A 2017 ruling by the Georgia Supreme Court most likely represents a significant weakening to a consumer protection provision contained in Georgia’s home foreclosure law.
Georgia law allows what is known as a non-judicial foreclosure. This means that if you fall behind on your mortgage payments, your mortgage company does not have to go to court to seize possession of your home.
Instead, buried deep in the fine print of your mortgage paperwork is language that allows your lender to foreclose on your property simply by giving you written notice and thereafter advertising a foreclosure sale in the legal newspaper of the county where the property is located.
In Georgia, a lender can seize your house in less than 40 days if you are in default. Compare this to a home foreclosure process that typically lasts a year in a judicial foreclosure state like Florida.
Despite this extremely short foreclosure process, Georgia law does contain one small bit of consumer protection in the form of the deficiency confirmation process. If your lender foreclosures, they can take your home quickly but you would most likely not be liable for any deficiency claim if the foreclosure sale nets less than the balance due on the loan.
This is because Georgia law says that before a lender can sue on a deficiency it has to first go to a Superior Court judge within 30 days of the foreclosure and convince the judge that the foreclosure sale was “reasonable.” Since most foreclosure sales result in the lender “buying” the property back for the balance due on the loan, very few lenders even tried to argue that the foreclosure sale price represented the fair market value of the home. Therefore we almost never saw lenders suing (former) homeowners for a deficiency balance after foreclosure.
Enter the Supreme Court of Georgia with the case of York vs. Res-GA, LJY, LLC. In this case, Res-GA, LJY was the lender, having purchased York’s mortgage from The Community Bank. The Community Bank had included in its loan documents a waiver provision whereby York agreed that in the event of foreclosure, the lender (Community Bank or whoever owned the note) did not have to go through the confirmation process before suing the borrower (York) for any deficiency.
By allowing this waiver the Supreme Court of Georgia is basically giving a green light to mortgage lenders in the state to include waiver provisions in all mortgage documents from this point forward.
The problem with this, of course, is twofold. First, when a borrower is at a closing, signing dozens of pages, he is most likely not thinking about potential foreclosure problems or that he has just given his lender the right to sue for tens of thousands of dollars and bypassing any court protection. Further, even if the borrower knows about this waiver issue, he is not in a very strong negotiating position. If the borrower refuses to sign the waiver the lender can refuse to loan the money and the borrower won’t get his new house.
Given Georgia’s incredibly fast foreclosure process I find it absurd that the Georgia Supreme Court would hand the banking industry the power to extract even more money from borrowers, but that is exactly what has happened.
Until this point I have generally counseled recently foreclosed homeowners to hold off on filing bankruptcy following a foreclosure because further financial claims arising from the foreclosure sale were so unlikely. Now, I suspect that aggressive lenders will drive more struggling borrowers into bankruptcy. We will see if that happens.
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