On April 17, 2017, the Supreme Court of Georgia made yet another critical decision in a line of cases which together, create the framework for a guarantor’s liability for a deficiency after a foreclosure has been conducted. The case styled York et al. v. Res-GA LJY, LLC came before the Supreme Court in consideration of the questions of (i) the extent and limitations of guarantor waiver of rights under O.C.G.A. §44-14-161; and (ii)  whether a creditor may pursue a guarantor for a deficiency after judicial denial of confirmation of a foreclosure sale.

In York et al., the lender sought to confirm the foreclosure sale of real property located in three different counties in Georgia, which properties were used to secure five promissory notes evidencing loans made to several entities and guaranteed by individual guarantors affiliated with such entities. The court in each of the three counties denied the confirmation of the respective sale citing as the basis for such denial, the lender’s failure to prove that the sale garnered fair market value, as is required under O.C.G.A. § 44-14-161. Despite its lack of success at the confirmation proceedings, the lender pursued deficiency actions against the guarantors. The trial court in awarding judgment against the guarantors, concluded that the waiver provisions of the guaranties executed by the guarantors served to waive any defense that the guarantors may have had as a result of lender’s failure to successfully seek confirmation. On appeal, the trial court’s judgment against the guarantors was affirmed.

In Georgia, to pursue a borrower for a deficiency after a foreclosure, a lender is required to file a confirmation action within thirty (30) days after foreclosure and present (i) evidence that the successful bidder at the foreclosure sale bid at least the “true market value” for the property and (ii) evidence regarding the legality of the notice and advertisement and regularity of the sale.  See O.C.G.A. § 44-14-161.

The Georgia Court of Appeals issued its decision in HWA Properties, Inc. v. Community & Southern Bank, 322 Ga. App. 877 (746 SE2d 609) (2013) in July of 2013, finding that a creditor’s failure to obtain a valid confirmation of a foreclosure sale did not impair its authority to obtain a deficiency judgment against the loan’s personal guarantor if the guarantor waived the defenses otherwise available to the guarantor under O.C.G.A. § 44-14-161.  In 2016, the Georgia Supreme Court addressed two questions regarding this issue certified to it by the United States District Court for the Northern District of Georgia and agreed with the Court of Appeals in its reasoning, holding that Georgia’s confirmation statute “is a condition precedent to the lender’s ability to pursue a guarantor for a deficiency after foreclosure has been conducted, but a guarantor retains the contractual ability to waive the condition precedent requirement”.  See PNC Bank National Ass’n v. Smith, 298 Ga. 818, 824 (758 SE2d 505) (2016).

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