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Wrongful Foreclosure, Confirmation, and Debtors' Remedies #1: Introduction

Georgia foreclosure law is a dense, complicated, and sometimes downright confusing area of the law. This series of blog posts is designed to provide commercial property owners a brief overview of the foreclosure process and the rights and duties of each party. This post will give a brief summary of the commercial property foreclosure sale process and a debtor's rights, while later posts will give a more in depth look at the duties a creditor owes to a debtor, the foreclosure sale confirmation process, and the requirements to bring a claim of wrongful foreclosure.

To start, all commercial foreclosures begin with a debtor who has pledged commercial property as collateral for a loan. If the debtor defaults on the loan, the lender may begin the foreclosure process on the debtor's property that secured the debt. To properly foreclose on the debtor's property, a creditor has a duty to put the debtor on notice and advertise the foreclosure sale of the secured property according to specific procedures. After adequately notifying the debtor and advertising the sale according to Georgia law, a creditor must then conduct the sale in good faith. Conducting a sale in good faith requires creditors to obey several restrictions on the time, place, and manner of the sale. These duties will be described in Wrongful Foreclosure, Confirmation, and Debtors' Remedies #2: A Creditor's Duties.

At the foreclosure sale, the creditor will usually submit a bid on the property equal to some portion of the outstanding loan balance. This type of bid is referred to as a credit bid, with the credit applying to the total loan balance owed by the defaulting property owner, together with accrued interest and any additional fees associated with the sale. The sale of the property goes to the highest bidder.

After the completion of the foreclosure sale of the property, virtually all creditors will report and file the sale with the appropriate court in what is called a confirmation action. The confirmation of the sale is a judicial process where the foreclosing party urges the Superior Court to issue a ruling that the sale is confirmed as having been conducted properly and having brought an appropriate price for the property. If the property owner objects, the Superior Court will hold an in depth evidentiary hearing on all aspects of the sale, and the debtor may introduce evidence that the sale was conducted improperly or that the price paid was insufficient. To confirm the sale a creditor must prove that the property sold for its fair market value, and that the sale satisfied the requirements as to notice, advertisement, and regularity. The law in Georgia holds that even a slight deviation from any of these requirements by the lender will prevent the confirmation of the sale. These issues are discussed at length in Wrongful Foreclosure, Confirmation, and Debtors' Remedies #3: The Confirmation Process and a Debtor's Rights.

If a sale is confirmed, the creditor may then seek to recover any unpaid loan balance, interest, or fees from the debtor directly in what is called a deficiency action. In other words, upon confirmation of a sale that did not bring a high enough bid to retire all the debt, the lender may sue the debtor for the deficiency. If the sale is not confirmed, the Court may order a new sale or simply set the sale aside. Obviously, then, the confirmation sale is the first and most important battle ground for a debtor in a commercial foreclosure. If the lender loses a confirmation sale or chooses not to bring such an action, it may not sue the debtor for any deficiency. Additionally, in such a situation, the borrower may be able to bring an affirmative claim for relief against the lender in what is known as a wrongful foreclosure action.

To maintain a wrongful foreclosure claim, a borrower has the burden to prove that the creditor breached one of the duties owed to it and that the breach resulted in damages to the debtor. Most often, a borrower can make this showing by providing an inadequate advertisement of sale or a lack of good faith as shown in a grossly inadequate sale price. A wrongful foreclosure claim will allow a debtor to collect additional damages from the creditor, but the standard for maintaining such a claim is considerably higher in a confirmation sale. Essentially, Georgia courts have determined that any failure on the part of the lender to conduct the sale in good faith or to obtain the full fair market value of the property in the foreclosure sale will invalidate the sale. However, if the borrower seeks to make an affirmative claim for damages against the creditor in a wrongful foreclosure action, the standard of proof is considerably higher. These requirements for a creditor to conduct the sale in good faith and the debtor's rights in a wrongful foreclosure claim are discussed in greater detail in Wrongful Foreclosure, Confirmation, and Debtors' Remedies #4: Bringing a Wrongful Foreclosure Claim.

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