The Atlanta newspaper recently published an article reporting that over 40% of homes in the metro Atlanta area are “underwater,” meaning that they are worth less than what is owed. In such a climate, homeowners faced with years of payments on real estate with no chance for even a break even sale, much less profit are deciding to simply walk away.
Abandoned homes, of course, cause neighborhood values to decline even more, continuing the downward cycle. Presumably, at some point property values will level off but it may take years, if ever, for values to rise to pre-2008 levels.
In years past, mortgage lenders would act quickly to secure their rights by initiating foreclosure proceedings against homeowners who defaulted on their loans. We have seen far less foreclosure action in the metro Atlanta area over the past few years because lenders are worried about potential liability arising from procedural irregularities (the “robo-signing” problems) and because the federal government has put a great deal of pressure on the big mortgage companies not to foreclosure during a bad recession.
Because foreclosure activity has been restricted, real estate markets in large metro areas like Atlanta have stagnated. Thousands of homes remain in limbo – payments are not being made but foreclosures are not being processed. Towards the end of 2012 and on-going, however, we are starting to see an uptick in foreclosure activity.
Demand for housing is increasing, especially for homes in the $75,000 to $150,000 range and lenders want to clear out their inventory. Foreclosure numbers are trending upwards and will likely to continue to do so. As such, it may be helpful to you to understand a bit more about how foreclosure law in Georgia works.
Foreclosure law in Georgia is governed under Georgia Code Section44 Title 14. These laws are very specific about notifications to borrowers, deficiency judgments and rights of redemption. 1
No Requirement for Court Involvement in Georgia
Georgia is considered a title theory state, which means that the mortgage lender actually holds the title to a property until such time as the borrower has paid his debt in full. Mortgages in Georgia almost always contain a power of attorney clause which says that in the event of default, the borrower (you) authorizes the lender to sell the property at public sale in the event of default. Again, no court involvement is required but lenders are required to provide notification of the foreclosure sale to the borrower.
There are two steps required for notification:
First, the lender must send you a written demand notice outlining all past due amounts allowing the borrower 10 days to pay in full. If the borrower does make this payment, the lender cannot assess any foreclosure fees.
The second step is a foreclosure schedule notification which must be published for at least four consecutive weeks in the local newspaper. In addition, the borrower must be re-notified within 15 days of the sale via certified mail.
Once the notification requirements are met, a foreclosure sale must only take place on the first Tuesday of the month at the courthouse steps of the county where the property is located. If you were to visit your local county courthouse on foreclosure Tuesday you will see mortgage company lawyers auctioning off property to the general public.
In many foreclosure sales, however, the only bidder for the property is the foreclosing mortgage company. This is because a third party purchaser or investor would have to satisfy the outstanding first mortgage before taking title. If the first mortgage debt on the property is greater than the value, a buyer would have to pay more than the property is worth to take title – obviously no one will do this, so in underwater mortgages, the lender “bids in” an offer equal to the outstanding principal balance.
If the lender “buys” the property for the outstanding first mortgage balance, that lender can pursue a deficiency claim against the borrower. However, under Georgia law (O.C.G.A. Section 44-14-161(a) the only way a lender can pursue a deficiency judgment is to file a lawsuit in Superior Court asking a judge to confirm the deficiency. This “confirmation” basically means that the superior court judge agrees that the lender’s assertion about fair market value is legitimate and that the lender’s calculations about its outstanding balance are accurate.
A confirmation judgment is a very serious problem for the borrower/former homeowner. Once this judgment is issued, the former homeowner’s assets area at risk, his bank account is subject to levy and his paycheck is subject to wage garnishment.
If have received a notice of foreclosure, it would be wise to talk to a lawyer about your options. Ginsberg Law Offices is a bankruptcy law firm and we can counsel you about Chapter 13 – which you could use to stop the foreclosure, and Chapter 7 – which you could use to wipe out any deficiency claim along with the rest of your unsecured debt.
We can also answer your questions about timing and non-bankruptcy options. We can be reached at 770-393-4985 and we are standing by to answer your questions.