A Lexis Practice Advisor® Practice Note by Kelsey Grodzicki, Campbell & Brannon, LLC (used by permission.)
This practice note explains the commercial and residential foreclosure process in Georgia. While most Georgia foreclosures are nonjudicial foreclosures of security deeds, this practice note also covers the statutory methods for conducting the judicial foreclosure of security deeds, mortgages, and trust deeds in Georgia. For further guidance, see Foreclosure Resource Kit (GA). For general guidance on real estate lending in Georgia, see Commercial Real Estate Financing Transactions (GA).
Georgia Foreclosure in General
In Georgia, if a real property owner defaults in an obligation secured by a mortgage, security deed, or trust deed, such as by failing to pay money in accordance with the terms of a promissory note, the creditor may foreclose its interest through a sale of the property. The vast majority of foreclosures in Georgia are governed by power of sale clauses, which in turn are governed by nonjudicial sale requirements. Nonjudicial sales do not involve court proceedings; however, if a deficiency judgment is sought (i.e., the sale of the property does not extinguish the debt), then court proceedings are instituted. The rarely used judicial foreclosure of mortgages is governed by the provisions of O.C.G.A. § 44-14-180 et seq., while the equally rare judicial foreclosure on security deeds is governed by the provisions of O.C.G.A. § 44-14-210 et seq. Enforcement of the rights contained in trust deeds is governed by the provisions of O.C.G.A. § 44-14-120 et seq., and is not technically defined as a “foreclosure” under the Georgia code.
Security Instruments Available in Georgia
Mortgages, security deeds, and deeds of trust are all security instruments with the legal effect of securing property for the repayment of money or some other contractual obligation. Generally, a mortgage or deed secures a promissory note
executed by a borrower in the purchase or refinance of real property, with a promise to repay money on the terms specified in the note. The instruments typically secure real
property and any attached fixtures and may also secure personal property. Throughout this practice note, with the exception of references to statutory definitions that differ, the creditor/ secured party is referred to as the “lender” and the debtor is referred to as the “borrower” regardless of the type of security instrument used.
Deed to Secure Debt A deed to secure debt (generally referred to as a “security deed”) is created when a borrower, while retaining equitable title, coupled with a right of redemption, conveys title to real property to a lender via a deed to secure debt. Title returns to the borrower upon payment of the debt. O.C.G.A. § 44- 14-160. Security deeds are unique to Georgia. In re Lookout Mountain Hotel Co., 50 F.2d 421, 424 (N.D. Ga. 1931). Notably, security deeds are often the preferred method of lenders, as they convey legal title to the lender and equitable title to the borrower. The borrower acquires legal title only after the loan has been repaid, but the borrower’s equitable title renders him or her responsible for property taxes and other legal liabilities associated with property ownership. For a form, see Deed to Secure Debt with Power of Sale
(Short-Form) (Pro-Lender) (GA).
Mortgage
A mortgage is a traditional legal security instrument in which the borrower/property owner, as mortgagor, grants to a lender, as mortgagee, the right to sell the property upon default of the obligation. “A mortgage [in Georgia] is only security for a debt and passes no title.” O.C.G.A. § 44-14-30.
Deed of Trust
A deed of trust is created “whenever any person has conveyed real property in [Georgia] by a deed to a trustee to secure the payment of a note or notes, bonds, or other debt owing to one or more persons . . .” O.C.G.A. § 44-14-120. The principal parties to a deed of trust are the borrower (often called the grantor), the lender (often called the beneficiary) and a third party, the trustee, that is granted title to the real property in trust for the benefit of the lender (until the loan is repaid).
Pre-foreclosure Considerations and Notice Requirements
Prior to beginning the foreclosure process, it is imperative for lender’s counsel to review the loan documents to ensure compliance with any contractual pre-foreclosure requirements. For example, the default and remedy provisions of many loan documents provide the borrower with the right to written notice and the opportunity cure a default before the lender can exercise its remedies. In addition, though Georgia law contains no right of redemption or reinstatement to borrowers, such rights may be contained in the loan documents.
Protections for High-Cost Home Loans
Georgia law provides special protections for borrowers under home loans with interest rates or fees that exceed certain thresholds. (These loans are commonly referred to as “high cost home loans.”) Pursuant to O.C.G.A. § 7-6A-5(13)(C), before a lender may take any action to foreclose on a high cost home loan, the defaulting borrower is entitled to written notice that provides it with 30 days to cure the default. The notice must disclose the following:
- The nature of the default claimed and of the borrower’s
right to cure the default by paying the sum of money
required to cure the default. If the amount necessary to
cure the default will change during the 30-day period after
the effective date of the notice due to the application of a
daily interest rate or the addition of late fees, the notice
must give sufficient information to enable the borrower to
calculate the amount at any point during the 30-day period - The date by which the borrower must cure the default to
avoid acceleration and initiation of foreclosure or other
action to seize the home (which may not be less than 30
days after the date the notice is effective) and the name
and address and phone number of a person to whom the
payment or tender shall be made - That, if the borrower does not cure the default by the
date specified, the lender or servicer may take steps to
terminate the borrower’s ownership in the property by
commencing a foreclosure proceeding or other action to
seize the home –and– - The name and address of the lender or servicer and the
telephone number of a representative of the lender or
servicer whom the borrower may contact if the borrower
disagrees with the lender’s or servicer’s assertion that a
default has occurred or the correctness of the lender’s or
servicer’s calculation of the amount required to cure the
default
This form is typically drafted and sent by the lender without the involvement of counsel. In addition, the lender must send the notice of the intent to foreclose on the property at least 14 days before publishing the notice of sale. O.C.G.A. § 7-6A-5(11).
Power of Sale and Nonjudicial Foreclosure. As noted, foreclosures in Georgia are primarily conducted non-judicially. See Ames v. JP Morgan Chase Bank, N.A., 783 S.E.2d 614 (2016). Power of sale guidelines contained in the deed or mortgage typically control the nonjudicial foreclosure process, subject to minimum statutory requirements. See O.C.G.A. §§ 23-2-114–116 (equitable principles governing power of sale). The foreclosing creditor may also pursue collection of any deficiency in court following the nonjudicial foreclosure sale. O.C.G.A. § 44-14-161. For further discussion, see LexisNexis Practice Guide: Georgia Real Estate Litigation § 9.01[3].
Nonjudicial Foreclosure Requirements & Advertising a Nonjudicial Sale
A sale of real estate under a power of sale provision is not valid unless the sale is “advertised and conducted at the time and place and in the usual manner of the sheriff’s sales in the county in which the real estate or a part thereof is located and unless statutory notice of the sale has been given as required by Code Section 44-14-162.2.” O.C.G.A. § 44-14-162(a).
Importantly, O.C.G.A. § 44-14-162 is not triggered unless a power of sale provision is contained in a deed to secure debt, mortgage, or other security instrument. In other words, the statute does not direct that a power of sale be employed but instead specifies the minimal procedures that must be followed by the parties. See Law v. U.S. Dept. of Ag., 366 F. Supp. 1233, 1239 (N.D. Ga. 1973).
The sheriff’s sale advertising procedure must be followed in nonjudicial foreclosure sales. O.C.G.A. § 44-14-162(a). Under a sheriff’s sale, the relevant officer must publish notice of each sale of land and other property executed by the officer weekly, for four weeks, in the legal organ for the county. If no newspaper is designated as the legal organ, then the advertisement must be published in the nearest newspaper having the largest general circulation in the county. In the advertisement, the officer must give a full and complete description of the property to be sold, making known the names of the plaintiff, the defendant, and any person who may be in the possession of the property. O.C.G.A. § 9-13-140(a). If the advertisement contains the property’s street address, city, and zip code, this information must be clearly set out in bold type. O.C.G.A. § 44-14-162(a). The advertisement may include the street address of such real property, if available, but a foreclosure will not be invalidated by the either the failure to include a street address or the inclusion of an erroneous street address. O.C.G.A. § 9-13-140(a).
In addition to any other matter required to be included in the advertisement of the sale, if the encumbered property has been transferred or conveyed by the original borrower to a new owner and an assumption by the new owner of the secured debt has been approved in writing by the lender, then the advertisement should also include a recital of the fact of the transfer or conveyance and the name of the new owner (as long as information regarding any such assumption is readily discernable by the foreclosing party). O.C.G.A. § 44-14-162(a). However, failure to include this recital does not invalidate an otherwise valid foreclosure sale. O.C.G.A. § 44-14-162(a). Furthermore, not only must the foreclosure notice be sent to the debtor as defined by O.C.G.A. § 44-14-162.1, but also to the property address. See DIP Lending I, LLC v. Cleveland Ave. Properties, LLC, 812 S.E.2d 532 (2018).
It is important to note that “[i]f the published advertisement of a foreclosure sale under power fails to meet the minimum legal requirements imposed by O.C.G.A. § 9-13-140(a), the advertisement is defective as a matter of law, and the resulting sale is invalid.” Racette v. Bank of Am., N.A., 733 S.E.2d 457 (2012). Georgia courts have made clear that while a foreclosure advertisement that fails to mention an existing senior lien on the property, or that references a senior lien that in fact has been cancelled, may not be defective as a matter of law, it is for the fact finder to determine whether the advertisement ultimately chilled the bid. The rationale for this is that a potential bidder needs to take the existence of other liens or encumbrances into consideration to make a bid. Id.
Notice of Nonjudicial Sale
The lender must provide the borrower with notice of the initiation of proceedings to exercise a power of sale clause no later than 30 days before the date of the proposed foreclosure. The notice must be in writing and include the name, address, and telephone number of the individual or entity that has authority to negotiate, amend, and modify all terms of the mortgage with the debtor. O.C.G.A. § 44-14-162.2(a). Mailing or delivering a copy of the notice of sale given to the publisher will satisfy this notice requirement. O.C.G.A. § 44-14-162.2(b). Interestingly, under Georgia law, a lender need not be identified in the notice, just the entity with authority to negotiate, amend, and modify the mortgage terms. You v. JP Morgan Chase Bank, N.A., 743 S.E.2d 428 (2013). The notice must be sent by registered or certified mail or statutory overnight delivery, return receipt requested, to the property address or such other address designated by the borrower by written notice to the lender. O.C.G.A. § 44-14-162.2(a). The notice is deemed given on the official postmark day or day on which it is received for delivery by a commercial delivery firm. O.C.G.A. § 44-14-162.2(a).
Note that if the lender wishes to enforce an attorney’s fees provision in the loan documents, it must provide the borrower with written notice that he or she can pay the entire debt amount within 10 days of the notice to avoid the addition of attorney’s fees. O.C.G.A. § 13-1-11 (a)(3). This notice is often included in the 30-day notice of sale.
For a form, see Notice of Foreclosure Sale under Power of Sale (Nonjudicial Foreclosure) (GA). For a form of notice that also accelerates the debt and provides the attorney’s fee notice required by O.C.G.A. § 13-1-11 (a)(3), see Notice of Acceleration and Foreclosure Sale (Nonjudicial Foreclosure) (GA). The failure to provide notice of foreclosure as required by O.C.G.A. § 44-14-162.2 supports a wrongful foreclosure claim under Georgia law. Mbigi v. Wells Fargo Home Mortg., 785 S.E.2d 8 (2016). Evidence of the proof of mailing, (as opposed to proof of actual receipt) is sufficient. Thompson-El v. Bank of Am., N.A. 759 S.E.2d 49 (2014). The borrower cannot waive the notice requirement. O.C.G.A. § 44-14-162.3. However, the notice requirements of O.C.G.A. § 44-14-162.2 have been held not applicable to the foreclosure of unimproved lots. See Stepp v. Farm & Home Life Ins. Co., 474 S.E.2d 108 (1996).
As used in §§ 44-14-162.2 through 44-14-162.4 (foreclosure sale notice provisions), “debtor” means the grantor of the mortgage, security deed, or other lien contract. If the encumbered property has been transferred or conveyed by the original debtor, the term debtor means the current owner of the property if the identity of such owner has been made known to and acknowledged by the secured creditor prior to the time the secured creditor is required to give notice. O.C.G.A. § 44-14-162.1.
Conducting a Nonjudicial Foreclosure Sale
The nonjudicial sale must be advertised and conducted in the county in which the real estate is located and held at the time, place, and usual manner of a sheriff’s sale in the county. Case law suggests that any assignment of the security instrument must be recorded “prior to the earliest possible sale time.” See L & K Enters., LLC v. City National Bank, N.A., 755 S.E.2d 270 (2014).
Specifically, the foreclosure sale takes place on the courthouse steps or other place designated by the county sheriff. By law, foreclosure sales take place on the first Tuesday of the month between the hours of 10:00 a.m. and 4:00 p.m. If the first Tuesday of the month falls on New Year’s Day or Independence Day, the sale is held on the immediately following Wednesday. O.C.G.A. § 9-13-161.
To transfer title to the property to the winning bidder, a deed under power must be filed with the clerk of the superior court of the county or counties in which the foreclosed property is located within 90 days of the sale. O.C.G.A. § 44-14-160(a). For a form, see Deed Under Power (Nonjudicial Foreclosure) (GA).
Confirmation Proceeding prior to Deficiency Judgment & Confirmation Proceeding
Generally
In Georgia, a lender must “confirm” the foreclosure sale to recover any deficiency balance owed on the loan from the borrower. This confirmation process is unique to Georgia and is governed by O.C.G.A. § 44-14-161. The purpose of confirmation “is to pass upon the notice, advertisement, and regularity of the sale and to reinsure that the property was sold for a fair value. It provides debtors with formidable protection against gross deficiency judgments.” Wall v. Federal Land Bank, 240 S.E.2d 76 (1977). An application for confirmation pursuant to O.C.G.A. § 44-14-161 is a special statutory proceeding and not a complaint that initiates a civil action or suit. See BBC Land & Dev., Inc. v. Bank of N. Ga., 670 S.E.2d 210 (2008).
O.C.G.A. § 44-14-161 is inapplicable as a matter of law if there is a voluntary conveyance rather than a nonjudicial foreclosure through a power of sale in a deed. Ashburn Bank v. Reinhardt, 358 S.E.2d 675 (1987). In other words, if the borrower gives the property back to the lender, the lender cannot obtain a deficiency judgment. A lender is not required to foreclose on property securing a promissory note and guaranty executed by a borrower and obtain judicial confirmation under O.C.G.A. § 44-14-161(a) prior to seeking judgment on the note. Reese Developers, Inc. v. First State Bank, 306 Ga.,701 S.E.2d 505 (2010). Stated differently, a lender can sue on the note and exercise the power of sale and “pursue both remedies concurrently until the debt is satisfied.” Vaughan v. Moore, 415 S.E.2d 47 (1992). However, continuing to pursue a suit on a promissory note after foreclosure proceedings have been concluded constitutes an “action” on the part of the lender to obtain a deficiency judgment against the borrower and requires compliance with O.C.G.A. § 44-14-161. Vaughan v. Moore, 415 S.E.2d 47 (1992). A guarantor can waive the condition precedent requirement of the confirmation statute, O.C.G.A. § 44-14-161, by virtue of waiver clauses in the loan documents. PNC Bank, N.A. v. Smith, 785 S.E.2d 505 (2016).
Interestingly, the goal of confirmation proceedings is not to impose an affirmative duty upon the foreclosing party to obtain the true market value of the property but rather to protect the borrower from an action to obtain a deficiency judgment when the property was sold for a sum less than its true market value. See Gutherie v. Ford Equip. Leasing Co., 437 S.E.2d 482 (1993).
Failure to obtain confirmation of a sale does not extinguish the remaining debt. Instead, it precludes the party exercising the power of sale from bringing action to obtain a judgment. See Taylor v. Thompson, 282 S.E.2d 157 (1981). Additionally, any issues related to standing and/or assignment are outside the scope of a confirmation proceeding. River Walk Farm, L.P. v. First Citizens Bank & Trust Co., 741 S.E.2d 165 (2013).
Reporting the Sale and Requesting a Confirmation Order
The party instituting the foreclosure proceedings must report the sale to the judge of the superior court of the county in which the land is located and request a confirmation order. O.C.G.A. § 44-14-161(a). If the action is brought in federal court, then the report must instead be made to the appropriate federal judge. FDIC v. M.C. Honea, Jr., Inc., 440 F. Supp. 1064 (N.D. Ga. 1977). O.C.G.A. § 44-14-161 departs from common law and is thus strictly construed. See John Alden Life Ins. Co. v. Gwinnett Plantation, Ltd., 470 S.E.2d 482 (1996) (noting that the particulars of the sale must be brought to the judge’s, rather than the clerk of court’s attention.) That said, filing with the judge’s secretary may be sufficient if the judge’s secretary has the delegated authority to accept petitions in any ministerial matter. Cornelia Bank v. Brown, 303 S.E.2d 171 (1983). In any event, report of the sale to a judge sitting as presiding judge of the superior court is sufficient to comply with O.C.G.A. § 44-14-161; it is not necessary to make the report to the specific judge to whom the case is assigned. Hernandez v. Resolution Trust Corp., 436 S.E.2d 534 (1993).
The request for confirmation must be made within 30 days of the foreclosure sale. O.C.G.A. § 44-14-161(a). For a forms see Petition for Confirmation of Foreclosure Sale (Nonjudicial Foreclosure) (GA).
Notice of Hearing
The court will direct that a notice of the confirmation hearing be given to the borrower (referred to in the statute as the “debtor”) at least five days prior to the hearing. O.C.G.A. § 44-14-161(c). O.C.G.A. § 18-2-1 gives an expansive definition of debtor as the term should be understood in O.C.G.A. § 44-14-161. First Nat’l Bank & Trust Co. v. Kunes, 199 S.E.2d 776 (1973). Debtor in this instance refers to “all who were presently subject to payment of the debt, or who might be subjected to payment thereof.” Commercial Exch. Bank v. Johnson, 398 S.E.2d 817 (1990). It does not matter for notices purposes of O.C.G.A. § 44-14-161 whether the debtors were primarily or secondarily liable on the debt. Additionally, signers of an indemnity agreement are debtors within the meaning of O.C.G.A. § 44-14-161.
Any debtor not given timely notice may not be held liable in any subsequent deficiency action. First National Bank & Trust Company v. Kunes, 199 S.E.2d 776 (1973). Furthermore, Georgia federal district courts have held that O.C.G.A. § 44-14-161(a) applies to both primary debtors and guarantors. Thus an action for the balance remaining on a note following a 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 was obtained. United States v. Yates, 774 F. Supp. 1368 (M.D. Ga. 1991).
Because of statutorily created nuances, the notice requirements for confirmation actions differ from those in other civil actions. For example, the Civil Practice Act is not applicable to require service upon a borrower of a lender’s application for confirmation of a nonjudicial foreclosure sale within the time required by O.C.G.A. § 9-11-4(c). Oviedo v. Connecticut Nat’l Bank, 391 S.E.2d 417 (1990). The term debtor in O.C.G.A. § 44-14-161(c) does not apply to a guarantor where the guarantor has limited liability as to the underlying debt. Commercial Exch. Bank v. Johnson, 398 S.E.2d 817 (1990). In addition, the definition of debtor in O.C.G.A. § 44-14-162.1 for purposes of notice of sales made on foreclosure does not apply to the notice of confirmation hearing in O.C.G.A. § 44-14-161. Hill v. Moye, 471 S.E.2d 910 (1996). However, the borrower’s actual notice or knowledge will not cure the failure to comply with the notice provision of O.C.G.A. § 44-14-161(c). Chastain Place, Inc. v. Bank South, N.A., 363 S.E.2d 616 (1987). As a result, “[P]ersonal service is generally required to give legal notice.” Henry v. Hiwassee Land Co., 269 S.E.2d 2 (1980). To be valid, service by publication must set forth the information required by O.C.G.A. § 44-14-161(c), namely, the date and time of the confirmation hearing. See Winstar Dev., Inc. v. SunTrust Bank, 708 S.E.2d 604 (2011). Note that once a debtor has been properly served with notice of a confirmation hearing, subsequent notices resetting the confirmation hearing to a later date may be served by mail in accordance with O.C.G.A. § 9-11-5(b).
For further guidance, see LexisNexis Practice Guide: Georgia Real Estate Litigation § 9.02 [5][c].
Establishing Market Value at Confirmation Hearing
O.C.G.A. § 44-14-161(b) requires evidence showing the true market value of the property and provides that the court will not confirm the sale unless it is satisfied that the property was sold for its true market value. Because a confirmation proceeding is a special statutory proceeding and no statute establishes a contrary rule of discovery, the discovery procedures of the Civil Practice Act apply. Alliance Partners v. Harris Trust & Sav. Bank, 467 S.E.2d 531 (1996).
In proving the market value, the applicant may not rely solely on the prima facie showing of price brought at the foreclosure sale; the applicant must introduce evidence showing the value of the property at the time of sale. Peachtree Mtg. Corp. v. First Nat’l Bank of Atlanta, 237 S.E.2d 416 (1977). Intuitively, a court cannot rely upon appraisals that lack foundation. See Belans v. Bank of Am., N.A., 692 S.E.2d 694 (2010).
The trial court is given broad discretion to determine the credibility of testimony regarding value. For example, in one case, the trial court, as the trier of fact, was authorized to weigh the evidence and judge the credibility of both experts to conclude that the lender’s expert’s valuation under the discounted cash flow model was unreliable and the builder’s expert, who used the bulk sales comparison approach, was more credible and used a more appropriate method. Eagle GA I SPE, LLC v. Atreus Cmtys. of Fairburn, Inc., 738 S.E.2d 675 (2013).
On appeal, the “any evidence” rule applies to the trial court’s findings. This means that if the appellate court finds there is any evidence in the record to support the trial court’s findings, it cannot overturn the result. For example, evidence supported approval of a bank’s foreclosure sale because the bank’s expert testified that (1) the value of the property did not exceed the amount paid by the bank, (2) the expert used both a cost and a market approach to determine the property’s value, (3) the expert considered the percentage of the property that consisted of wetlands, and (4) the expert verified the comparable sales used to form the expert’s opinion. Statesboro Blues Dev., LLC v. Farmers & Merchants. Bank, 690 S.E.2d 205 (2010).
Objecting at a Confirmation Hearing
The confirmation statute limits the relief available to the borrower. See Kennedy v. Gwinnett Com. Bank, 270 S.E.2d 867 (1980). At the hearing, the court will consider the legality of the notice and advertisement and also the regularity of the sale. O.C.G.A. § 44-14-161(c). While the borrower is not required to file an answer to the lender’s report, it is permitted to raise objections. Wall v. Federal Land Bank of Columbia, 240 S.E.2d 76 (1977). Typically, borrowers in Georgia respond with answers to the report. A court may examine the fairness of the technical procedures used but only to ensure that the sale was not chilled and the price bid was in fact market value. Shantha v. West Ga. Nat’l Bank, 244 S.E.2d 643 (1978). In opposing a confirmation action, a borrower may raise defenses that relate to the true market value or the specified issues of fairness in the technical procedures. The borrower may not raise counterclaims or ask for any alleged excess resulting from the sale in a confirmation proceeding. Peachtree Mortgage Corporation v. First National Bank of Atlanta, 237 S.E.2d 416 (1977).
To properly pursue a deficiency, the lender must properly conduct the foreclosure. In 2012, the Georgia Court of Appeals held that an application for confirmation was properly denied where the advertisement failed to comport with the statutory requirements of O.C.G.A. § 44-14-162(a). Nicholson Hills Dev. v. Branch Banking & Trust Co., 730 S.E.2d 572 (2012). That same year, the Court of Appeals held that if the lender compiles with the law, the trial court must confirm the foreclosure sale. Specifically, it held that it was error to deny a lender’s petition to confirm the foreclosure sale of six townhouses because the sale satisfied applicable notice and advertisement requirements and the uncontradicted evidence showed that the townhouses did sell for at least fair market value. RBC Real Estate Fin., Inc. v. Winmark Homes, Inc., 736 S.E.2d 117 (2012).
Resale Order
A resale order sets aside the prior sale. Yellow Creek Invs., LLC v. Multibank 2009-1 CRE Venture, LLC, 765 S.E.2d 728 (2014). The court may order a resale of the property for good cause shown at the confirmation hearing. O.C.G.A. § 44-14-161(c). A failure to sell for the true market value constitutes good cause for ordering a resale. Damil, Inc. v. First Nat’l Bank, 302 S.E.2d 600 (1983). If the sale is irregular, “or if either the notice or the advertisement does not substantially meet legal requirements, the sale should be set aside.” Walker v. Northeast Prod. Credit Ass’n, 251 S.E.2d 92 (1978).
There is no presumption in favor of resale and there is no entitlement to a resale. Sanusi v. Cmty. & S. Bank, 766 S.E.2d 815 (2014). O.C.G.A. § 44-14-161 gives the judge authority to declare a sale of real estate on foreclosure to be absolutely void rather than merely to order another sale because of an irregularity. Tingle v. Atlanta Fed. Sav. & Loan Ass’n,, 91 S.E.2d 804 (1956). For example, in one appeal, the Court of Appeals found that the bank relied on a flawed appraisal in good faith and that the bank had shown good cause for a resale, and as such, it was within the trial court’s discretion to permit a resale. Sanusi v. Cmty. & S. Bank, 766 S.E.2d 815 (2014).
Wrongful Foreclosure Action
A wrongful foreclosure action may be brought following a foreclosure pursuant to a power of sale clause. To bring a successful claim, a plaintiff must establish that the foreclosing party breached a legal duty owed to the plaintiff and that there is a causal connection between the breach and the plaintiff’s injuries and damages. Metro Atlanta Task Force for the Homeless, Inc. v. Ichthus Community Trust, 780 S.E.2d 311 (2015).
The legal duty imposed upon a foreclosing party under a power of sale is to exercise that power fairly and in good faith. Id. See also O.C.G.A. § 23-2-114. To determine whether this duty has been breached in a wrongful foreclosure action, the focus is on both the manner in which the sale was conducted and the result of the sale. As one court explained, “One way to prevail in a wrongful foreclosure action is to show that the foreclosure sale price was grossly inadequate and that the grossly inadequate price was accompanied by either fraud, mistake, misapprehension, surprise or other circumstances which might authorize a finding that such circumstances contributed to bringing about the inadequacy of price that such a sale may be set aside by a court of equity.” Metro Atlanta Task Force for the Homeless, Inc. v. Ichthus Community Trust, 780 S.E.2d 311 (2015).
Note that if the foreclosure sale is conducted in good faith and according to the terms of the security deed, failure to obtain an “adequate” price is not a sufficient basis for a borrower to bring a wrongful foreclosure claim for damages. Kennedy v. Gwinnett Com. Bank, 270 S.E.2d 867 (1980). However, if the wrongful foreclosure is allegedly intentional, the plaintiff can seek mental distress damages, or set forth an action for intentional infliction of emotional distress. Mbigi v. Wells Fargo Home Mortg., 785 S.E.2d 8 (2016). In addition, bear in mind that a successful plaintiff in a wrongful foreclosure action may not both cancel the foreclosure and recover damages for the value of the property. Zhong v. PNC Bank, N.A., 780 S.E.2d 92 (2015).
Examples of circumstances that may support a successful claim for wrongful foreclosure include:
• Errors in an advertisement that the plaintiff can show chilled the bidding at the foreclosure sale, causing a grossly inadequate sale price (See Racette v. Bank of Am., N.A., 733 S.E.2d 457 (2012).)
• The lender’s failure to provide notice of foreclosure as required by O.C.G.A. § 44-14-162.2 (See Mbigi v. Wells Fargo Home Mortg., 785 S.E.2d 8 (2016).)
• The foreclosing party’s knowing and intentional publication of untrue and derogatory information concerning the borrower’s financial condition that directly caused the borrower to sustain damages (See Sparra v. Deutsche Bank National Trust Company, 785 S.E.2d 78 (2016).)
Judicial Foreclosure of a Mortgage
Petitioning the Court
O.C.G.A. § 44-14-180(1) authorizes the judicial foreclosure of a mortgage in Georgia. The action should be brought in the county where the real property is located. If the real property is located in two counties, the action may be brought in either unless the borrower resides on the land. In this case, the action must be brought in the county of the borrower’s residence. O.C.G.A. § 44-14-180(3).
An executor or administrator of a deceased person may proceed with the foreclosure if the person originally entitled is dead. O.C.G.A. § 44-14-181. In addition, the right to foreclose on a mortgage may be assigned by an endorsement to order or in blank by the payee of a mortgage. O.C.G.A. § 44-14-182.
The foreclosure petition must contain all of the following:
• A statement of the case
• The amount of the petitioner’s demand
• A description of the mortgaged property
O.C.G.A. § 44-14-180(1).
Once the petition is filed, the court will grant a rule nisi to direct that that the principal, interest, and costs be paid into court. O.C.G.A. § 44-14-180(2). The rule is then published twice a month for two months or served on the borrower (or its special agent or attorney) at least 30 days before the money is directed to be paid into the court. O.C.G.A. § 44-14-180(2).
It is important to note the total absence of a rule nisi in a mortgage foreclosure invalidates the suit. In other words, the mere filing of a petition is not enough authorize the action. Deutsche Bank Nat’l Trust Co. v. Hobbs, 733 S.E.2d 27 (2012).
Foreclosure Defenses
When a rule nisi to foreclose a mortgage on real estate has been granted and published or served as required in Code Section 44-14-180, the borrower or its special agent or attorney may appear at the time at which the money is directed to be paid and file its objections to the foreclosure of the mortgage and raise any available defenses. O.C.G.A. § 44-14-184. When a defense is set up, the issue is submitted and tried by a jury. O.C.G.A. § 44-14-186. The borrower must present its defense in a verified affidavit. O.C.G.A. § 44-14-184. Additionally, third parties or the court cannot present or interpose defenses if the borrower fails to do so. O.C.G.A. § 44-14-185.
Pursuant to O.C.G.A. § 44-14-185, a party who purchases mortgaged property prior to the commencement of statutory proceedings to foreclose and who is not a party to the proceedings is not bound by the foreclosure judgment. Such party may, when the mortgage fi. fa. is levied, set up the defense that the mortgage could not be legally enforced against it.
Judgment and Sale of Property
“When the borrower, after being directed so to do, fails to pay the principal, interest, and costs as required by Code Section 44-14-230 and fails to set up and sustain its defense against the foreclosure of the mortgage, the court shall give judgment for the amount which may be due on the mortgage and shall order the mortgaged property to be sold in the manner and under the same regulations which govern sheriffs’ sales under execution.” O.C.G.A. § 44-14-187.
Interestingly, after proceedings to foreclose the mortgage have begun, a party that purchases the property from the lender is bound by the foreclosure judgment. O.C.G.A. § 44-14-188. This law goes so far as to hold that “[a] purchaser at a void or irregular judicial sale under the foreclosure of a mortgage shall succeed to all of the interests of the mortgagee.” O.C.G.A. § 44-14-189. (For a form of lis pendens that may be filed to provide notice of a judicial foreclosure action in Georgia, see Notice of Lis Pendens (GA).)
The money arising from the sale of mortgaged property is paid to the foreclosing party unless another lien on the property has priority of payment over the mortgage. When there is surplus after paying off the mortgage and other liens, it is paid to the mortgagor (or its agent). O.C.G.A. § 44-14-190. If a mortgage that secures a debt due in installments is foreclosed before any one of the installments falls due and there is a surplus of funds, the court may retain the funds or order them to be invested to meet the unpaid installments. O.C.G.A. § 44-14-191.
Statutory relief is not the only avenue to judicial foreclosure, and a holder of a security deed or mortgage “may foreclose the mortgage in equity according to the practice of the courts in equitable proceedings as well as by the methods prescribed.” O.C.G.A. § 44-14-49. (Bear in mind, however, that judicial foreclosures, be they statutory or in equity are rare in Georgia.)
Surplus funds resulting from the foreclosure are treated similarly to how they would be in a nonjudicial action. The Court of Appeals has held that the grantee of deeds to secure debt had to pay to grantors the surplus from a foreclosure sale of two properties to the grantee’s agent and a subsequent transfer of the properties to third parties for profit. Tower Fin. Servs., Inc. v. Smith, 423 S.E.2d 257 (1992).
Judicial Foreclosure of
Security Deeds
Judicial foreclosure of a security deed relatively rare and is authorized by O.C.G.A. § 44-14-210 et seq. Following entry of judgment, the holder of the security deed may, pursuant to O.C.G.A. § 44-14-210, cause the property to be sold and apply the proceeds to payment of the judgment. In this situation the “notice of the levy and time of sale must be given by the levying officer to the vendor or holder of the title given to secure the debt, if known, and also to the defendant in fi. fa. . . . Depositing a properly addressed and stamped letter in the post office is deemed sufficient notice under this subsection.” O.C.G.A. § 44-14-210(b). Ordinarily, junior creditors and claimants of property incumbered by a security deed are not entitled to the equitable relief provided in O.C.G.A. § 44-14-210 because they are perceived as having an adequate remedy at law to claim the funds arising from the sale of such property under the security deed. Western Union Tel. Co. v. Brown & Randolph Co., 114 S.E. 36 (1922).
Note that nothing in O.C.G.A. § 44-14-210 precludes a judgment creditor from seeking further relief if its judgment is not satisfied after application of the sale proceeds. Southern Land & Cattle Co. v. Brock, 460 S.E.2d 843 (1995). A lender who holds a promissory note secured by a deed may choose to either sue upon the note or exercise a power of sale contained therein or to pursue both remedies concurrently until the debt is satisfied. Pico, Inc. v. Mickel, 230 S.E.2d 488 (1976).
For a form of complaint for use in the judicial foreclosure of a security deed, see Foreclosure Complaint (Deed to Secure Debt) (GA). For a form of lis pendens that may be filed to provide notice of a judicial foreclosure action in Georgia, see Notice of Lis Pendens (GA).
Judicial Foreclosure of Trust Deeds
As an initial matter, trust deeds are rare in Georgia. Pursuant to O.C.G.A. § 44-14-120, they are enforced as follows:
• The trustee, upon the request of the holders or owners of at least two-thirds of the indebtedness may file a petition the superior court. The petition must contain a statement of the case, the amounts demanded, and a description of the property covered by the deed to secure the demands
– and–
• The court will then grant an order directing the sums demanded in the petition, together with interest and costs, to be paid into the court on or before the first day of the next term immediately succeeding the one at which the order is granted. The order must be published once a week for four weeks in a newspaper generally circulated in the county or be served on the maker of the deed or their special agent or attorney at least 20 days prior to the time at which the money is directed to be paid into the court.
O.C.G.A. § 44-14-120 does not create the only method of foreclosure of trust deeds to secure debts. In re Lookout Mt. Hotel Co., 50 F.2d 421 (N.D. Ga. 1931).
Rescission of a Judicial or Nonjudicial Sale
O.C.G.A. § 9-13-172.1 gives the lender the right to rescind a judicial or nonjudicial foreclosure sale that was conducted in the usual manner of a sheriff’s sale within 30 days of the sale if the deed or the deed under power have not been delivered to the purchaser. Note that rescission of the foreclosure sale also rescinds the memorandum of sale. Stowers v. Branch Banking & Trust Co, 731 S.E.2d 367 (2012). (The memorandum of sale is a simple writing that indicates the terms of the cried out foreclosure.)
With technology advancing (electronic filing and access in state and federal court), it is becoming less necessary for lenders to rescind foreclosure sales because it is now possible to be almost instantly aware of an order stopping the sale or a bankruptcy filing. However, the right of rescission in set forth in O.C.G.A. § 9-13-172.1 is still occasionally used. Upon rescission of an eligible sale, the seller must return to the purchaser, within five days, all funds paid by the purchaser. O.C.G.A. § 9-13-172.1(b). If the eligible sale is rescinded due to an automatic stay pursuant to the filing of bankruptcy by a person with an interest in the property, the damages awarded to the purchaser in a civil action are limited to the amount of the bid funds tendered at the sale. O.C.G.A. § 9-13-172.1(c).
Pursuant to O.C.G.A. § 9-13-172.1(d), if the sale was rescinded due to (1) the statutory requirements for the sale not being fulfilled, (2) the default leading to the sale being cured prior to the sale, or (3) the plaintiff and defendant having agreed prior to the sale to cancel the sale based upon an enforceable promise by the defendant to cure the default, the damages that may be awarded to the purchaser in a civil action are limited to the amount of the bid funds tendered at the sale plus interest on the funds at the rate of 18% annually, calculated daily. Specific performance is not an available remedy available under O.C.G.A. § 9-13-172.1(d).
Author – Kelsey Grodzicki, Partner, Campbell & Brannon, LLC
Kelsey Grodzicki is the Managing Attorney of the Litigation and Trial Practice and Default Departments of Campbell & Brannon, LLC, where he oversees the litigation, foreclosure, bankruptcy, eviction, and title curative departments. His primary practice areas include real estate, business, and contract litigation, mortgage servicing and foreclosure litigation, bankruptcy litigation, landlord-tenant litigation, and non-judicial foreclosures. He represents clients in a wide variety of complex civil litigation and bankruptcy matters involving contract disputes, real estate and quiet title actions, and lien priority actions. Kelsey has been named a “Rising Star” by Super Lawyers for Civil Litigation in Georgia in 2017, 2018, and 2019. Kelsey has also received award for his pro bono work in the community.