Mobley v. Commonwealth Mortgage Assurance Co.

Sears, Justice. In order to purchase real property, the appellants borrowed $59,000. As required by their lender, the appellants obtained private mortgage insurance from the appellee, Commonwealth Mortgage Assurance Company (Commonwealth). The insurance policy provided that in the event of default, Commonwealth would pay the lender 30 percent of the appellants’ outstanding debt at the time of default, irrespective of any amount bid at a foreclosure sale. As a condition of issuing the insurance policy, Commonwealth required that the appellants execute an indemnity agreement, indemnifying Commonwealth for any sum Commonwealth had to pay the lender under the insurance policy. The appellants subsequently defaulted, owing between $60,000 and $65,000 in principal and interest. The lender foreclosed, and purchased the property pursuant to its own bid of $62,920. The foreclo [653] sure sale was not confirmed. After adjusting the lender’s claim under the insurance policy to account for fees and expenses, Commonwealth paid the lender $19,303, then demanded that same amount from the appellants under the indemnity agreement. When the appellants refused to pay, this action by Commonwealth ensued. The appellants claim that the private mortgage insurance policy with collateral indemnity agreement in this case violates the public policy of this state as expressed by OCGA § 44-14-161, the confirmation-of-sale statute. The appellants filed a third-party complaint against the lender for equitable subrogation, and claiming that the lender was unjustly enriched by obtaining both the property and the $19,303. The trial court granted summary judgment to Commonwealth, and denied the appellants’ motion for summary judgment on the third-party claims. The Court of Appeals affirmed Sifford v. Commonwealth Mtg., 211 Ga. App. XXXI (1994), stating in its unpublished opinion only that the appeal is controlled by Turner v. Commonwealth Mtg., 207 Ga. App. 428 (428 SE2d 398) (1993), a case which involved the same defendant and virtually the same relevant facts as this case. In Turner, the Court of Appeals considered whether Commonwealth’s action to recover under the loan indemnity agreement was tantamount to an action for a deficiency judgment, and thus should be barred because of the failure to confirm the foreclosure sale in accordance with OCGA § 44-14-161. Turner, 207 Ga. App. at 429. In concluding that Commonwealth’s action did not violate the statute or the public policy advanced by the statute, the Court of Appeals recognized that § 44-14-161 would bar any action by the actual lender to obtain a deficiency judgment. However, Commonwealth was not the lender, and the recovery it sought was not a deficiency. Rather, it was a debt having a completely independent contractual basis ... [in a contract] voluntarily entered and agreed upon by the appellants in exchange for Commonwealth’s issuance of the mortgage insurance policy to the lender. Allowing Commonwealth to hold appellants to their bargain in the loan indemnity agreement in no way vitiates the protection the appellants enjoy from the lender seeking a deficiency judgment. Id. at 429-430. We agree with the Court of Appeals’ decision that Commonwealth’s actions do not violate the confirmation-of-sale statute. As in [654] Turner, there is no evidence in this case of any “side dealings between the lender and the guarantor [which] constituted a deliberate subterfuge of the confirmation statute,” Turner, 207 Ga. App. at 430, and which would bring this case within the rule of Redman Indus, v. Tower Properties, 517 FSupp. 144 (N.D. Ga. 1981). Furthermore, as the Court of Appeals noted in Turner, “[t]he confirmation statute is in derogation of the common law and must be strictly construed.” Turner, 207 Ga. App. at 429. Clearly, when strictly construed the language of the statute does not prevent recovery of an independent contractual debt, not a deficiency,1 voluntarily assumed. Only the legislature may extend the confirmation-of-sale statute to apply to independent contractual obligations. Judgment affirmed. All the Justices concur, except Benham, P. J., and Hunstein, J., who dissent. Footnotes [1] A “deficiency” is incurred under § 44-14-161 [w]hen 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 ....