Weblog on current litigation.
Many depend on where the loans originated. Some banks have special deals with the FDIC for loans taken over from failed banks. These loans become the most difficult to resolve as in many cases a case worker not at the bank is assigned to the file. Without risks, these banks tend to sue directly on the notes seeking to collect on the loan from other assets of the borrower, all while still holding a first mortgage on the actual property.
Confirmation Actions
This is an unique action in the
State of Georgia. Georgia allows foreclosure under power of sale.
This means the bank is allowed to publish the foreclosure sale in
the legal organ of the county where the property is situated. At
that point on the first Tuesday of the month, the bank may show up
at any time between set hours and bid the property for sale. Even
though this is sometimes a chaotic scene with multiple parties
bidding properties, severe weather and the like, it has been held to
be constitutional in the State of Georgia. We attempted to challenge
the constitutionality of the Georgia foreclosure statutes in the
last real estate crash; however, the Supreme Court of Georgia, while
agreeing with some of our positions in this case, declined to
address the constitutionality of the foreclosure statutes. We were
able to convince the Supreme Court in that case that discovery
should be allowed in these confirmation cases, treating them much
like a civil action. Currently, a bank simply needs to report the
sale to the Superior Court within a thirty day period after the
foreclosure. It then only has to provide a five days notice of the
hearing of the sale. This notice has to be by personal process of
all of the parties involved, including the actual borrowers and any
guarantors. At this hearing, the court is to hear evidence of
whether or not the property brought true market value and that the
advertisement was legal and the sale was regular. This is the first
hearing in which a borrower has a chance to succeed completely
against the bank. There are many alternatives that the borrower’s
counsel should take, including seeking discovery which is allowed
and many times resulting in a continuance of the hearing, and
providing its own evidence of value. We have discovered that in many
instances, the appraisals obtained by the bank prior to foreclosure
are based upon a bid process resulting in extremely low appraisals.
A quality appraiser that also has the expertise to testify in court
is extremely necessary in these types of actions.
Other actions by the
bank may be an actual suit on the note. This is where the bank
actually brings a lawsuit on the promissory note, which in Georgia
is the underlying obligation on the mortgage. The mortgage in
Georgia is not the debt, the mortgage is the way for the bank to
secure the debt in the event it chooses to foreclose on the
property. This is very troublesome for one with assets as the bank
may tie up the property while seeking to collect on the note from
other assets of the borrower. Many borrowers are not qualified for
bankruptcy because of the extreme nature of the “means test.” This
was an amendment to the bankruptcy law during the Bush term of
presidency that most average Americans are just now discovering.
Bankruptcy is also not an alternative in many cases because of the
number of assets that developers and builders have.
When the bank comes after a borrower on the
note, there are alternatives. In some cases, the properties can be
marketed with a short sale and some, but not all, deficiencies
agreed to be paid back in future terms or even upon the sale of
other properties. There is no exact model on what banks are willing
to accept and under what circumstances. In these cases, most banks
are not willing for a borrower to build-out undeveloped lots or
undeveloped land, but in some circumstances are willing to work out
a build-out agreement if property is partially constructed. Every
situation is unique and the borrower’s attorneys must have working
knowledge of what that particular bank may be willing to do and
documentation required to buy it.
Choosing the Right Course
Where we win confirmation cases at the trial
court level in many instances the case may come to an end. The bank
can ask for a resale of the property if it is unsuccessful, but it
is a high measure for the bank to pass and it certainly must be the
holder of the property by the time the confirmation action is heard
by the trial court. In some instances, the property has already been
sold making it impossible for the bank to ask for a resale. Under
those circumstances, it is all or nothing at the confirmation
action. Winning outright at the confirmation action by the borrower
ends that particular debt. It becomes as if that debt was paid off
completely by the foreclosure. The best advice in a bad commercial
economy is to plan. As soon as there is trouble, the borrower should
seek out qualified and experienced legal counsel in these particular
matter. Direct suits on the notes by the banks and confirmation
cases are very cyclical. Many attorneys do not have experience with
these matters because they have never seen them before as a majority
of these come during severe economic real estate crisis. The number
of cases existing now exceed the number of cases in the last real
estate crises within the State of Georgia and the actions of the
banks are far different than they were during that prior period. It
is a very unique situation in the market and dealing with the banks
and every borrower should have experienced and knowledgeable counsel
on its side. Trying to navigate these situations alone is extremely
hazardous. Every asset that has come through the borrower’s hands
within the last few years that may have been transferred to a spouse
or transferred to a partner, under any circumstances, is subject to
being sought after by the bank. Banks are now frequently using the
Uniform Fraudulent Transfer Act in an attempt to attach everything
that a borrower has acquired or transferred. Being prepared and
having the right counsel is the first step in a very long process
that, in some cases, results in an extremely positive result for the
borrower.
