Recent Developments In Foreclosures

By: James C. Busch

On January 28, 1992 the Georgia Court of Appeals in Vaughan v. Moore, case number A91A1805, clarified and modified the laws governing foreclosures in Georgia. While not rewriting the laws of foreclosure this case has addressed particular areas of procedure regarding foreclosures and their respective outcomes.

In Vaughan the Plaintiff in connection with the sale of real property obtained a promissory note and deed to secure debt from the Defendant. Subsequently, the Defendant defaulted on the promissory note and the Plaintiff thereafter filed suit. In conjunction with the Plaintiff’s lawsuit and pursuant to the powers obtained from the deed to secure debt, the Plaintiff sold the real property via foreclosure sale. The Plaintiff did not have the foreclosure sale confirmed by the proper Superior Court judge or any other judge. When the plaintiff attempted to collect the resulting deficiency through his law suit the Defendant filed a Motion for Summary Judgment. The trial court granted the Defendant’s Motion for Summary Judgment indicating that since the Plaintiff failed to have his foreclosure sale confirmed, he could not continue his law suit on the note to collect the foreclosure deficiency. The Georgia Court of Appeals went on to indicate that the Plaintiff could have collected the deficiency if he had either received a judgment on the promissory note before the foreclosure sale or if he had the foreclosure sale subsequently confirmed.

There are several aspects of foreclosure that Vaughan clarifies with regard to collections. As addressed above a creditor typically has three avenues to pursue a debtor who has defaulted on a promissory note and deed to secure debt, 1) pursue upon the note only, 2) pursue upon the deed to secure debt only or, 3) pursue both the promissory note and deed to secure debt concurrently until the debt is paid. Vaughan addresses the proper manner and method of pursuing both the promissory note and deed to secure debt concurrently.

In Vaughan the Georgia Court of Appeals clearly outlined the requirements and limitations of concurrent foreclosure actions. First, the Court held if the initial action is foreclosure on the deed to secure debt then the foreclosing party must comply with O.C.G.A. 44-14-161 by confirming the foreclosure so as to retain the right of continued pursuit of any deficiency. Second, the Court held that if the initial action was to obtain a judgment against the debtor pursuant to the promissory note then he/she would not have to confirm the foreclosure. It is important to consider how Vaughan addressed the situation where the initial action was to pursue on the promissory note but where the foreclosure sale took place before a judgment had been rendered. Hence, if a concurrent pursuit of the debt under the promissory note and the deed to secure debt is to be undertaken one must be critically aware of the timing of the resulting actions and any requirements which may result therefrom.

In concurrent foreclosure actions it is critical to determine which action has concluded first. If a judgment is obtained on the promissory note prior to the foreclosure sale then no further action is required in order to collect any deficiency which may result. However, if the foreclosure sale takes place prior to obtaining a judgment in the promissory note action then the creditor must confirm the foreclosure sale in order to recover any resulting deficiency. The Vaughan ruling holds that deficiencies may not be collected by the promissory note suit subsequent to the foreclosure sale without confirmation of the sale.

In conclusion, while there certainly are times in which concurrent foreclosure actions are advisable it appears that the method of choice depends on the urgency involved and the likelihood of a deficiency at the foreclosure sale. While each method of foreclosure has relative strengths and weaknesses one should evaluate the debtor, the debtors financial position and the likelihood of a deficiency before beginning any foreclosure action.

Mr. Busch is an attorney specializing in commercial and construction litigation for Busch, Reed, Jones & Leeper, P.C. in Marietta, Georgia