Subdivision Homeowner Rights to Common Areas Not Cancelled by Foreclosure

Interchange Drive, LLC v. Nusloch, A11A0964, 2011 WL 3849510 (Ga. Ct. App. Sept. 1, 2011)

In a recent opinion in Interchange Drive, LLC v. Nusloch, Case No. A11A0964 (Slip Op., Sept. 1, 2011), the Court of Appeals upheld the rights of subdivision lot owners to access common areas. The Court held that notwithstanding the fact that the bank had foreclosed on the developer's rights in the subdivision, the owners of homes who bought their lots after the date of the security deed still had rights in the amenities. The Court reached this finding notwithstanding the fact that the bank had recorded its security deed prior to the date that the developer subjected the final plat to the declaration of covenants and prior to the recordation of the declaration of covenants in the deed records.

The bank had contended that the bank had perfected title under its security deed before the restrictions expressed in the covenants were imposed. Therefore, under black letter law regarding the superiority of rights under a security deed to subsequent covenants, the bank claimed the foreclosure of the security deed extinguished the covenants.

The Court of Appeals disagreed.

This case is significant in that there are a number of communities facing similar issues. Due to the recession, banks have foreclosed on the interests of developers in a large number of new developments. This case stands for the proposition that those homeowners who bought in such developments still enjoy rights in the swimming pools and other amenities notwithstanding a foreclosure on the developer and the lack of a release by the bank.