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Can a Guarantor Waive his Right to a Foreclosure Confirmation Proceeding in Georgia?

February 23, 2016



On Monday, February 22, 2016, in a case closely watched by commercial real estate lenders, borrowers and guarantors, the Supreme Court of Georgia issued its opinion in PNC Bank, N.A.  v. Smith, et al., S15Q1445.  The case was before the Supreme Court on two certified questions from the United States District Court for the Northern District of Georgia.  The two Certified Questions were: (1) Is a lender’s compliance with the requirements contained in OCGA § 44-14-161 a condition precedent to the lender’s ability to pursue a borrower and/or guarantor for a deficiency after a foreclosure has been conducted?; and (2) If so, can borrowers or guarantors waive the condition precedent requirements of such statute by virtue of waiver clauses in the loan documents?

In answering the first question in the affirmative, the Georgia Supreme Court upheld its reasoning in First Nat. Bank & Trust Co. v. Kunes, 230 Ga. 888, 890-91 (1973). The Georgia Supreme Court echoed the reasoning in Kunes by stating “that notice to both sureties and guarantors is necessary to satisfy the purpose of the confirmation statute— ‘to limit and abate deficiency judgments in suits and foreclosure proceedings on debts’ and to enable sureties and guarantors ‘an opportunity to contest the approval of the [foreclosure] sales.”

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Georgia Court Holds Foreclosure Confirmation Statute Inapplicable to Certain Guarantors

September 19, 2013

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In a landmark decision, the Georgia Court of Appeals recently ruled that a guarantor may waive the right to require the holder of a secured debt to confirm a forceclosure sale prior to seeking a deficiency judgment.  In HWA Properties, Inc. v. C&S Bank, 2013 WL 3498088 (Ga. App. July 15, 2013), the Court of Appeals was asked to consider whether a guarantor could be liable for a loan deficiency where there had not been a valid confirmation pursuant to O.C.G.A. § 44-14-161 and the borrower had been discharged.  The Court of Appeals held that a confirmation following a foreclosure sale is no longer a prerequisite to suing the guarantor for a deficiency when the guaranty waives such a confirmation.

The Georgia confirmation statute, which has been on the books in Georgia since the Great Depression, requires a secured creditor to show that it bid the fair market value of the property securing the note before it can collect a deficiency.  Prior to this decision, neither the Court of Appeals nor the Georgia Supreme Court had addressed the issue of whether a guarantor could contractually waive its right to require confirmation of the foreclosure sale.

While the guaranty at issue in HWA Properties did not specifically mention waiver of the provisions of the confirmation statute, the Court was persuaded by three key provisions in the guaranty to find such a waiver existed.  First, the guaranty contained broad catchall waiver language, which included a waiver of, “any and all defenses, claims and discharges of Borrower, or any other obligor, pertaining to the Indebtedness, except the defense of discharge by payment in full.”  The Court emphasized in its holding that the guaranty contained, “an express and comprehensive wavier of any and all defenses to his liability on the entire balance due on the note.”

Second, the guaranty expressly provided that proceeds from any collateral sold to satisfy the debt, “shall not reduce, affect or impair the liability of [the guarantor].”  A literal application of this provision in the typical scenario, where the property is worth less than the balance of the debt, would seem to require that the guarantor’s liability not be lessened through the collateral liquidation process.  However, because Georgia maintains a “one satisfaction” rule whereby a lender may only collect enough to make itself whole,  it is unclear from the text of the decision why this language was pivotal to the Court.  One possibility is that the Court considered this provision further evidence of the parties’ intent to contract out of the confirmation statute.

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