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.

Tenants Can’t Contest Foreclosure Proceedings or Quality of Title In Eviction (Dispossessory) Court

While a foreclosure vests title in the winning bidder at a foreclosure sale, it doesn't entitle the winning bidder to immediate possession of the premises.  Rather, getting possession requires the filing an eviction, formally called a Petition for a Dispossessory Warrant in Atlanta, Georgia.

Frequently, tenants in these situations will file an answer claiming the foreclosure sale was done improperly or that the winning bidder’s title is defective.  Often, the court will look at the tenant’s answer and conclude that the tenant's defenses exceed the jurisdiction of the eviction court, which is set up to handle only landlord-tenant disputes.  Much to the horror of the winning foreclosure bidder, the judge will then transfer the case to the superior court for resolution.  This leaves the tenant in possession of the premises indefinitely and expands a simple eviction into a full-blown lawsuit.

Fortunately, Georgia law is supposed to prevent this from happening.

A recent Georgia Court of Appeal case reiterated the court’s position on these issues.  In Moore v. REO Properties Accredited Home Lenders, Inc., A10A2330 (2/11/11), a tenant, residing in a property that had been foreclosed, argued in her answer that the original sale of the property was fraudulent, that the property was wrongfully foreclosed, and that the lender didn’t have the right to foreclose on the property.

The Court rejected the tenant’s arguments, finding that "'challenges to a foreclosure sale cannot be asserted as a defense in a subsequent dispossessory proceeding.'" (citing Vines v. LaSalle Bank Nat. Ass’n, 302 Ga. App. 353, 691 SE2d 242 (2010)).  And, "'[c]laimed defects in the landlord’s title to premises cannot be raised as a defense to a proceeding for possession under O.C.G.A. § 44-7-50 et seq.'"  (citing Sanders v. Daniel, 302 Ga. App. 350, 351, 691 SE2d 244 (2010)).

When filing an eviction following a foreclosure, to prevent unnecessary litigation, your attorney should have these cases available at the trial to show the judge.

Please call Krause Golomb & Witcher LLC at (404) 835-8080 to handle your residential and commercial foreclosures and evictions.