Manoj and Anant Nischal owed $907,941 on their 144-room Travelodge hotel in Augusta, Ga. Their promissory note, secured by a mortgage on the property, included personal guarantees to assure repayment of the loan.
The mortgage lender was Business Loan Center LLC, a New Jersey corporation.
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The borrowers defaulted on their mortgage. The lender obtained an appraisal showing the hotel’s fair market value was $650,000 on the date of the lender’s foreclosure sale.
No bidders showed up at the nonjudicial foreclosure sale on Dec. 3, 2002, so the lender acquired title to the property. After the sale, on Dec. 30, 2002, the lender filed for a confirmation of the sale with the Georgia Superior Court.
The foreclosure sale has not yet been confirmed by the Georgia Superior Court.
Meanwhile, Business Loan Center LLC sued the Nischals in U.S. District Court in New Jersey for a $257,941 deficiency judgment on the mortgage ($907,941 owed minus the $650,000 property value credit).
The defendant borrowers, the Nischals, replied that Georgia law, where the hotel is located, requires that a Georgia court confirm the foreclosure sale before a deficiency judgment can be rendered.
But the plaintiff lender, Business Loan Center LLC, argued that because the lender and the borrowers are all located in New Jersey, where court confirmation of a foreclosure is not required before rendering a deficiency judgment, the law of New Jersey should be applied to obtain a deficiency judgment against the Nischals.
If you were the judge would you apply the law of Georgia where the mortgaged hotel is located or the conflicting law of New Jersey where the lender and borrowers are located?
The judge ruled the law of the property location prevails so Georgia law is applicable.
There are many considerations when determining which of two conflicting states’ laws shall apply to a legal dispute, the judge began.
Among these considerations are the interests of the states, the national interests of commerce among the states, the interests of the underlying contract law, the place of contracting, the place of negotiation, the place of contract performance, location of the contract subject matter, and the domicile, residence, nationality, place of incorporation, and place of business of the parties, he explained.
In real estate disputes, the judge continued, unless otherwise agreed in writing, the state law of the property location is usually applied since that is what the parties expect when they sign a contract involving real estate.
Because a Georgia hotel was the subject of the mortgage loan in this dispute, the parties would expect the state law of the property location to apply, the judge emphasized. Also, any applicable title and mortgage redemption or other state laws can best be determined by a court in the state where the real property is located, he added.
Therefore, summary judgment for the defendant borrowers is appropriate because Georgia law applies and the plaintiff lender has not proved compliance with Georgia’s requirement for confirmation of the foreclosure sale by a Georgia court, the judge ruled.
Based on the 2004 U.S. District Court decision in Business Loan Center LLC v. Nischal, 331 Fed.Supp.2d 301.
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