Surprising Ruling By Georgia Court Of Appeals May Allow For Pursuit Of Guarantors Without First Confirming Foreclosure Sale In Certain Circumstances


As any lender who’s had a loan secured by real property collateral in Georgia knows, in order to pursue a deficiency balance following a non-judicial foreclosure of its collateral, the foreclosure sale has to be “confirmed” by the Superior Court in the county where the property lies. The purpose of Georgia’s confirmation statute is to ensure that the property sold at foreclosure brought its true (fair) market value, as well as ensuring that the property was advertised properly and that the obligors received proper notice of the sale in accordance with statutory guidelines. Georgia’s confirmation statute was enacted during the Great Depression when many mortgagors were forced into bankruptcy by the deficiency judgments which were sought and obtained against them after their mortgage lenders had acquired the property at non-judicial foreclosure sales for nominal or depressed prices. The intent of the legislature in enacting the law was to protect borrowers from deficiency judgments when the forced sale of their property brought less than fair market value.

Importantly, Georgia courts have construed the confirmation statute to apply equally to both the primary borrower and guarantors of a debt, reasoning that an action for the balance remaining on a note following a non-judicial or “power of sale” foreclosure sale against a guarantor, rather than the primary debtor, is still an action for a deficiency judgment under that section and is barred if no confirmation is obtained. The Supreme Court has likewise found that “it would not matter for purposes of this statute whether the debtors were primarily or secondarily liable on the debt”. Because the confirmation statute is in derogation of the common law, courts have found that it must be strictly construed.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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