Is your guaranty enforceable after foreclosure without confirmation by the court?
by Stites & Harbison, PLLC
Strong express terms of guaranty may allow creditors to collect deficiencies whether or not the foreclosure sales of real estate are confirmed. In the recent ruling of HWA Properties, Inc. v. Community and Southern Bank, 322 Ga. App. 877, 746 S.E.2d 609 (2013), a deficiency judgment was allowed against the contractual guarantor, absent confirmation of the foreclosure sale. The guaranty at issue specifically provided that the guarantor would remain liable for any deficiency remaining after the foreclosure of any property securing the note, “whether or not the liability of Borrower or any other obligor for such deficiency is discharged pursuant to statute or judicial decision.”
In HWA, the lender conducted a non-judicial foreclosure sale of the real property and sought confirmation of the sale. Ultimately, confirmation of the foreclosure sale was reversed on appeal due to improper reliance on hearsay evidence. The borrower and guarantor argued they could not be held liable for the deficiency because the lender’s “foreclosure sale was not validly confirmed, [so the lender] was not entitled to a ‘deficiency judgment’ against them, pursuant to O.C.G.A. § 44-14-161 (a).” The court agreed that the lender could not pursue the borrower for the deficiency under the note due to reversal of the confirmation sale, but disagreed as to the guarantor’s liability on the note based on the unconditional guaranty. This landmark ruling alters the previous common understanding that a lender must confirm a non-judicial foreclosure sale as a pre-condition to seeking a deficiency judgment against a borrower or guarantors. See O.C.G.A. §44-14-161.
The court’s analysis focused on the specific terms of the guaranty and relied upon the guarantor’s “express and comprehensive waiver of any and all defenses.” In addition, the court found that “even absent this broad waiver of defenses, the guaranty expressly gives [the guarantor’s] consent for the ‘Lender’ to collect on other collateral and to apply the proceeds to the amount due on the note and that ‘[s]uch application of receipts shall not reduce, affect or impair the liability of [guarantor]’” Further, the guaranty specifically provided that the guarantor “shall remain liable for any deficiency remaining after the foreclosure of any property securing the note.”
While not all guaranty agreements will contain such strong waivers and consents to fall within the HWA decision, the Banking, Finance and Creditors’ Rights attorneys at Stites & Harbison PLLC welcome the opportunity to review and update your guaranty agreements based on this important new development in Georgia law and to handle deficiency claims based on the guaranty with these specific terms.