foreclosure, in which the lender conducts the sale without judicial process. Alabama law imposes only minimal requirements on the non-judicial foreclosure process; however, 10 Birmingham Bar Association


Birmingham Bar Association Bulletin - Winter 2013
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