A frequent question currently is whether lenders are suing borrowers and guarantors for personal liability on real estate loans. A couple of parts in answering –

First, a lender has at least two remedies to enforce a delinquent real property loan. The one most often used is a nonjudicial foreclosure sale under the security deed (the customary real property security instrument in Georgia). The lender applies the proceeds of the sale to the loan. Any remaining amount is referred to as the “deficiency.” The lender, if desiring to proceed against the borrower or guarantors for the deficiency, must apply to the superior court to “confirm” the foreclosure sale pursuant to O.C.G.A. §44-14-161. If the court finds that the lender complied with the applicable procedural requirements and that the foreclosure sale brought the property’s true market value, the court confirms the sale. The lender may then sue the obligors (i.e., the borrower and any guarantors) for the deficiency, get a judgment and levy the judgment against assets of the obligors. The lender may not go after the obligors on the deficiency absent confirmation.

Confirmations are pretty much won or lost at the superior court level. The applicable level of appellate review as follows:

“The trial court is the trier of fact in a confirmation proceeding, and an appellate court will not disturb its findings if there is any evidence to support them. Furthermore, “we do not determine witness credibility or weigh the evidence and we view the evidence in the light most favorable to the trial court’s judgment.”

Statesboro Blues Development, LLC v. Farmers and Merchants Bank, 301 Ga. App. 851, 690 S.E.2d 205 (Ga. App. 2010) (citations omitted; emphasis added). This level of appellate scrutiny renders difficult for example, any attempt to overturn a trial court’s acceptance of a lender’s appraisal as credible (see. e.g., id.; Greenwood Homes, Inc. v. Regions Bank, 302 Ga. App. 591, 692 S.E. 2d 42; and The Hudson Trio, LLC v. The Buckhead Community Bank, No. A10A0685 (Ga. App. 2010)) and the trial court’s determination of value (see, e.g., TKW Partners, LLC v. Archer Capital Fund, L.P., 302 Ga. App. 443, 691 S.E.2d 300 (Ga. App 2010)). The appellate court will, however, independently determine the adequacy of notice of the confirmation proceeding given to the debtor and the compliance by the trial court with statutory and evidentiary requirements. See Belans v. Bank of America, 303 Ga. App. 35, 692 S.E. 2d 294 (Ga. App. 2010).

The preferential level of review may result in fewer appeals by stacking the odds against success. The number of recently reported appeals, however, as a selection of the total confirmation applications filed, suggest to me that lenders are seeking confirmation on commercial properties on a fairly routine basis.

A lender may also sue on the note, get a judgment and then execute the judgment against any assets of the obligors. See The River Farm, LLC v Suntrust Bank, No. A10A1500 (Ga. App. 2010). This remedy does not require the lender to satisfy the confirmation requirements because there is no foreclosure without legal process. See id. A suit on the note is also difficult to defend: “

[t]he only real defense to the action is to pay up the debt.” Id., quoting Dykes v. McVay, 67 Ga. 502, 505 (Ga. 1881). Lenders use this remedy less often than that of nonjudicial foreclosure, which is faster and less expensive. Circumstances may sometimes dictate suit on the note in any event.

One interesting note is that the recent confirmation appeals that I have reviewed all concerned commercial properties. This fact, as well as anecdotal evidence, hint that banks are less likely to go after deficiencies on residential properties, due partially at least to the sheer volume of these foreclosures and the desire of the banks, subject to regulatory pressures, to move them as expeditiously as possible. On the commercial side, a lender recently confirmed to me that if financial statements show substantial worth in an obligor, the bank is likely to insist on recoupment of the indebtedness, either by suit or by agreement to a repayment plan.