US v. Yates

Citation774 F. Supp. 1368
Decision Date25 September 1991
Docket NumberCiv. A. No. 91-8-VAL (WDO).
PartiesUNITED STATES of America, Plaintiff, v. Ernest J. YATES and Edward M. Schuster, Defendants.
CourtU.S. District Court — Middle District of Georgia

Karen B. Bragman, Anne S. Infinger, Atlanta, Ga., for Ernest J. Yates.

Lillian Harris Lockary, Macon, Ga., Adrienne C. Rodgers, Atlanta, Ga., for U.S.

Scott F. Norberg, H. Carol Saul, Atlanta, Ga., for Edward M. Schuster.

ORDER

OWENS, Chief Judge.

All parties in this case have moved for judgment on the pleadings on the issue of whether defendant Edward M. Schuster, as guarantor, is liable for the deficiency on a promissory note despite the failure of plaintiff, the United States Small Business Administration, to obtain confirmation of a foreclosure sale of the property that secured the note. Because the court has heard no argument on any issues which may arise once this issue has been decided, the court's order is limited to the issue of Defendant Schuster's liability only. Any other decision would be premature at this time.

FACTS

This case involves two financing arrangements between the Business Development Corporation of Georgia, Inc. ("BDC") and Darlington Enterprises, Inc. ("Darlington"). Both arrangements were made in participation with plaintiff, United States Small Business Administration ("SBA").

The first financing arrangement was made on January 24, 1985. Under this arrangement, the BDC agreed to loan $300,000.00 to Darlington in exchange for Darlington's promissory note ("1985 Note") for that amount. In addition, Darlington executed a deed to secure debt ("1985 Deed") that covered two tracts of land in Tift County, Georgia ("Tift County tracts"). This deed contains the following clause:

This instrument not only secures the foregoing described debt but also any renewals of the whole or any part thereof and any and all other indebtedness now due by Grantor and/or the obligor to Grantee or hereafter incurred by Grantor and/or obligor, whether directly or indirectly, as principal, endorser, guarantor, or otherwise.

1985 Deed, at 2.

In order to induce the BDC to make the loan, defendant Edward M. Schuster ("Schuster") executed a guaranty ("1985 Guaranty"), which "unconditionally guarantees to Lender, its successors and assigns, the due and punctual payment when due...." This guaranty is on the standard SBA guaranty form and contains the following provisions:

The Undersigned hereby grants to Lender full power, in its uncontrolled discretion and without notice to the undersigned, but subject to the provisions of any agreement between the Debtor or any other party and Lender at the time in force, to deal in any manner with the Liabilities and the collateral, including, but without limiting the generality of the foregoing, the following powers:
....
(e) In the event of the nonpayment when due, ... to realize on the collateral or any part thereof, ... at any public or private sale or sales, for cash or on credit or for future delivery, without demand, advertisement or notice of the time or place of sale or any adjournment thereof (the Undersigned hereby waiving any such demand, advertisement and notice to the extent permitted by law), or by foreclosure or otherwise, or to forbear from realizing thereon, all as Lender in its uncontrolled discretion may deem proper, and to purchase all or any part of the collateral for its own account at any such sale or foreclosure, such powers to be exercised only to the extent permitted by law.
The obligations of the Undersigned hereunder shall not be released, discharged or in any way affected, nor shall the Undersigned have any rights or recourse against Lender, by reason of any action Lender may take or omit to take under the foregoing powers.

1985 Guaranty, at 1.

The second financing arrangement was made on March 27, 1986, in which the BDC agreed to loan $275,000.00 to Darlington in exchange for Darlington's promissory note ("1986 Note") for that amount. This note was secured by a deed to secure debt ("1986 Deed") that covered the Tift County tracts and an additional 15-acre tract.

As in the 1985 arrangement, defendant Schuster signed a guaranty ("1986 Guaranty") in order to induce the 1986 loan. Like the 1985 Guaranty, the 1986 Guaranty is on the standard SBA form and has identical terms.

Darlington defaulted on both notes, and on October 6, 1987, the BDC conducted a nonjudicial foreclosure sale on the Tift County tracts that were covered in both the 1985 and 1986 Deeds. (The 15-acre tract covered only in the 1986 Deed had been previously foreclosed upon by a senior holder.) However, the notice of foreclosure made clear that the BDC was foreclosing under the 1985 Deed only:

Under and by virtue of the Power of Sale contained in that certain Deed to Secure Debt ... dated January 24, 1985, ... the undersigned will sell ... the following described property:
....
... Any surplus proceeds remaining will be distributed as provided by law including, but not limited to, the disbursement of any surplus proceeds to the holder of the indebtedness secured by that certain inferior Deed to Secure Debt ... dated March 27, 1986....

Notice of Sale Under Power in Deed to Secure Debt.

The BDC purchased the property at the foreclosure sale for $475,100.00. This extinguished the 1985 Note, and the surplus of $77,037.56 was applied to the 1986 Note. After applying this surplus, approximately $200,000.00 was still owed on the note.

The SBA then purchased its guaranteed share of the 1986 loan from the BDC. On October 6, 1987 (the date of the foreclosure), the BDC retained defendant Ernest J. Yates ("Yates") as its counsel to obtain confirmation of the foreclosure sale. Yates did not file the application to obtain confirmation until November 25, 1987 (fifty days after the sale). The Superior Court of Tift County denied confirmation because the application did not meet the requirement under O.C.G.A. § 44-14-161(a) that such application must be filed within thirty days of the sale.

The BDC made demands on both Yates and Schuster for the $200,000.00 balance remaining on the 1986 Note. Both refused to pay. The SBA then filed this action against Schuster as guarantor for the remaining balance on the 1986 Note and, in the alternative, against Yates, as the party whose negligence proximately caused the SBA's inability to pursue the deficiency against Schuster.

Defendant Yates has filed a motion for judgment on the pleadings in which he claims that his failure to file the confirmation application on time is not the proximate cause of the SBA's inability to pursue the deficiency against Schuster because Schuster is still liable on the 1986 Guaranty. Defendant Yates bases this contention on two theories: (1) failure to confirm the foreclosure on the 1985 Deed does not preclude collection of the amount still owing on the 1986 Note because the 1985 Note is a separate and independent obligation from the 1986 Note; and (2) even if failure to confirm does preclude collection on the note, defendant Schuster waived this defense by the terms of the 1986 Guaranty.

Defendant Schuster has filed a motion for judgment on the pleadings claiming that he is no longer liable on the 1986 Note because (1) the BDC failed to obtain confirmation of the foreclosure sale thereby precluding the SBA from seeking a deficiency resulting from that sale as stated in O.C.G.A. XX-XX-XXX(a); and (2) he did not waive his defense under this statute by the terms of the 1986 Guaranty.

Plaintiff United States has filed a motion for judgment on the pleadings claiming that it is entitled to pursue a remedy against defendant Schuster, or, in the alternative, against defendant Yates.

DISCUSSION

A motion for judgment on the pleadings must be sustained where undisputed facts appearing in the pleadings show that no relief can be granted. J.M. Blythe Motor Lines Corp. v. Blalock, 310 F.2d 77 (5th Cir.1962). There are no disputed facts relating to the issue of whether defendant Schuster is liable on the 1986 Note despite the SBA's failure to obtain confirmation of the foreclosure sale; therefore, an order granting judgment on the pleadings on this question of law is appropriate.

This issue can be resolved by answering the following two questions: (1) Is defendant Schuster protected by the confirmation requirement in O.C.G.A. § 44-14-161(a)?; and (2) If so, did he waive this statutory protection in the 1986 Guaranty?

(1) Is Defendant Schuster protected by the confirmation requirement in O.C.G.A. § 44-14-161(a)?

In order for a creditor to seek a deficiency judgment against a debtor, the creditor must meet the requirements of O.C.G.A. § 44-14-161(a), the Georgia confirmation statute. This statute provides as follows:

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.

O.C.G.A. § 44-14-161(a).

Section 44-14-161(a) governs actions between a defendant debtor and the SBA. United States v. Dismuke, 616 F.2d 755, 759 (5th Cir.1980); see also United States v. Irby, 618 F.2d 352, 355 (5th Cir. 1980) (applying Mississippi real property law to determine reasonableness and validity of foreclosure sale by SBA under guaranty agreement).

Furthermore, § 44-14-161(a) applies to both primary debtors and guarantors; an action for the balance remaining on a note following a foreclosure sale against a guarantor rather than the primary debtor is still an action for a deficiency...

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    • United States
    • U.S. District Court — Northern District of Georgia
    • June 27, 1994
    ...pleadings must be sustained where undisputed facts appearing in the pleadings show that no relief can be granted." United States v. Yates, 774 F.Supp. 1368, 1371 (M.D.Ga.1991) (citing J.M. Blythe Motor Lines Corp. v. Blalock, 310 F.2d 77 (5th B. Motion for Summary Judgment. This Court will ......
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    • Georgia Court of Appeals
    • March 20, 1998
    ...9. Clements v. Fleet Finance, 206 Ga.App. 736, 738, 426 S.E.2d 910 (1992). 10. Tufts, 213 Ga.App. at 38, 443 S.E.2d 681. 11. 774 F.Supp. 1368 (M.D.Ga.1991). 12. Id. at 1370. 13. Id. at 1373. 14. (Citations omitted.) Federal Land Bank of Columbia v. Bank of Lenox, 192 Ga. 543, 546(2), 16 S.E......
  • Peoples Bank of E. Tenn. v. Harp
    • United States
    • U.S. District Court — Northern District of Georgia
    • February 12, 2013
    ...remaining on a note following a foreclosure sale against a guarantor ... is barred if no confirmation was obtained.” U.S. v. Yates, 774 F.Supp. 1368, 1372 (M.D.Ga.1991) (citations omitted).12 “Only the ‘person instituting the foreclosure proceedings' can seek confirmation of a sale.” Cheek ......
  • Ward v. Pembroke State Bank
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    • United States
    • State Bar of Georgia Georgia Bar Journal No. 16-4, December 2010
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