Confirmation of Foreclosure Sales Reversed -- Attorneys Beware!

The Georgia Court of Appeals has reversed the confirmation of foreclosure sales of three properties.  The court held that the trial court committed reversible error because the bank failed to submit proper evidence of the true market value of the properties as required by O.C.G.A. § 44-14-161(b) in Belans v. Bank of America A09A1986.  O.C.G.A. § 44-14-161 applies to nonjudicial foreclosures, which was the kind of foreclosure that took place in this case.  What is a non-judicial foreclosure?

Non-Judicial Foreclosure

The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative. Regulations for this type of foreclosure process are outlined below.

Power of Sale Foreclosure Guidelines

 

If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:   

1. A foreclosure notice must be mailed by certified mail, return receipt requested to the borrower no later than 15 days prior to the date of the foreclosure sale. The time period begins the day the letter is postmarked. The notice must be mailed to the address given to the lender by written notice from the borrower. No waiver or release of the rights to notice is valid if it was signed at the same time as the original documents. The notice must be published in a newspaper of general circulation in the county where the sale will be held once a week for four (4) weeks proceeding the date of the foreclosure sale.
   
2. The sale must be made by public auction on the first Tuesday of the month between 10:00 am and 4:00 p.m. at the courthouse.

Lenders may seek a deficiency judgment in Georgia, meaning that if the property sells for less than the amount due on the mortgage, the bank can seek the remaining amount due on the mortgage from the borrower or any guarantor.  In the case at issue here, the bank was seeking a deficiency judgment against the guarantor of the notes secured by the three properties that were sold.  O.C.G.A.§ 44-14-161 governs deficiency sales in Georgia. 

O.C.G.A. § 44-14-161 states as follows:

(a) When any real estate is sold on foreclosure, without legal process, and under powers contained in security deeds, mortgages, or other lien contracts and at the sale the real estate does not bring the amount of the debt secured by the deed, mortgage, or contract, no action may be taken to obtain a deficiency judgment unless the person instituting the foreclosure proceedings shall, within 30 days after the sale, report the sale to the judge of the superior court of the county in which the land is located for confirmation and approval and shall obtain an order of confirmation and approval thereon.

(b) The court shall require evidence to show the true market value of the property sold under the powers and shall not confirm the sale unless it is satisfied that the property so sold brought its true market value on such foreclosure sale.

(c) The court shall direct that a notice of the hearing shall be given to the debtor at least five days prior thereto; and at the hearing the court shall also pass upon the legality of the notice, advertisement, and regularity of the sale. The court may order a resale of the property for good cause shown. 

In this case, the guarantor alleged that the bank had not satisfied O.C.G.A. § 44-161(b).  At the hearing, the bank's attorney submitted appraisal reports on all three properties, however, the appraiser who prepared the reports, who was at the hearing, did not testify on the stand.  Instead, the lawyer stated "in his place" that the properties had sold at fair market values.  In certain situations, the court stated, attorneys can, as officers of the court, make statements in their place as officers that, if not objected to, serve the same function as evidence.  However, the court went on, "this principle cannot be extended to convert otherwise incompetent hearsay into competent evidence."  

The bank argued that the guarantor, who did not attend the hearing, had waived his right to object to the lack of oral testimony supporting the appraisal reports. The court disagreed, stating that hearsay evidence has no probative value even when it is admitted without objection.   Thus, the appraisal reports were unsupported hearsay.  When the reports were eliminated, there was no evidence that the bank had sold the properties at fair market value, and thus the trial court's determination of fair market value was in error.