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Wrongful Foreclosure, Confirmation, and Debtors' Remedies #2: A Creditor's Duties

In this second series on commercial property foreclosure, this article will examine a lender's duties to a debtor when preparing to sell and selling a debtor's foreclosed property. These duties are providing notice of the sale to the debtor, properly advertising the sale, and conducting the sale in good faith.

Notice and Advertising the Sale

Georgia law provides "notice to [debtor] is a prerequisite to the exercise of the power of sale for both residential and commercial property."[1] The law requires that

[n]otice of the initiation of proceedings to exercise a power of sale . . . shall be given to the debtor by the secured creditor no later than 30 days before the date of the proposed foreclosure. Such notice shall be in writing, shall include the name, address, and telephone number of the individual or entity who shall have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor, and shall be sent by registered or certified mail or statutory overnight delivery, return receipt requested, to the property address or to such other address as the debtor may designate by written notice to the secured creditor. The notice required . . . shall be given by mailing or delivering to the debtor a copy of the notice of sale to be submitted to the publisher.[2]

If a creditor fails to properly provide notice of sale to the debtor, "the debtor may either seek to set aside the foreclosure or sue for damages for the tort of wrongful foreclosure."[3] Once notice to the debtor is completed, the creditor must advertise the sale.

There are several requirements for proper advertisement of the foreclosure sale, which must be done in the same "time and place and in the usual manner of the sheriff's sales in the county in which such real estate . . . is located."[4] These include advertising "weekly for four weeks in the legal organ for the county notice of all sales of land and other property,"[5] listing the name of every individual in possession of the property,[6] including the name of the grantor in the advertisement,[7] listing the owner of the property if different from the grantor, including the name, address, and telephone number of the entity who has the authority to negotiate, amend, or modify all terms of the mortgage with the debtor, including the time and place of the sale in the advertisement,[8] and referencing the right to sell the property.[9] However, Georgia courts have stated that an advertisement "need not set forth the amount of the debt."[10]

Importantly, also required in an advertisement is a full and complete legal description of the property to be sold.[11] Exactly what is required in this legal description is a constantly changing part of Georgia law. Surprisingly, this description does not require the advertisement to include street address of the property. Rather, under Georgia law, foreclosure advertisements must merely "give such a description of the property . . . as shall best enable the public to understand what particular property is to be offered for sale."[12] What exactly is considered a complete description of property "must always depend on the location and particular character of that property,"[13] but the minimum level of sufficiency required in the description can be found in O.C.G.A. § 11–9–108.[14] An advertisement lacking these traits will fail to pass muster as a matter of law.

That being said, a creditor can include all of these required time, manner, and descriptions in an advertisement and still be in breach of his duty to properly advertise. Georgia law states that if the advertisement is not defective under the requirements of Georgia statutes, the errors in the advertisement can be a breach of the creditor's duty "if the debtor can come forward with evidence that the defects chilled the bidding at the foreclosure sale."[15] Specifically, an "[advertisement] containing incorrect or misleading statements calculated to chill bidding will not be upheld."[16]Chilling the bidding occurs when a creditor takes an action the effect of which causes the property to sell for less than it would have otherwise. Intentionally misleading statements such as this are connected to a breach of the creditor's duty to conduct the sale in good faith, addressed below.

As an example of a case in which adequate advertisement was challenged by the debtor, in In re S. Bowling, Inc., the court found that because the advertisement of foreclosure only listed the land in metes and bounds and failed to mention the fact that personal property was part of the sale, the description was "insufficient to foreclose" on the personal property (though it allowed foreclosure on the fixtures).[17] Here, no third party could have been on notice of the sale including the personal property, which had a direct correlation to the low sales price, so the sale was found to not be in good faith. It is important to examine closely what has been listed in the advertisement and what is being sold. Any discrepancies between the two may lead to the sale being invalid based upon the inadequacies of the notice of sale.

Conducting the Sale in Good Faith

Georgia law requires that "[p]owers of sale in deeds of trust, mortgages, and other instruments shall be strictly construed and shall be fairly exercised."[18] As such, a creditor has a "duty of good faith" to protect the debtor during the sale and to ensure that "nothing is done which will have the effect of chilling the bidding at the sale."[19] Georgia law holds that a "breach of this duty to conduct the sale 'fairly' gives rise to a claim for damages" to the debtor.[20] However, as will be discussed below, this fairness does not require that the true market value of the property be obtained at the foreclosure sale, but only that any breaches of duty regarding the sale do not result in an inadequate price. Included below is a short list of the requirements of the sale:

  • "Unless otherwise provided, sales of property must be made by the sheriffs or coroners only at the courthouse on the first Tuesday in each month, between the hours of 10:00 A.M. and 4:00 P.M., and at public outcry."[21]
  • "The property must be sold for cash, and one who extends credit is accountable to the grantor as if he had received cash."[22]
  • "Unless permitted by the security deed, the land cannot be offered or sold in separate parcels, but must be sold as a whole, except to the extent that part of the secured property has already been released from the deed."[23]
  • The creditor must not conduct the sale in a way calculated to chill the bidding or depress the prices offered.[24]

One of the common complaints of debtors regarding a foreclosure sale is that the property did not command as much cash as the property was worth. However, Georgia law is very clear that "[t]he sale is not invalidated by mere inadequacy of price unless the grantor or his agent is guilty of conduct calculated to chill the bidding or depress the prices offered. It has been said, however, that the property should be withdrawn from sale if it is found that unfavorable conditions prevail, and offered again at another time. [25] In other words "[t]he validity of a sale is not impaired by mere irregularities in conduct which do not substantially prejudice the rights of the [debtor]."[26]

An example of such an unfavorable condition occurred in Bond v. Stephens, where the seller or the auctioneer stood in a place and spoke in a voice loud enough for only one bidder to have heard that he was auctioning property and the entire auction and sale took less than one minute. There, the court held that the conditions of the sale caused only one bid to be placed upon the property. Under these conditions, the court held that the sale cannot be said to be a sale at public outcry within the meaning of that term."[27] As a result, the court held that the bids had been chilled by the conditions of the sale and the sale could not be confirmed.



[1] 3 Ga. Real Estate Law & Procedure § 21:81 (7th ed.).

[2] O.C.G.A. § 44-14-162.2

[3] Roylston v. Bank of Am., N.A., 290 Ga. App. 556, 559, 660 S.E.2d 412, 417 (2008).

[4] O.C.G.A. § 44-14-162.

[5] O.C.G.A. § 9-13-140.

[6] Id.

[7] See Credit Inv. Corp. v. Maddox, 182 Ga. 193, 184 S.E. 859, 860 (1936). But see Five Dee Ranch Corp. v. Fed. Land Bank of Columbia, 148 Ga. App. 734, 735, 252 S.E.2d 662, 663 (1979) ("The advertisement of sale showing the property was being sold as the property of the grantor in the deed to secure debt containing the power of sale under which the property was being advertised does not void the sale merely because the grantor in the deed to secure debt had, prior thereto, sold its equity of redemption to another subject to the deed to secure debt; nor is such sale void because the name of the party or parties in possession was not stated in the advertisement.").

[8] Ga. Real Estate Finance and Foreclosure Law § 8:4 ("The advertisement should contain a description of the date, time and place of the sale." ); see id. ("A foreclosure sale conducted pursuant to a power of sale must be held on the date, time and place which is required of sheriff's sales. Such sales may occur only on the first Tuesday of a month, must be between the hours of 10:00 A. M. and 4:00 P. M. local time, and are to take place at the county courthouse in which the property is located.").

[9] Ga. Real Estate Finance and Foreclosure Law § 8:4 ("It is not required that the foreclosure advertisement identifies specifically the nature of default. All that is required at a minimum is that there be a default. A recitation of one event of default in the advertisement will not be deemed to be to the exclusion of other events of default, and a foreclosure will not be set aside if the published reason for default is erroneous so long as an adequate basis for default and foreclosure does exist. If, however, the underlying instruments do require notice of the basis of default and the advertisement is the only form of such notice to the debtor, then identification of an improper basis of default may be deemed a waiver of alternative grounds for default and the foreclosure may be set aside.").

[10] 3 Ga. Real Estate Law & Procedure § 21:81 (7th ed.).

[11] O.C.G.A. § 9-13-140.

[12] In re S. Bowling, Inc., 05-86834-WLH, 2010 WL 4881798 (Bankr. N.D. Ga. Oct. 8, 2010) (citing Collier v. Vason, 12 Ga. 440 (1853)).

[13] Id.

[14] (a) Sufficiency of description. Except as otherwise provided in subsections (c), (d), and (e) of this Code section, a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described.

(b) Examples of reasonable identification. Except as otherwise provided in subsection (d) of this Code section, a description of collateral reasonably identifies the collateral if it identifies the collateral by:

(1) Specific listing;

(2) Category;

(3) Except as otherwise provided in subsection (e) of this Code section, a type of collateral defined in this title;

(4) Quantity;

(5) Computational or allocational formula or procedure; or

(6) Except as otherwise provided in subsection (c) of this Code section, any other method, if the identity of the collateral is objectively determinable.

(c) Supergeneric description not sufficient. A description of collateral as "all the debtor's assets" or "all the debtor's personal property" or using words of similar import does not reasonably identify the collateral.

(d) Investment property. Except as otherwise provided in subsection (e) of this Code section, a description of a security entitlement, securities account, or commodity account is sufficient if it describes:

(1) The collateral by those terms or as investment property; or

(2) The underlying financial asset or commodity contract.

(e) When description by type insufficient. A description only by type of collateral defined in this title is an insufficient description of:

(1) A commercial tort claim; or

(2) In a consumer transaction, consumer goods, a security entitlement, a securities account, or a commodity account.

O.C.G.A. § 11-9-108. See also Ga. Real Estate Finance and Foreclosure Law § 8:4.

[15] Racette v. Bank of Am., N.A., 318 Ga. App. 171, 175, 733 S.E.2d 457, 462 (2012); see also LSREF2 Baron, LLC v. Alexander SRP Apartments, LLC, 1:12-CV-2545-AT, 2013 WL 8335728 (N.D. Ga. Feb. 13, 2013) ("[A] bid-chilling claim premised on inadequacies in the foreclosure notice can succeed even when the foreclosure notice complies with the requirements of O.C.G.A. § 9–13–140(a).").

[16] 3 Ga. Real Estate Law & Procedure § 21:81 (7th ed.).

[17] In re S. Bowling, Inc., 05-86834-WLH, 2010 WL 4881798 (Bankr. N.D. Ga. Oct. 8, 2010).

[18] O.C.G.A. § 23-2-114.

[19] Ga. Real Estate Finance and Foreclosure Law § 8:5.

[20] Kennedy, 155 Ga. App. at 329.

[21] 3A Ga. Jur. Property § 32:35. ("However, should the first Tuesday of the month fall on New Year's Day or Independence Day, such sales must take place on the immediately following Wednesday.").

[22] 3 Ga. Real Estate Law & Procedure § 21:86 (7th ed.) ("However, the fact that he may give the bidder time to comply with his bid will not necessarily invalidate the sale, and it has been held that as long as he credits the full amount of the bid on the secured indebtedness, the sale is valid, even where he accepts a new security deed for part of the purchase price.").

[23] Id.

[24] Id.

[25] Id.

[26] Id.

[27] Bond v. Stephens, 161 Ga. 140, 129 S.E. 636, 638 (1925).

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