Borrower and Guarantor Waivers of Defenses in Loan Documents and Lender’s Pursuit of a Deficiency

January 4, 2021

A lender that forecloses a security deed on Georgia real property, realizes at the public sale a price less than the debt, and wants to pursue the borrower for the deficiency, must go before a court in a “confirmation action.”  If the judge “confirms” the foreclosure sale by finding that the lender followed the rules and that the foreclosure brought the fair value for the property, then the lender may legally go against the borrower for the deficiency. The Georgia Supreme Court in 2016 confirmed that a lender must also confirm a foreclosure sale before pursuing a deficiency against a guarantor. PNC Bank, Nat'l Ass'n v. Smith, 298 Ga. 818, 819, 785 S.E.2d 505, 507, 2016 Ga. LEXIS 267, 2016 WL 1276376.

That is the idea, anyway.

The Court in PNC Bank proceeded, however, to rule that a guarantor may sacrifice that protection by signing a guaranty agreement that explicitly waives it. In this case the Court discerned sufficient waivers in guaranty agreements that waived ““any and all rights or defenses … based on any ‘one action’ or ‘antideficiency’ law or any law which prevents [PNC] from bringing any action, including claim for deficiency against [the guarantors], before or after [PNC's] completion of any foreclosure action. …””  Id, 298 Ga. at 819, 785 S.E.2d at 506, 2016 Ga. LEXIS 267, *3, 2016 WL 1276376. It later confirmed this provision:

Guarantor also waives any and all rights or defenses based on suretyship or impairment of collateral including, but not limited to, any rights or defenses arising by reason of (A) the provisions of O.C.G.A. Section 10-7-24 concerning Guarantor's right to require Lender to take action against Borrower or any “one action” or “anti-deficiency” law or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender's commencement or completion of any foreclosure action, either judicially or by exercise of a power of sale; … or (F) any defenses given to guarantors at law or in equity other than actual payment and performance of the Indebtedness.

York v. RES-GA LJY, LLC, 300 Ga. 869, 870, 799 S.E.2d 235, 237, 2017 Ga. LEXIS 229, *2, 2017 WL 1375107

Properly drafted loan documents (often preprinted and non-negotiable) routinely include these waivers by both borrowers and guarantors; hence the prescience of Justice Nahmias in his concurring opinion in PNC Bank: 

[I]f guarantors can waive the protections of the confirmation statute, it would seem to follow that borrowers too can waive those protections. And if that is the case, then it may well be — given the imbalance in bargaining power between lenders and many borrowers — that before long, virtually every security deed in Georgia, particularly for residential home buyers, will include such a waiver, and the confirmation requirement of OCGA § 44-14-161 could become a dead letter for those whom it was most clearly designed to protect.

PNC Bank, Nat'l Ass'n v. Smith, 298 Ga. 818, 825, 785 S.E.2d 505, 510, 2016 Ga. LEXIS 267, *16-17, 2016 WL 1276376.

A lender considering enforcement of a loan secured by Georgia real estate should confirm whether its loan documents contain waivers by the borrower (and, if applicable, guarantor) sufficient to waive confirmation. If they do, then the lender may pursue a deficiency against the debtors upon foreclosure without confirmation. Effective waivers may also enable the lender to seek payment of a deficiency even after rejection of confirmation, as occurred in York. Lenders should also assure that their template loan documents include the waivers. True to the prediction by Justice Nahmias, Georgia borrowers and guarantors should understand the likely risk of liability for a deficiency without protection of confirmation.

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