How does losing at a confirmation action (twice! actually three times!) put you in a better place than not having sought a confirmation at all? It depends on how good your waiver language is.
Apex Bank v. Thompson, A18A1467, A18A1468 (March 8, 2019) Brown, J. writing for Miller, P.J. and Goss, J.
In Georgia Court of Appeals further clarifies obligations of guarantors and confirmation actions 3 UNDILUTED CLARITY reviewing Nine Twenty, LLC v. Bank of the Ozarks, A16A0505 (May 20, 2016), we wrote “It will be very interesting to watch to see if this [pro-creditor] pendulum has swung its full distance and will begin to swing back should Nine Twenty be appealed or if it still has a ways to go.”
The pro-creditor pendulum swing to which we were referring was encapsulated in a series of four cases which we called the “Four Riders of the Guarantor Apocalypse” in Where you see a Tetralogy and Lenders see a Superfecta, I see a Quadrilogy, while Guarantors see the Four Riders of the Apocalypse 3 UNDILUTED CLARITY (June 17, 2016) reviewing York v. RES-GA LJY, LLC, A15A2254 (March 16, 2016) Phipps, P. J., writing for Doyle, C. J. and Boggs, J.
As we pointed out at the time, in York the lender actually lost three confirmation actions. Not only did the lender lose the confirmation actions, the lender appealed two of the three adverse confirmation decisions and lost both of those on appeal as well. RES-GA LJY v. South Crestview Drive, 326 Ga. App. 23 (A13A1810, decided March 10, 2014)(unpublished); RES-GA LJY v. Y. D. I., Inc., 322 Ga. App. 607 (745 S.E.2d 820) (2013). In Y.D.I., Inc., the trial court even specifically found that the property was not sold for its fair market value at foreclosure. Yet, in York, the Court of Appeals nonetheless allowed the lender to go after the guarantors. In Apex Bank, the Court of Appeals held that a lender which did not file for confirmation could not rely on a general waiver of defenses to pursue guarantors after a foreclosure. Id., at 5. So, are York and Apex Bank inconsistent? Did Apex Bank overrule York? Since Judge McMillian concurred in judgment only, is York really only physical precedent? Is it really better to try for confirmation and lose than to not try at all? Since what we do at Undiluted Clarity is to make the crooked straight and the rough places plain, we won’t keep you in suspense. No. No. No. And it depends on your documents.
First, let’s get to the facts.
STANDARD FACTS. Direct Land & Development, LLC, Earnest A. Thompson and Douglas O. Thompson took out a loan from the Bank of Valdosta. Id., at 2. Direct Land and the Thompsons did not pay the loan. Apex Bank as successor to Bank of Valdosta foreclosed on the loan. There was a deficiency at the foreclosure sale. Apex Bank did not seek a confirmation but went after the Thompsons anyway. Id., at 2-4.
NONSTANDARD FACT. Somebody, we’re not exactly sure who, alleged that the Thompsons were guarantors and not borrowers under the Note. See id., at 4.
STATUS OF THE LITIGATION. Apex Bank sued the Thompsons seeking a deficiency. Everybody filed for summary judgment against everybody else. After a hearing, the trial judge denied summary judgment to everybody and everybody appealed. Id., at 4-5.
THE OPINION. Judge Brown first clarified that HWA is still good law. “[W]e outlined the following provisions in a guaranty agreement and concluded that ‘these provisions’ showed a waiver of the guarantor’s right to confirmation
under OCGA Section 44-14-161…” Id., at 6. “In fact, the guaranty specifically provides that [the guarantor] shall remain liable for any deficiency remaining after the foreclosure of any property securing the note, whether or not the liability of Borrower or any other obligor for such deficiency is discharged pursuant to statute or judicial decision. [Guarantor] shall remain obligated, to the fullest extent permitted by law, to pay such amounts as though the Borrower’s obligations had not been discharged. Id., at 6-7 quoting HWA, at 887(2)(b)(emphasis in original).
Judge Brown next provided a paragraph of Undiluted Clarity in response to Apex Bank’s argument that general waiver language in the Note waived the protection of the confirmation proceeding. Language providing that a change in the terms of the note will not release a party who has signed the note from liability unless it is expressly stated in writing is not and should not be construed as a waiver of a guarantor’s right to insist upon compliance with the confirmation statute. Likewise, language regarding a lender’s right to change the collateral and exercise discretion over which collateral it might foreclose upon first and how it chooses to apply the proceeds also fails to show a waiver of a guarantor’s rights under the confirmation statute. Id., at 9 (emphasis in original).
Judge Brown then turned to an “Assignment of Deposit Account” which had some general language that “Borrower waives any defenses that may arise because of any action or inaction of Lender…” and “Borrower agrees to remain liable under the Note no matter what action Lender takes or fails to take under this Agreement.” Id., at 10-11 (emphasis in original). Judge Brown actually cited York for the proposition that a guaranty contract cannot be ‘extended by implication or interpretation’ and must be strictly construed. Id., at 13. Thus, the Thompsons’ agreement to “waive any defenses that may arise because of any action or inaction of [Apex], including without limitation any failure of Lender to realize upon the Collateral or any delay by Lender in realizing upon the Collateral” did not apply to Apex Bank’s failure to seek confirmation of the foreclosure sale…” Id., at 12-13 (emphasis in original).
Judge Brown finally turned to a Change in Terms Agreement which provided that “It is the intention of Lender to retain as liable parties all makers and endorsers of the original obligation(s), including accommodation parties, unless a party is expressly released by Lender in writing.” Id., at 14 (emphasis in original). Judge Brown provided a sentence of Undiluted Clarity that “an agreement that a change in the terms of the note will not release a party who has signed the note from liability unless it is expressly stated in writing is not and should not be construed as a waiver of a guarantor’s rights or defenses under the confirmation statute. Id., at 14-15 (emphasis in original).
CONCLUSION We gave you the language in HWA that constitutes a waiver of the confirmation statute. Use it. ###.