‘Odd’ Georgia statute gets a lender an even $17 million

March 27, 2014

Law moneyThe 7th Circuit says that although a Georgia statute removes a mortgagee’s right to a deficiency judgment, a guaranty agreement allows a lender to receive from the guarantor the $17 million difference between what it paid for a Georgia parcel, and the unpaid balance of the loan.

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The fact the land was worth more than what the lender paid for it at auction was irrelevant, Circuit Judge Richard A. Posner said.

The Georgia statute was “odd by modern standards,” the judge said.

The case involved a $60 million mortgage loan that a guarantor unconditionally agreed to perform in the event of default.  When the borrower defaulted, the lender foreclosed and won the property for $7 million in foreclosure.

A court denied confirmation of the sale under a state statute saying that a mortgagee who obtains property could not obtain a deficiency judgment should the property turn out to be worth less than the balance owed him on the mortgage.

The guarantor refused to honor the guaranty agreement, so the lender sued the guarantor for the difference between the $7 million it had paid and the $24 million balance of the debt.  An Illinois federal court awarded the lender $17 million.

“The guaranty agreement couldn’t be clearer,” Judge Posner said.  “Nor is there any argument that the agreement is unconscionable or otherwise unlawful, even though it indeed has built into it the possibility of a windfall.”

He added, “What a topsy-turvy world the defense rightly rejected by the district court would create!”

Inland Mortgage Capital Corp. v. Chivas Retail Partners LLC, No. 12-3648, 2014 WL 310355 (7th Cir. Jan. 29, 2014)