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The Georgia Supreme Court has denied certiorari in two cases that could have changed the process lenders use to foreclose on and pursue deficiency judgments against owners who have defaulted on real estate loans.

On Jan. 24, the state’s high court unanimously denied the two petitions, filed on behalf of developer Tom DuPree Jr. and a Madison-area subdivision called The River Farm, which owe lender SunTrust Bank more than $1.8 million. The petitioners’ lawyers, Gus H. Small and Brent W. Herrin of Cohen Pollock Merlin & Small, had argued that SunTrust was trying to do an end run around a Depression-era law, known as the Confirmation Statute, O.C.G.A. §44-14-161. It requires a lender that foreclosed on a property and then later sold it to go before a judge to confirm the sale, ensuring the property was sold at fair market value and thereby keeping the debtor’s deficiency as low as possible. SunTrust, Small argued in his petitions, relied on a flawed Georgia Court of Appeals decision to obtain a deficiency judgment prior to foreclosing—in so doing changing the order of the lenders’ activities contemplated in the Confirmation Statute. Although the bank has not yet foreclosed, Small argued that it could do so, sell the property to itself at less than fair market value, then enforce the pre-existing judgment against the debtor. The advantage to the bank, Small argued, was that SunTrust would theoretically get a windfall by collecting a higher deficiency judgment from the debtor after having bought back the property at a bargain price. One of the arguments put forward by SunTrust’s lawyers, James A. Gober and Matthew T. Covell of Arnall Golden Gregory, was that the petitioners’ case simply wasn’t ripe because the bank hadn’t foreclosed or indicated it planned to foreclose. Accordingly, Gober argued, if the petitioners’ interpretation of the law were correct, SunTrust would not—yet—have violated it. Commenting on the high court’s rejection of the cert petitions, Small wrote in an e-mail that he thought the high court have been swayed in part because SunTrust hadn’t yet foreclosed. He said his clients did not plan to seek review of the decisions and still were deciding what to do next. “Although our client believes that the properties are worth the debt, there is now no practical or legal way to ensure that if the bank forecloses, the bid at the foreclosure sale will be the fair market value,” Small said in the e-mail. Small also said that while the Legislature could step in to change the statute and clearly define the order in which lenders’ actions may take place, he doubted it would do so. “There is no doubt that the denial of the cert petitions is a huge win for the banks and lenders in Georgia. I suspect there was a lot of anxiety among the lender community until the cert petitions were denied,” he said. In an e-mail message sent after the high court’s denial of the cert petitions, Gober acknowledged that the underlying issue of the order in which banks may foreclose, sell and get deficiency judgments is not dead. “The case that may reach the Court to address the issues River Farm and DuPree attempted to raise … is one where a foreclosure sale takes place after a judgment is first obtained against a borrower and guarantors,” he said. Associate Editor Janet L. Conley can be reached at [email protected]

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