Mortgagee’s failure to obtain judicial confirmation of real estate foreclosure sale barred claim for deficiency after second foreclosure sale of different real estate securing a different mortgage, where mortgages were cross-defaulted and cross-collateral

Three individual borrowers entered into two renewal mortgage notes with a bank, secured by real estate. On the same date, a related LLC as borrower entered into a renewal mortgage note with the bank on a separate loan secured by separate real estate. The three individuals also signed guarantees of all three notes. Each of the notes contained cross-default language, and the parties also concurrently executed two modification agreements expressly stating that all three notes were cross-collateralized and cross-defaulted. After default on the LLC’s note, the bank foreclosed on the related real estate collateral, but failed to seek judicial confirmation of the foreclosure sale.

Later, an assignee of the notes and mortgages foreclosed on the other parcel of real estate after default. The creditor then applied for and received judicial confirmation of the second foreclosure sale. When the creditor subsequently filed suit against the individual borrowers seeking a deficiency judgment, the trial court granted summary judgment for the borrowers, holding that the assignee creditor was barred from seeking a deficiency judgment due to the original lender’s failure to obtain judicial confirmation of the first foreclosure sale, as required by a Georgia statute barring a deficiency claim on mortgage debt in the absence of judicial confirmation of the foreclosure sale. The trial court held that the second creditor was barred from seeking recovery on the personal guarantees of the individuals for the same reason.

The Court of Appeals of Georgia held that Georgia’s statutory bar on deficiency judgments where a mortgagee fails to obtain judicial confirmation of a foreclosure sale applies to bar claims on any debts “inextricably intertwined,” to prevent creditors from circumventing the statute by making successive loans on the same property. This rule applied here, where there were separate mortgage notes secured by separate real estate, but all of the notes were executed on the same date and by the same creditor, were all cross-defaulted and cross-collateralized and were all executed for the purpose of financing real estate development. Nevertheless, although the statute barred suit for a deficiency judgment against the individual borrowers under their mortgage notes, the statute did not bar recovery of the deficiency amount from the same individuals under the personal guarantees of the notes, because the guarantees contained broad waivers of all borrower defenses, including waivers that contemplated continued guarantor liability after foreclosure on the collateral.