/>iAs a non-judicial foreclosure state, it is often thought of as being “easy” to foreclose in Georgia. However, the foreclosure process requires more than running an advertisement for four weeks and conducting the sale on the courthouse steps. An effective Georgia foreclosure sale is well planned, with consideration of the lender’s end goal and the actions that will be required post-sale to meet those goals. Based on our experience from the last heavy cycle of commercial foreclosure sales in Georgia, there are several steps and considerations that constitute best practices for conducting an efficient and successful foreclosure sale:
1. Discuss Goals. It is important at the outset for a lender to decide what goals it wants to achieve beyond the foreclosure sale itself. Examples of questions to discuss with counsel include whether or not the lender wants to pursue a deficiency against the borrower or guarantors, or whether or not the lender or a special purpose entity should take the property into inventory if it is not sold to a third-party. These considerations are critical, because the decisions made on these topics early in the process will dictate later actions.
2. Comprehensive Loan Document Review and Properly Declaring Default. It may seem obvious, but it is critical that counsel conducting the foreclosure sale review all the loan documents. While the foreclosure sale itself follows a statutory process, compliance with that process does not matter if the specific terms of the relevant loan documents related to default are not followed to the letter. The loan documents may provide for a specific cure period, or no cure period at all, prior to default and acceleration of the indebtedness. Further, the loan documents may require a specific type of notice and delivery. Failure to exactly invoke a default pursuant to the loan documents can and will cause litigation headaches later. An experienced Georgia team also knows how to effectively set up a claim for attorneys’ fees. For example, many loan documents permit the lender to obtain “reasonable” attorneys’ fees. If the proper steps are taken, “reasonable” attorneys’ fees could be slightly more than 10% of the outstanding indebtedness under O.C.G.A. § 13-1-11.
While the foreclosure sale itself follows a statutory process, compliance with that process does not matter if the specific terms of the relevant loan documents related to default are not followed to the letter.
3. Determine What Is Being Sold. Obviously, the lender is conducting a foreclosure sale of the collateral property. However, it is important for the lender to understand the current status of title, inclusive of unexpected liens or conveyances, prior to conducting a foreclosure sale. Depending on the circumstances, it may be advisable to address any issues with title prior to a foreclosure sale to avoid problems later. Further, depending on the nature of the property, it may be advisable to conduct an environmental assessment. The environmental assessment may inform the lender as to whether it should take the property into inventory if a third-party purchaser does not materialize at the foreclosure sale, or whether forming a special purpose entity for holding the property would be preferable.
During the pre-sale period the lender should also conduct an appraisal of the property, especially if a deficiency is going to be sought. In a situation where the lender wants to pursue a deficiency judgment, the lender may want to identify an appraiser who is qualified to be a testifying expert in a later foreclosure confirmation action (discussed below). This appraiser may be someone retained directly by counsel rather than a typical lender-initiated appraisal due to the litigation considerations.
4. Property Noticing and Advertising the Sale. Georgia has specific requirements for the advertisement and the notice of foreclosure sale, both as to its content and how it is sent. See O.C.G.A. § 44-14-162, et seq. For example, the notice of foreclosure sale is required to be sent by registered or certified mail to the “debtor” at least 30 days before the sale. The “debtor” may not necessarily be the borrower who signed the loan documents as that person or persons can also mean “the current owner of the property encumbered by the debt[.]” O.C.G.A. § 44-14-162.1. This underscores why a title update is critical, because it is not uncommon for debtors to attempt to create confusion in the chain of title in order to attempt to hold up a sale or frustrate the rights of other creditors. Failure to provide the required notices to the correct “debtor(s)” can cause an injunction to be entered against the sale, or create a potential claim for wrongful foreclosure later. Further, the notice must also contain “the name, address, and telephone number of the individual or entity shall have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor[.]” O.C.G.A. § 44-14-162.2(a). While the lender has no obligation to modify the loan documents, failure to comply with this specific requirement can also cause litigation problems later.
The foreclosure advertisement itself must be run in the relevant county legal organ (newspaper) once a week for four weeks prior to the scheduled foreclosure sale. O.C.G.A. § 9-13-141. In Georgia, foreclosure sales can only take place on the first Tuesday of the month. See O.C.G.A. § 9-13-161(a). These timing requirements dictate that the advance work required to conduct an effective foreclosure sale must commence well before the deadline to send notices and advertise the sale. Failure to do the preparatory work such that notices can be timely sent and advertisements submitted before the newspaper deadline will cause a minimum of one month of delay before the lender can take advantage of the next foreclosure sale window.
These timing requirements dictate that the advance work required to conduct an effective foreclosure sale must commence well before the deadline to send notices and advertise the sale.
5. Determining a Bid Amount and Reporting the Sale. If the lender intends to seek a deficiency, determining the bid amount is a significant step prior to the foreclosure sale. To seek a deficiency, Georgia has a process called “foreclosure confirmation” that must be followed after the sale. The “foreclosure confirmation” process is a lawsuit to pass judgment on the foreclosure sale price that has a specific time requirement. The foreclosing lender must “report” the foreclosure sale to a Superior Court judge within thirty (30) days of the sale. See O.C.G.A. § 44-14-161. We know from experience that “reporting” the sale is not a process that all superior court judges are familiar with, specifically outside of the core metro-Atlanta counties. The attorney reporting the sale must be prepared to explain to the judge what they are asking for and why. We also know from experience that attorneys reporting the sale may literally need to knock on chambers doors to accomplish that task. It is particularly important to not wait until the last minute to report the sale, because if judges are away at a conference or otherwise unavailable, there may no way to timely report the sale. The unavailability of the judge is not a defense; a lender will absolutely lose its deficiency rights if the sale is not timely reported.
The reporting of the sale and filing of the foreclosure confirmation case will lead to a bench trial. At the trial, the lender will be required to prove that the property sold for its “true market value” with the court also being required to “pass upon the legality of the notice, advertisement, and regularity of the sale.” O.C.G.A. § 44-14-161. The “true market value” is generally the most significant part of the trial and will require evidence from the lender’s appraiser. The judge has considerable, unilateral leeway in determining whether “true market value” was brought at the sale. As such, the lender must consider how aggressive to be with regard to setting its bid price as compared to the appraised value. We have experience with trying dozens of foreclosure confirmation cases and can provide insight on strategy to set bid amounts. Following a successful foreclosure confirmation, the lender will need to file a lawsuit to obtain a judgment on the note for the deficiency.
6. Dealing with Pre-Sale Litigation or Bankruptcy. The practical reality of the foreclosure sale is that unless the debtor is completely throwing in the towel, there will likely be a lawsuit seeking to enjoin the foreclosure sale, a bankruptcy filing, or both. Because foreclosure sales can only take place on the first Tuesday of the month, many times the debtors take these actions on the Monday prior to prevent the foreclosure sale and to make it extremely difficult for the lender to obtain relief prior to the sale. This generates delay. If the foreclosure sale date is missed due to litigation or bankruptcy, it will likely be a minimum of two to three months before the litigation or bankruptcy can be worked through such that the sale can be re-advertised and conducted. The reality of litigation and bankruptcy filings means that the lender needs a team familiar with aggressively and promptly dissolving temporary restraining orders or obtaining relief from the automatic stay in order to minimize delay.
The reality of litigation and bankruptcy filings means that the lender needs a team familiar with aggressively and promptly dissolving temporary restraining orders or obtaining relief from the automatic stay in order to minimize delay.
7. Executing the Deed Under Power and Post-Sale Litigation. As a final matter, the lender is responsible for executing a Deed Under Power of Sale, pursuant to which it conveys the property as attorney-in-fact for the debtor to the foreclosure sale purchaser. During this post-sale time period, the lender may need to take action to evict the debtor from the property if it was not sold to a third party. The lender should also be prepared for a wrongful foreclosure claim.
In sum, conducting an efficient foreclosure sale in Georgia requires proper planning and engaging a team equipped and experienced to handle the foreclosure sale transaction and any related litigation. Experience matters. Our team would be happy to discuss any foreclosure sale needs with you in Georgia.
