In the Supreme Court of Georgia



                                      Decided: February 22, 2016


   S15Q1445. PNC BANK, NATIONAL ASSOCIATION v. SMITH et al.


      MELTON, Justice.

      In this case regarding the requirements of Georgia’s foreclosure

confirmation statute, OCGA § 44-14-161,1 the United States District Court for

the Northern District of Georgia has certified two questions: (1) Is a lender’s

compliance with the requirements contained in OCGA § 44-14-161 a condition

precedent to the lender’s ability to pursue a borrower and/or guarantor for a

deficiency after a foreclosure has been conducted? (2) If so, can borrowers or



     This statute provides:
      1


   When any real estate is sold on foreclosure, without legal process,
   and under powers contained in security deeds, mortgages, or other
   lien contracts and at the sale the real estate does not bring the
   amount of the debt secured by the deed, mortgage, or contract, 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.
OCGA § 44-14-161 (a).
guarantors waive the condition precedent requirement of such statute by virtue

of waiver clauses in the loan documents? For the reasons set forth below, with

regard to guarantors, we answer both questions affirmatively.2

      1. In relevant part, the record shows that PNC Bank, National Association

holds a promissory note on certain commercial property in Jackson County,

Georgia. The note is related to an original loan dated May 6, 2004, and a deed

to secure debt and security agreement encumbering the property. The borrower

of the loan is Hoschton Towne Center, LLC, which is not a party to the current

action. Kenneth D. Smith, William R. Dooley, Terry W. Dooley, Robert

McNaughton, Chris Dooley, Timothy R. Sterritt, and New South Vision

Properties, LLC guaranteed the original loan and its subsequent modifications.3

The deed to secure debt gives PNC the right to exercise the power of sale in case

of default, and PNC may also pursue other collateral, including "contracts of

      2
       The parties concede and the record confirms that there are no borrowers
involved in the present lawsuit, only guarantors. Therefore, we do not reach the
issue of a borrower’s rights in the present matter, as it would result in an
advisory opinion. We note, however, that the parties agree that a confirmation
is necessary to pursue a deficiency judgment against a borrower.
      3
       From 2005 to 2008, four modifications were made to the original loan,
primarily consisting of changes to the principal amount due on the loan as well
as the maturity dates of the note.
                                        2
guaranty." Finally, the deed to secure debt grants PNC the right to exhaust its

remedies "either concurrently or independently, and in such order as [PNC] may

determine."

      In the separate guaranties, each of the guarantors pledged to remain

unconditionally liable on the indebtedness, irrespective of Hoschton's own

liability or ultimate discharge. In addition, the guarantors waived their legal and

equitable defenses, other than payment of the indebtedness. The guarantors

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. . . ." The guarantors also acknowledged

PNC’s right of foreclosure and agreed to remain liable for the indebtedness even

if post-foreclosure confirmation did not occur.

      On April 18, 2013, following the Hoschton’s default, PNC sent Hoschton

and all of the guarantors notice of its intent to accelerate the maturity of the note

and to declare the entire unpaid principal and interest then due immediately due

and payable. On June 28, 2013, PNC conveyed notice of its intent to foreclose,

and the property was subsequently disposed of at a foreclosure sale. Ultimately,

                                         3
PNC chose not to obtain confirmation of this sale pursuant to OCGA §

44-14-161. Thereafter, PNC filed the present action against the guarantors for

a deficiency, claiming that they have waived any and all defenses to this action

which seeks all principal, interest, late charges, and costs arising from the

alleged default.

      2. The first question we have been asked to answer is whether a lender’s

compliance with the requirements contained in OCGA § 44-14-161 is a

condition precedent to the lender’s ability to pursue a guarantor for a deficiency

after a foreclosure has been conducted. We find that such compliance is

required.

      In First Nat. Bank & Trust Co. v. Kunes, 230 Ga. 888, 890-891 (199 SE2d

776) (1973), we considered the question of whether two individuals who acted

as sureties were entitled to notification prior to foreclosure confirmation

proceedings. We summarized:

      We . . . hold that [the sureties] were “debtors” within the meaning
      of [OCGA § 44-14-161 (c)] immediately upon the default on the
      promissory notes and as such should have received notice of the
      confirmation proceedings and given an opportunity to contest the
      approval of the sales before claims for the balance of the
      indebtedness could be prosecuted against them.


                                        4
Id. at 889-891.4 Kunes goes on to state that, even if the sureties in that matter

had been only guarantors, “it was necessary that these parties be properly

notified of the confirmation proceedings, irrespective of whether these separate

undertakings, were agreement of surety or guaranty.” Id. We reasoned that

notice to both sureties and guarantors was necessary to satisfy the purpose of the

confirmation statute– “to limit and abate deficiency judgments in suits and

foreclosure proceedings on debts.” Id.

      Based upon this reasoning, it would not matter for purposes of this
      statute whether the debtors were primarily or secondarily liable on
      the debt as they would still have to be notified of the confirmation
      proceedings to be held accountable for the deficiency, or balance
      due on the indebtedness.

Id. Our conclusion was also supported by the expansive definition of “debtor”

in what is now OCGA § 18-21-1 (“Whenever one person, by contract or by law,

is liable and bound to pay to another an amount of money, certain or uncertain,

the relation of debtor and creditor exists between them.”) PNC’s argument that



      4
       OCGA § 44-14-161 (c) provides: “The court shall direct that a notice of
the hearing shall be given to the debtor at least five days prior thereto; and at the
hearing the court shall also pass upon the legality of the notice, advertisement,
and regularity of the sale. The court may order a resale of the property for good
cause shown.”
                                         5
Kunes stands only for the proposition that guarantors must receive notice of a

confirmation proceeding is untenable. There would be no need to extend notice

to guarantors as “debtors” under OCGA § 44-14-161 (c) if they were not

entitled to some right as “debtors” under OCGA § 44-14-161 (a). Indeed, in

Kunes, we pointed out that notice was required to enable sureties and guarantors

“an opportunity to contest the approval of the [foreclosure] sales.” Id.

      3. The second question we have been asked to answer is whether a

guarantor can waive the condition precedent requirement of the confirmation

statute by virtue of waiver clauses in the loan documents. Guarantors may waive

the condition precedent.

      The Georgia Court of Appeals has considered this issue on at least two

occasions. In HWA Properties, Inc. v. Community & Southern Bank, 322 Ga.

App. 877, 887 (2) (b) (746 SE2d 609) (2013), the Court of Appeals observed

that a “guarantor may consent in advance to a course of conduct which would

otherwise result in his discharge, and this includes the waiver of defenses

otherwise available to a guarantor.” (Citation and punctuation omitted.) The

Court of Appeals then analyzed the guaranty at issue in that case, noting that it

expressly: (1) waived all defenses to liability on the entire balance due on the

                                        6
note; (2) gave consent for the lender to collect other collateral and apply the

proceeds to the amount due on the note; (3) agreed that the collection of other

collateral would not reduce, affect, or impair the guarantor’s liability; and (4)

agreed that the guarantor would remain liable for any deficiency even after

foreclosure of the property and release of the borrower. The Court of Appeals

then reasoned:

      [G]iven these provisions, we conclude [the lender’s] failure to
      obtain a valid confirmation of the foreclosure sale, pursuant to
      OCGA § 44–14–161, does not impair its authority to collect the
      difference between the amount due on the note and the foreclosure
      sale proceeds from [the guarantor] based upon his personal
      guaranty. See Baby Days v. Bank of Adairsville, 218 Ga. App.
      [752, 755 (3) (463 SE2d 171) (1995)]. It follows that the trial court
      did not err in granting summary judgment to [the lender] on its suit
      against [the guarantor] as a personal guarantor of the note. Id.; see
      also Gen. Motors Acceptance Corp. v. Newton, 213 Ga. App. 405,
      406–407 (444 SE2d 805) (1994) (The failure to confirm a
      nonjudicial foreclosure sale pursuant to a security deed does not
      prevent a creditor from seeking to enforce a contractual right to
      recover against additional security on the debt.); Worth v. First Nat.
      Bank, 175 Ga. App. 297, 297–298 (1) (333 SE2d 173) (1985)
      (accord).

(Footnote omitted.) HWA Properties, supra, 322 Ga. App. 887 (2) (b). The

Court of Appeals reached the same result in Community & Southern Bank v.

DCB Investments, LLC, 328 Ga. App. 605 (760 SE2d 210) (2014). Again, the


                                        7
Court of Appeals found that the guarantor waived any rights under the

confirmation statute based on explicit language in the guaranty agreement. In

doing so, the the Court of Appeals noted that the result is in line with the

fundamental principle that the freedom of contract is sacrosanct, and that

freedom should not be limited absent some important public policy reason. Id.

at 610 (2). We agree. This result creates an appropriate balance between the

statutory protections of the confirmation statute and the freedom of a guarantor

to enter contracts deemed beneficial. See, e.g., Redman Industries v. Tower

Properties, 517 FSupp 144 (N.D. Ga. 1981).

      Therefore, for all of the reasons set forth above, we find that a lender’s

compliance with the requirements contained in OCGA § 44-14-161 is a

condition precedent to the lender’s ability to pursue a guarantor for a deficiency

after a foreclosure has been conducted, but a guarantor retains the contractual

ability to waive the condition precedent requirement.

      Questions answered. All the Justices concur.




                                        8
  S15Q1445. PNC BANK, NATIONAL ASSOCIATION v. SMITH et al.

      NAHMIAS, Justice, concurring.

      I join the Court’s opinion in full, as it properly applies current Georgia law

in answering the two questions presented. But I write to express concern about

where today’s decision may lead.

      As the Court explains, our opinion in First National Bank & Trust Co. v.

Kunes, 230 Ga. 888 (199 SE2d 776) (1973), equated guarantors of loans secured

by real estate with borrowers and their sureties under Georgia’s 1935

foreclosure confirmation statute, which is now found at OCGA §§ 44-14-161

and -162. That holding was a reasonable interpretation of the statute, and in any

event it is a four-decade-old statutory precedent that created a workable rule

involving contract and property rights, and thus it should be followed as a matter

of stare decisis. See Woodard v. State, 296 Ga. 803, 812 (771 SE2d 362) (2015)

(discussing factors to consider in deciding whether to apply stare decisis);

Savage v. State, 297 Ga. 627, 641 (774 SE2d 624) (2015) (explaining that “stare

decisis is especially important where judicial decisions create substantial

reliance interests, as is most common with rulings involving contract and
property rights”). Indeed, the detailed waiver provisions included in the

guarantees suggest that the parties here, including PNC Bank, understood the

law to require confirmation before deficiency actions against guarantors: there

would be no need to so explicitly waive a defense that one believes does not

exist.

         I also agree with the Court’s conclusion today that, under current law, a

guarantor may, through clear and explicit contractual language, waive the

confirmation protection afforded by OCGA § 44-14-161. Given Kunes’s

equation of guarantors, sureties, and borrowers, it would seem to follow that

borrowers too may waive the protections the confirmation statute affords them.1

And if that is the case, then it may well be – given the imbalance in bargaining

power between most lenders and most borrowers – that before long, virtually

every security deed in Georgia will include such a waiver, and the confirmation

requirement of § 44-14-161 could become a dead letter. It may be that the

General Assembly no longer considers judicial confirmation of non-judicial


         1
         The Arizona courts have found a way to uphold waivers by guarantors of that state’s
statutory anti-deficiency protections, while prohibiting such waivers by borrowers. See Arizona
Bank & Trust v. James R. Barrons Trust T-Group, LLC, 351 P3d 1099, 1102-1104 (Ariz. Ct. App.
2015). Arizona, however, did not have a precedent like Kunes equating guarantors and borrowers
under its statute.

                                              2
foreclosure sales necessary to protect borrowers from deficiency judgments, but

if borrowers are to be so protected, the legislature should consider regulating or

prohibiting such contractual waivers by borrowers (and perhaps guarantors as

well).

         In this respect, I note that such waivers are already statutorily prohibited

for a similar notice requirement – the 30-day notice of a non-judicial foreclosure

sale that must be given to debtors (who are defined for purposes of this

provision to include original mortgagors and current owners, but not guarantors,

see OCGA § 44-14-162.1) under OCGA § 44-14-162.2. See OCGA § 44-14-

162.3 (“No waiver or release of the notice requirement of Code Section

44-14-162.2 shall be valid when made in or contemporaneously with the

security instrument containing the power of nonjudicial foreclosure sale . . . .”).

When this notice requirement was first enacted in 1981 as an amendment adding

additional sections to the 1935 act that created the foreclosure confirmation

process and its notice requirement, the no-waiver provision appears to have

applied to both notice requirements. See Ga. L. 1981, p. 834, § 5 (b) (“No

waiver or release of the notice requirements of this Act shall be valid when made

in or contemporaneously with the security instrument containing the power of

                                           3
nonjudicial foreclosure sale . . . .” (emphasis added)). When the Code was

reorganized into the Official Code of Georgia Annotated the next year, however,

the sections added in the 1981 amendment were re-codified as separate Code

sections 44-14-162.1 to 44-14-162.4, with the no-waiver provision reworded to

expressly apply only to the notice requirement in § 44-14-162.2. It is not clear

why that was done, or whether it was intended to alter the prior law. See OCGA

§ 1-1-2. But that is how the Code reads today, and if it is not changed, it may

mean that the confirmation statute will soon, in practical effect, protect few if

any Georgians.

      As this Court said in You v. JP Chase Morgan Bank, N.A., 293 Ga. 67

(743 SE2d 428) (2013):

      While we respect our legislature’s effort to assist distressed
      homeowners by amending the non-judicial foreclosure statute in
      2008, the continued ease with which foreclosures may proceed in
      this State gives us pause, in light of the grave consequences
      foreclosures pose for individuals, families, neighborhoods, and
      society in general. Our concerns in this regard, however, do not
      entitle us to overstep our judicial role, and thus we leave to the
      members of our legislature, if they are so inclined, the task of
      undertaking additional reform.

Id. at 75. With this concern noted, I join the Court’s opinion.



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