What are the deficiency judgment laws in Georgia?

Answer 1

J. Deficiency Judgment

The foreclosure sale may not produce enough cash to pay the loan balance in full, after deducting expenses and accrued unpaid interest. In this case, the lender may be entitled to a personal judgment against the borrower for the unpaid balance. The lender is not required to seek a deficiency judgment and most commercial and residential lenders in Georgia do not seek deficiencies; however, it is allowed. Deficiency may also be obtained against any endorsers or guarantors of the note and against any owners of the mortgaged property who assumed the debt by written agreement. If any money remains from the foreclosure sale after paying the debt and other liens, such as the second mortgage or any mechanic's liens, expenses and interest, these proceeds are paid to the borrower.

If the lender seeks a deficiency judgment in Georgia, the lender must file for a deficiency within thirty (30) days of the foreclosure sale and follow the procedures outlined in OCGA § 44-14-161, or the claim for a deficiency is barred. The foreclosure sale must be confirmed and the deficiency judgment must be approved by a judge of the Superior Court in the county in which the sale occurred.

The above answer is correct, literally...but it overlooks one major item: GA laws respecting the note vs mortgage.

The "note" (which is the contractual loan obligation) is separate from the "mortgage" on the property. Both are legal instruments. Thus, a lender in Georgia could get around the requirements of judicial confirmation by first filing a lawsuit for breach of contract under the "note." This is strict and is easily determined (e.g., you miss one payment). If the note contains an acceleration clause (it will), then once you miss a payment the entire loan becomes due. The lender can easily obtain a judgment on that breach, as a result, for the full amount of the loan. This becomes a judgment lien that the debtor owes to the lender. The lender can then (separately) foreclose on the mortgage. Under the power of sale, the lender will sell the property at public auction (per the rules). If the foreclosure does not net the full amount of the mortgage, then the lender must seek a judicial confirmation in order to collect on the deficiency...but wait...what about the judgment lien from the lawsuit under the note? The lender DOES NOT need to confirm that... As such, the proceeds from the foreclosure can be applied to the judgment lien but the lender does not need to seek confirmation to collect on the deficiency under the judgment lien (lawsuit under the note).

For example: X takes out a loan from Y for 100K to buy a house. Y obtains a mortgage to secure and a signed note for 100K from X. Later, X misses a payment and Y sues under the note, obtaining a judgment for 100K (the value of the note/loan). After obtaining that judgment, Y forecloses on the property and sells it at public auction (per law). Since property values are down, Y is the only bidder. Y bids 1K for the property and is the highest bidder (even though the property is worth 70K now). Y does not seek to confirm the sale but instead applies the 1K to the 100K judgment lien and pursues X for 99K difference. Y will win under Georgia law. Thus, Y gets a 99K judgment against X (Y can pursue in court or sheriff's sale etc) and gets a 70K piece of land for 1K. In all, Y could potentially pull in 169K from the 100K loan because Y did not have to confirm the 1K foreclosure sale in order to collect under the judgment lien (from the note). X gets a 99K judgment against him/her, zero property, and some legal fees...ya think GA nees to change its laws?