Recent Developments in Georgia Law Relating to Confirmation Proceedings
Given the dramatic drop in commercial real estate values over the past two years, many borrowers are finding that their loan balances exceed the value of the property at the time of a default. As a result, there has been an increase in litigation surrounding confirmation proceedings after a non-judicial foreclosure.
Under Georgia law, a creditor who forecloses on real property is barred from seeking a deficiency judgment against the borrower and guarantors unless the creditor files an application for confirmation within 30 days of the date of the foreclosure sale. There are only two issues in a confirmation proceeding: (1) whether the sale was properly conducted (i.e., in compliance with legal requirements concerning notice and conduct of sale), and (2) whether the property sold for fair market value. Most of the cases which are litigated deal with the second issue. Specifically, the creditor must show in a confirmation proceeding that the property sold for fair market value.
Concerning the determination of fair market value, recent Georgia appellate cases have held as follows:
- The deduction of carrying costs and a bulk-sale valuation of multiple lots are permissible. Trefren v. Freedom Bank of Ga (PDF)
- The deduction of completion costs and lost rents during construction are allowed. Nash v. Compass Bank (PDF)
- A deduction due to the fact that the properties were in foreclosure is not permissible. Cartersville Developers, LLC v. Georgia Bank & Trust (PDF)
These recent cases reiterate that the appellate court will give great deference to the trial court in weighing the evidence of fair market value. Borrowers defending a confirmation action must be prepared to submit evidence refuting the lender's calculation of fair market value. The case law indicates that on appeal the court will not overrule the trial judge's ruling if decided on any rational basis.
Because of the challenges in setting values and the broad discretion afforded to the trial courts, it will be interesting to follow the trends in the court rulings as more confirmation proceedings are contested in the current real estate market.
