Rare Win for Debtor in Confirmation Case

The Georgia Court of Appeals finally sided with a debtor in a foreclosure confirmation case.  Citizens Bank of Effingham v. Rocky Mountain Enter. LLC, A10A2203 (4/8/11).  At issue in this case was the statutory requirement that a lender report a foreclosure sale to a judge of the superior court of the county in which the land is location within 30 days after the foreclosure sale.  The applicable statute, OCGA § 44-14-161, states as follows: 

no action may be taken to obtain a deficiency judgment unless the person instituting the foreclosure proceedings shall, within 30 days after the sale, report the sale to the judge of the superior court of the county in which the land is located for confirmation and approval and shall obtain an order of confirmation and approval thereon.

In this case, the lender foreclosed on a security deed and filed its petition for confirmation within 30 days after the foreclosure.  At the confirmation hearing, the debtor challenged the confirmation on the grounds that the lender had failed to report the foreclosure directly to a judge of the superior court.  The trial court agreed and denied confirmation to the lender.

On appeal, the lender argued that a motion for continuance filed by the debtor with 30 days of the foreclosure, which was signed by a superior court judge, satisfied the requirement of reporting the sale to a superior court judge.  The lender also argued that the clerk of the court was a proper legal authority under OCGA § 44-14-161, and by virtue of filing the confirmation with the clerk of court, the requirement of notifying a superior court judge was satisfied.

The Court of Appeals rejected both arguments.  Referencing Goodman v. Vinson, 142 GA. App. 420, 236 SE.2d 153 (1977) and other past case law, the Court reaffirmed the requirement that a lender must directly notify a superior court judge within 30 days in order to satisfy OCGA § 44-14-161.  The Court noted that a confirmation petition is a "special statutory proceeding and not a complaint which initiations a civil action or suit in the ordinary meaning of those terms."  (citing Vlass v. Security Pacific Nat. Bank, 263 Ga. 296, 297, 430 SE.2d 732 (1993)).  Further, the confirmation statute is in derogation of common law and must be strictly construed.

Foreclosure Confirmations: Battle of the Appraisers

One of the consequences of the recent "Great Recession" has been an avalanche of mortgage foreclosures.  The Atlanta area being no exception.  In turn, this has led to a record number of foreclosure confirmation filings.  As these confirmations have been tried and appealed, we've watched with interest.  A clear pattern has emerged:  the appellate courts in Georgia are reluctant to second guess a trial court.

In Jimmy Britt Builders Inc. v. Suntrust Bank, A10A2352 (2/11/11), the central issue was the extent to which experts can be challenged on appeal.  In that case, both sides came to trial armed with experienced appraisers.  Each appraiser had done thousands of appraisals.  

The property in question was a partially finished spec house.  Both appraisers approached their appraisals similarly.  Each provided an estimate of how much the spec house would be worth fully built and then subtracted the cost of completing the house.  The amounts arrived at by both appraisers was similar.

But the lender's appraiser went one step further.  He applied an additional discount of 15% based on what he termed "builder/buyer's risk."  The lender's appraiser testified that the 15% discount was necessary to account for a homebuilder stepping into to complete a house that had only been partially completed and to account for the condition of the neighborhood (there were other unfinished houses).

The trial court sided with the lender's appraiser and confirmed the foreclosure.

On appeal, the borrower raised several issues. The borrower contended that the 15% "builder/buyer's risk" discount was "unsubstantiated and irrational."  The Georgia Court of Appeals rejected this argument.  It stated that

the question is not whether this Court would have found [the borrower's] or the [lender's] expert more reliable or accurate . . ., "but whether the record contains any evidence to support . . . that the property brought its true market value at the foreclosure sale."

Id. (Citing Greenwood Homes v. Regions Bank, 302 Ga. App. 591, 596, 692 S.E.2d 42 (2010)).

In analyzing the evidence supporting the 15% discount, the Court of Appeals explained that the bank's expert had arrived at his opinion by speaking with two builders and viewing the property.  It is not clear how or why speaking with two builders and viewing the property supports a 15% "builder/buyer's risk" discount, but the Court of Appeals Court of Appeals explained that "'[a]n expert need not give reasons for an opinion."  The borrower also argued that a 15% discount was illogical because the lender's expert had already incorporated the cost of completing the construction of the house into the appraisal.  The Court of Appeals disagreed and found that it was up to the trial court to determine the legitimacy of a 15% discount.

Though it might have been reasonable to conclude that the 15% discount was arbitrary and capricious, the Court of Appeals was unwilling to go down this path.  Jimmy Britt reinforces the notion that, in the context of a confirmation petition, it is virtually impossible to reverse a trial court on claims that an appraiser's opinion was flawed.  In these cases, you must win the appraisal battle at trial or live with the consequences.