Creditor’s Rights - Georgia State Profile

Georgia has a population of approximately 8.3 million people and is among the fastest growing states in the country, with a population increase of more than 25% during the decade of the 1990s. Roughly half of Georgia’s residents live in the Atlanta metropolitan area. Other large metropolitan areas include Augusta, Columbus, Macon and Savannah. The state covers more than 57,900 square miles, which makes it the largest state east of the Mississippi River. The state is divided into an unusually large number of counties, with a total of 159. About 67 percent of Georgia residents are homeowners, with more than one in every five residents living in manufactured housing.

Georgia, one of the original 13 colonies, was settled by James Oglethorpe. His original plan was to settle Georgia with inmates from England’s debtors prisons. Although that plan did not entirely pan out, it did have a tremendous influence on how the laws governing debtor-creditor rights in Georgia were formulated. Georgia was, and for the most part continues to be a very creditor-friendly state.

Foreclosure

The foreclosure process employed almost exclusively in Georgia is non-judicial and is among the fastest in the nation. Georgia is a classic title theory state. In Georgia, the borrower (mortgagor) actually gives legal title to the lender (mortgagee) through the instrument known as a “Deed to Secure Debt” or “Security Deed.” The lender actually owns the property until the debt is paid and allows the borrower to use and possess the property. If the borrower defaults, the lender may move to declare the Deed to Secure Debt and Promissory Note in default (in Georgia most lenders use the standard FannieMae/FreddieMac form note).

To enforce a default, the lender must make a written demand upon the borrower (mortgagor), setting forth a breach and accelerating the debt (declaring the entire debt due and payable immediately). Keep in mind that federal fair debt provisions apply and notices required under the Fair Debt Collection Practices Act (i.e. validation of debt etc.) are generally sent to the borrower (mortgagor) simultaneously. The property is ultimately sold pursuant to a power of sale provision in the Security Deed.

In this non-judicial foreclosure, the Lender must follow the notice requirements extremely carefully. A notice of sale must be served on the original mortgagor or current owner (if his identity has been made known to or acknowledged by the lender) by certified mail, return receipt requested. The notice must be sent to the borrower's last known address, which is the address listed on the Security Deed or an address the borrower has subsequently designated with notice by certified mail to the lender. It is generally a best practice to provide notice by regular and certified mail to all known addresses for every borrower. It is not required that the borrower (mortgagor) actually receive the notice, only that it be sent in compliance with the statute. The notice must be postmarked and provided to the defaulting borrower no later than 15 days prior to the date of the proposed sale.

Prior to the sale taking place, the lender must have published the scheduled foreclosure sale in the legal organ for the county in which the real property collateral is located for four (4) consecutive weeks immediately preceding the first Tuesday of the month (sale day). The notice of sale must contain the date, time and place of sale along with a description of the property, the names of the mortgagee and mortgagor and a reference to the power of sale provision.

There are 159 counties in Georgia and each county has a designated legal organ (newspaper), which publishes foreclosure advertisements a minimum of once per week. Each county, therefore, will have its own independent publication deadlines that must be met for a sale to occur in a particular month.

In Georgia, foreclosure sales are not randomly set. They always occur on the first Tuesday of every month on the courthouse steps of the particular county. Exceptions are made for certain legal holidays that may fall on the first Tuesday. The sale must be conducted between 10:00 a.m. and 4:00 p.m. or it is an improper use of the power of sale. Sales are generally conducted by the foreclosing attorney, and the foreclosing attorney is permitted to credit bid at the sale on the lender’s behalf. Successful bidders are required to tender the full amount of their bid in cash or certified funds immediately upon the conclusion of the sale, unless the foreclosing lender is the successful bidder. Should a sale be postponed, terminated or voided, the entire foreclosure process must be repeated.

Once the sale occurs, the foreclosing attorney prepares and issues to the successful purchaser (most often the lender) a Deed Under Power of Sale, which gets recorded in the land records of the particular county in which the property is located. Once a sale is concluded on the courthouse steps, there is no right to redeem given to the defaulting borrower (mortgagor).

A foreclosure sale will sever and extinguish any lien junior or subordinate to the one being foreclosed, with one notable exception. Foreclosure alone does not automatically extinguish a federal tax lien, which will stand as a lien against the property unless prior notice has been given to the IRS. The notice must have been given more than 25 days prior to the foreclosure sale and the IRS must fail to take any action within 120 days after the foreclosure sale to protect its interest in order to extinguish the lien with respect to the security.

In situations where the foreclosure sale does not produce enough cash to pay the loan balance in full (after deducting expenses and accrued unpaid interest), the lender may elect to obtain a personal judgment against the borrower for the unpaid balance. This deficiency process in Georgia is accomplished through confirmation of the foreclosure sale. For the foreclosure sale to be confirmed, an application must be brought to the Superior Court in the county in which the sale occurred within 30 days of the sale. Otherwise, the right to pursue a deficiency is lost. This is a judicial process. As part of the confirmation process the Judge will generally examine how the sale was conducted to determine whether the property was sold for its fair market value. The lender must enter a minimum bid equal to at least the fair market value of the property for the sale to be confirmed.

Bankruptcy

The bankruptcy process in Georgia is also noteworthy. Georgia is the Chapter 13 capitol of the world. The Northern District of Georgia, encompassing the Atlanta metropolitan area, has the highest number of Chapter 13 bankruptcies filed in the United States annually. The Middle District of Georgia (including Macon and Columbus) and the Southern District of Georgia (including Augusta and Savannah) also have significantly high numbers of Chapter 13 cases being filed. Many have speculated that the large number of Chapter 13 filings is substantially related to the very fast (4-6 week) foreclosure process.

The Northern District has eight judges, four Chapter 13 Trustees and a panel of 10-15 Chapter 7 Trustees to handle the massive volume of cases. In the Northern District, Chapter 13 Trustees normally expect that post-petition payments will be sent directly to the mortgage servicer, and they will ordinarily pay pre-petition claims pro-rata with other secured claims, based upon the amount stated in the servicer’s claim. The dockets are relatively fast in this jurisdiction, as confirmation occurs roughly 60 days from filing. Motions for Relief from Stay and Claims are generally filed electronically in this jurisdiction, and as such, virtually all documentation is available online via PACER. Attaching a copy of the Security Deed is generally sufficient for filing claims and motions in this jurisdiction.

In the Middle District of Georgia, there are two full time and one part time judges. There are two Chapter 13 Trustees and a panel of approximately five to ten Chapter 7 Trustees. The Chapter 13 Trustees in this district will often act as conduits for post-petition mortgage payments when there is a significant pre-petition arrearage. Payment of claims is generally based upon the amount stated by the servicer in the claim. Funding of the arrearage claim does not begin until well into the case. However, servicers are advised to examine the plan very carefully in this district and object to confirmation since many plans understate the pre-petition arrearage and delay receipt of the initial post-petition payment. Confirmation is generally held about 90 days from filing in this district. Motions and claims will generally require attaching a recorded copy of the Security Deed and all assignments in this district. This jurisdiction has begun to experiment with electronic filing and copies of most filed documents are available online via PACER.

In the Southern District of Georgia, there are two full time and one part time judges as well. There are also three Chapter 13 Trustees and a panel of five to ten Chapter 7 Trustees. The Chapter 13 Trustees expect that post-petition payments will be made directly to mortgage servicers and will pay claims based upon the amount stated in the claim on a pro-rata basis with other secured creditors. The claim must be served upon the Trustee and Debtor’s counsel in this district when it is filed. Attaching a copy of the Security Deed is generally sufficient for filing claims and motions in this jurisdiction. This jurisdiction is scheduled to begin electronic filing in the near future; documents may be accessed online via PACER.

There are also many Chapter 7 proceedings filed in Georgia. Most Chapter 7 Trustees will not take an active role with respect to mortgage claims unless there is either an abundance or lack of equity in a property.

Manufactured Housing - Personal Property Foreclosures

The law in Georgia with regard to foreclosing on manufactured housing is a bit tricky. Although conducting a non-judicial (real property type) foreclosure would be preferable, many times this process will not be immediately available and the personal property foreclosure process must be employed for the collateral to be recovered and sold. Georgia has recently enacted procedures for converting manufactured housing to realty, thus counsel will have to inspect the loan documentation and title information to determine how to proceed with foreclosure. Although the personal property foreclosure process is a judicial process, it is relatively quick, with most unopposed cases resulting in a Writ of Possession approximately two (2) weeks from service. The personal property foreclosure process permits only the return of the collateral and will not allow a money judgment to be taken against the borrower.

Eviction

The eviction process in Georgia is also a judicial process of very short duration. After a demand for possession is made, the action is filed and the defendants are served. The hold-over tenant is given seven (7) days to answer either orally or in writing. If there is no answer a Writ of Possession is issued immediately and is delivered to the Sheriff within a few days. The lender must provide the labor for removing the tenant(s) from the property. The Sheriff will be present to keep the peace. If an answer is filed, a hearing is held within approximately two (2) weeks. The tenant(s) may not challenge the validity of the foreclosure proceeding at this hearing. Should the Court rule against the tenant(s), the tenant(s) will have seven (7) days to vacate the premises.