Georgia Guarantors Liable for Deficiency without Confirming Foreclosure

In 2013, the Georgia Court of Appeals issued its decision in HWA Properties, Inc. v. Community & Southern Bank, 322 Ga. App. 877, 746 S.E.2d 609 (2013) (“HWA”), holding for the first time that a guarantor can contractually waive the protections of Georgia’s foreclosure confirmation statute. The HWA decision left unanswered questions as to the breadth of its applicability. Now, the Court of Appeals provides answers to some of those questions in its recent decision in Community & Southern Bank v. DCB Investments, LLC, 328 Ga. App. 605, 2014 Ga. App. LEXIS 516 (July 11, 2014), reconsideration denied, cert. applied for (“DCB”).

In HWA, the appeals court relied on very specific guaranty waiver language, which was quoted in its decision. That first case also featured unusual procedural background, in that the HWA lender had followed the requirements of the confirmation statute and received an order confirming the foreclosure, only to have that order overturned as to the borrower on appeal. In DCB, unlike HWA, the lender failed even to institute confirmation proceedings on one of the three foreclosed parcels at issue. In addition, while one of the three DCB guarantors signed a similar form guaranty to that before the HWA court, the other two guarantors signed a different guaranty containing some, but not all, of the waivers present in the first guarantor’s form. Despite these differences in both substance and procedure, the DCB court held that all three guarantors had waived the protection of the confirmation statute by the language in their guaranties – even where that language was not as comprehensive as that in HWA.

DCB clarifies that a lender need not pursue confirmation as a condition precedent to suing a guarantor for a post-foreclosure deficiency, provided adequate waiver language exists in the guaranty. It also establishes that waiver language less comprehensive and direct than that cited in HWA may still suffice to find waiver of the confirmation statute’s protections. It also makes it clear that borrowers themselves still remain subject to the full protections of the confirmation statute. Further opinions will undoubtedly continue to refine the outer limits of the HWA decision. However, the decision in DCB, now on appeal, is nevertheless a significant expansion of HWA and a beneficial decision for lenders.