Cmty. & S. Bank v. DCB Invs., LLC

• Decision Date: 29 July 2014
• Docket Number: No. A14A0717.,A14A0717.
• Citation: Cmty. & S. Bank v. DCB Invs., LLC, 328 Ga.App. 605, 760 S.E.2d 210 (Ga. App. 2014)
• Court: Georgia Court of Appeals
• Parties: COMMUNITY & SOUTHERN BANK v. DCB INVESTMENTS, LLC et al.

328 Ga.App. 605

760 S.E.2d 210

COMMUNITY & SOUTHERN BANK

v.DCB INVESTMENTS, LLC et al.

No. A14A0717.

Court of Appeals of Georgia.

July 11, 2014.

Reconsideration Denied July 29, 2014.

Christopher Michael Porterfield, Alpharetta, Bryan Edward Busch, Shane Patton Stogner, Tawana Blocker Johnson, Atlanta, Vanessa Y. Suh, for Appellant.

Thomas Tucker Hobgood, David Scott Bass, Atlanta, for Appellee.

DILLARD, Judge.

Community Southern Bank (“CSB”) brought this action against DCB Investments, LLC, David Belke, Glenn Couey, and Julie Couey (the latter three collectively “defendants”), seeking a deficiency judgment pursuant to three simultaneously executed promissory notes and guaranties. Following the denial of its motion for summary judgment and the grant of summary judgment in favor of the defendants, CSB appeals, arguing that the trial court erred in finding that CSB is barred from seeking a deficiency judgment because it failed to obtain judicial confirmation of an earlier foreclosure and in finding that this same failure also bars it from recovering on the guaranties. For the reasons set forth infra, we affirm the trial court's ruling that CSB cannot seek a deficiency judgment against the borrowers because it failed to comply with the judicial-confirmation requirements. However, we reverse the ruling that CSB is barred from recovering on the guaranties, and, thus, we reverse the denial of summary judgment to CSB on this issue.

At the outset, we note that summary judgment is only warranted if the “pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” ¹ If summary judgment is granted by a trial court, it enjoys no presumption of correctness on appeal, “and an appellate court must satisfy itself de novo that the requirements of OCGA § 9–11–56(c) have been met.” ² And in our de novo review of a trial court's grant of a motion for summary judgment, we are charged with “viewing the evidence, and all reasonable conclusions and inferences drawn from the evidence in the light most favorable to the nonmovant.” ³

So viewed, the record shows that on February 13, 2009, Belke, Glenn Couey, Julie Couey, and DCB Investments, LLC (an entity controlled by Belke), executed three separate promissory notes with First Commerce Community Bank (“FCCB”) for the purpose of developing real estate in Douglas and Carroll Counties. The first note (Loan No. 4000287300, “Note 1”) named DCB as the borrower of a principal sum of $616,961.00, and indicated that its purpose was for renewal and the development of commercial real estate. Note 1 also indicated that it was secured by certain property in Douglas County and stated that it was “CROSSED WITH LOAN # 'S 4000310300 & 400194800” (“Note 2 and 3,” respectively). Accordingly, DCB executed a security deed, pledging the Douglas County property as security for Note 1.⁴

In a form identical to that of Note 1, Note 2 named Belke and both of the Coueys as borrowers of a principal sum of $1,012,708.93, and indicated that its purpose was similarly for renewal and the development of commercial land. Additionally, Note 2 stated that it was secured by certain property in Carroll County and that it was “CROSS DEFAULTED WITH [Notes 1 and 3].” And pursuant to Note 2, Belke and the Coueys executed a security deed, pledging the Carroll County property as security.

In a form identical to the previous two, Note 3 designated Belke and both of the Coueys as borrowers of a principal sum of $1,600,543.92. Note 3 indicated that its purpose was for renewal and additional money for the development loan. It too was secured by the Carroll County property, via a security deed, which specifically noted that it was inferior to the deed pledging the same property as collateral for Note 2. Note 3 similarly indicated that it was cross defaulted with Notes 1 and 2.

On the same day that the three promissory notes were executed, Belke, Glenn Couey, and Julie Couey executed three separate guaranties of the notes. And finally, also on that same day, the parties executed two modification agreements, which pertained to the Carroll and Douglas County properties, respectively. The purpose of these agreements was to further ensure that all three notes were subject to cross-default and cross-collateralized, i.e., that all three notes were secured by both the Carroll and Douglas County properties. Toward that end, for instance, the Douglas modification, in part, provides: “Lender has required as a condition to the extension of credit evidenced by [Note 2] and [Note 3], that [Note 2] and [Note 3] also be secured by the [Douglas] Security Deed.” In a similar fashion, the Carroll modification, in part, provides: “In addition to all other indebtedness described therein, the First [Carroll] Security Deed and the Second [Carroll] Security Deed shall secure payment of [Note 2], [Note 3], and [Note 1].” Both agreements also included provisions stating that a default under any one of the notes would constitute a default under all of the notes.

On June 1, 2009, FCCB, DCB, Belke, and the Coueys executed what they collectively characterized as the Assumption Agreement. Pursuant to that agreement, FCCB allowed Belke and the Coueys to transfer ownership of the Carroll County property to DCB, and, as a result, DCB assumed Belke and the Coueys' obligations as “borrower” on Notes 2 and 3. However, Belke and the Coueys' obligations under the separate personal guaranties remained intact. The Assumption Agreement also reconfirmed the parties' intention to cross-collateralize all three notes.

At some point thereafter, DCB defaulted on Note 1, and on April 6, 2010, FCCB foreclosed on the Douglas County property. The foreclosure sale garnered $734,558.88. It is undisputed, however, that FCCB did not seek judicial confirmation for that foreclosure sale. Then, nearly six months later, FCCB failed, and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver. Ultimately, pursuant to an agreement with the FDIC, CSB acquired all rights and possession of the subject notes, guaranties, and loan-related documents.

In November 2011, CSB notified DCB, Belke, and the Coueys that the notes were in default. Subsequently, on or about December 14, 2011, CSB foreclosed on the Carroll County property, and the foreclosure sale garnered $1,980,000.00 Thereafter, CSB filed an application for judicial confirmation of that foreclosure sale in the Superior Court of Carroll County, which the court granted on March 1, 2012.

Less than one week after obtaining judicial confirmation of the foreclosure sale of the Carroll County property, CSB filed suit against DCB, Belke, Glenn Couey, and Julie Couey, alleging breach of all three of the promissory notes and guaranties and seeking, inter alia, a deficiency judgment. And although it indicated that it was seeking such a judgment pursuant to all three of the notes, as well as the foreclosure sale of the Carroll County property, CSB's complaint made no mention of the Douglas County property, which originally secured Note 1, or the foreclosure sale of that property.

Belke and the Coueys filed answers,⁵ and the parties engaged in discovery. Subsequently, the parties filed cross motions for summary judgment. And after a hearing and supplemental briefing by both parties, the trial court denied CSB's motion and granted summary judgment in favor of defendants. Specifically, the trial court found that CSB was barred from seeking a deficiency judgment because it failed to obtain judicial confirmation of the foreclosure sale of the Douglas County property and that this same failure also barred it from recovering on the personal guaranties. This appeal follows.

1. CSB contends that the trial court erred in finding that its failure to obtain judicial confirmation of the foreclosure sale on the Douglas County property associated with Note 1 barred it from seeking a deficiency judgment on Notes 2 and 3, arguing that the debts represented by the three notes are not inextricably intertwined. We disagree.

Under Georgia law, a deficiency judgment is “the imposition of personal liability on mortgagor for unpaid balance of mortgage debt after foreclosure has failed to yield full amount of due debt.” ⁶ And the requirements for obtaining such a judgment are delineated in OCGA § 44–14–161(a), which provides:

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.

As our Supreme Court has noted, the purpose of this legislation “was stated to limit and abate deficiency judgments in suits and foreclosure proceedings on debts.” ⁷ Thus, as made clear by the plain meaning of the relevant statutory text, before a creditor is entitled to file an action to obtain a deficiency judgment against a debtor, it must report the foreclosure sale to and obtain confirmation of the sale from the superior court of the county where the foreclosed land was located by demonstrating that the sale was lawfully conducted and brought at least the fair-market value of the land on the date of the sale.⁸

Importantly, this Court has applied OCGA § 44–14–161(a) to “foreclosure proceedings on separate debts which are inextricablyintertwined to prevent creditors from circumventing the statute's mandates by making successive loans against...