II. Preparing to File a Foreclosure Lawsuit

• Library: South Carolina Foreclosure Law Manual (2021 Ed.)

II. Preparing to File a Foreclosure Lawsuit

A. Review the Loan Documents and Pre-Foreclosure Title Search

After the initial review of the mortgage lender/servicer's loan documents, the next step in the process is to obtain a pre-foreclosure title search from the county's real estate public records' office. Some mortgage lender/servicers request a limited title search from the time of the mortgage forward, with the risk that if title issues are discovered that arose prior to the mortgage, the responsibility to correct the problem will lie with the mortgagee's title insurance company. However, these title problems may not be detected until the foreclosure process is complete and the successful purchaser at the foreclosure sale (often the mortgagee/lender) is trying to sell the property to a third party. At that time, a full, 40-year title search may reveal title defects which could have been resolved more efficiently during or within the foreclosure action.

The advantage of conducting a full, 40-year title search is that if any problems in the title are uncovered it may be possible to correct these issues during the foreclosure process or within the foreclosure action. As South Carolina is a judicial foreclosure state, a foreclosure hearing must be held before a judge to complete the foreclosure action. The advantage of appearing before a judge during the foreclosure process as it relates to title issues is that while before the judge, foreclosure counsel may plead the title issues within the foreclosure complaint and request from the court to have these title issues adjudicated and fully resolved within the final judgment and order.

B. Review Legal Description

An owner of property can mortgage only the property she owns. If there are discrepancies in the legal description on the mortgage or the vesting deed, these issues may be raised and resolved by naming the relevant parties within the foreclosure action. The legal description should also reflect legal access to the subject property.

The plat or plats cited within the legal description in the deeds and/or mortgages should be reviewed to determine if the legal description comports with the plat(s). A review of the plats also is important to correct scrivener's errors within the legal descriptions, such as incorrectly cited plat book and page information or incomplete boundary measurements for the subject property. Often when family land is subdivided through inheritance, the parties fail to properly prepare and record easements for ingress and egress. While there may never be a dispute between the family members, when family property is subject to a foreclosure, the new owner from the foreclosure sale will need legal access to the property.

Foreclosure counsel should also review the legal description to ensure uniformity from the pre-foreclosure title search to the foreclosure lis pendens, complaint, judgment order, and foreclosure deed. Further attention should be directed to verifying that the legal description within the foreclosure action includes the full deed derivation into the vesting owner, the tax map (TMS) number, and the street address of the subject property to ensure proper and timely recordation in the county's Register of Deeds office.

Foreclosure counsel should consider including causes of action within the foreclosure action to quiet title or reform the deed and/or mortgage due to earlier mistakes in the chain of title. Foreclosure counsel should, as facts warrant, also consider pleading unilateral or mutual mistake, understanding that a defaulting party-defendant only admits well-pled facts within the complaint.²³

Judges and judicial staff now have the ability, through e-filing exhibit submission, to review all submitted documents for accurate uniformity of description. Identifying and correcting clerical, scrivener errors during this process saves both bench and bar from later motions to correct legal description errors.²⁴

C. Review Ownership of the Property

At the time of the real estate closing transaction for the subject mortgage, each person who owned an interest in the subject property should have signed the mortgage. This ensures that the full interest of the property is pledged as collateral for the mortgage loan. If the owner or mortgagor took title to the property using a different spelling or variation of her name as may have later been mortgaged, then the use of "a/k/a"²⁵ or "f/k/a"²⁶ within the foreclosure action will easily clear up any subsequent title abstracting concerns. If the subject property has been conveyed to a subsequent owner, that owner should also be named as a party-defendant so that her interest in the subject property can be deemed subordinate to the mortgage and extinguished by the foreclosure action.²⁷ Intervening owners, since the date the subject mortgage was recorded, are not necessary parties if they no longer have an interest in the subject property. If at the time of the transaction an owner did not sign the mortgage and had no intention of pledging her interest in the property as collateral for the loan, the foreclosure can proceed but the mortgage servicer/ lender must be informed that the successful purchaser at the foreclosure sale will take title to the property as a tenant in common with the remaining, unencumbered owner. A subsequent partition action will be necessary to sever the joint interest in the property.²⁸ Special attention needs to be given to which parties take title and how the note and mortgage are executed. In Chase Home Fin., LLC v. Risher, the importance of who appears on the promissory note and the mortgage become apparent when a party is an owner on the deed but was omitted from both the promissory note and the mortgage.²⁹

D. Review Demand Letter - Acceleration

For first mortgage liens, the terms of the promissory note and mortgage control the issuance of notices prior to acceleration and filing a mortgage foreclosure suit, and it is crucial to follow the terms of the contractual documents before proceeding with the filing of the foreclosure action. Unless provided in the contract documents, first mortgage real estate loans and loans on rental and commercial property are not defined as "consumer loans," but are still subject to some of the requirements of the South Carolina Consumer Protection Code.³⁰ Residential second mortgages and some other loans are covered by the South Carolina Consumer Protection Code, and specific, statutory notice must be provided to their borrowers of their right to cure the default.³¹

The Demand Letter or Notice of Default or Notice of Right to Cure Default/Acceleration Letter (Demand Letter) is often sent by the mortgage servicer/lender prior to foreclosure counsel's receipt of the file to initiate the foreclosure action. It should be reviewed to ensure that it conforms to the mortgage contract documents as well as appropriate federal and state statutes, specifically the South Carolina Consumer Protection Code and the Fair Debt Collection Practices Act,³² and if it has not been sent, then it must be sent prior to initiating the foreclosure action. In most cases, only one demand letter is required to be sent during the life of the mortgage loan, but usually a separate demand letter is sent to the borrower upon each default of the mortgage obligation. Even if there is no state or federal law requiring a Demand Letter to be sent, the promissory note and mortgage documents must be reviewed to ensure compliance with the notices required by the contractual mortgage loan documents. Allegations in the foreclosure complaint should state that the Demand Letter and any other required pre-foreclosure notice have been provided to the borrower.

E. Review South Carolina Supreme Court Administrative Order 2011-05-02-01 - "Foreclosure Intervention"

In 2011, the South Carolina Supreme Court, after receiving input from the equity judges, became concerned with the difficulties stemming from the breakdown of communication between the mortgage servicers/lenders, foreclosure counsel, and the mortgagors/borrowers, regarding loss mitigation measures undertaken by the parties to resolve the pending foreclosure actions. Equity judges were often faced with the mortgagors appearing at the foreclosure hearing and reporting ongoing loan modification or other loss mitigation discussions with the mortgage lender/servicer, while foreclosing counsel was unaware of such communications. To remedy those problems and to allow for efficient management of the equity courts' dockets, on May 2, 2011, South Carolina Supreme Court Chief Justice Jean H. Toal issued an administrative order³³ imposing on foreclosing attorneys, when requested, a duty to serve as a point of contact for the mortgage lender/servicer and the mortgagors in all loss mitigation reviews and matters, which the court termed "foreclosure intervention." It is important to note the administrative order does not preclude all contact between the mortgagor and lender. Foreclosure counsel are to keep the equity courts informed of the status of any ongoing loan modification or other loss mitigation discussions because the status could affect whether the foreclosure case can proceed, be removed from the active docket, or dismissed.

Under the administrative order, foreclosure counsel must serve, along with the foreclosure summons and complaint, a notice of the mortgagor's right to foreclosure intervention. The notice is meant to inform the mortgagor of possible alternatives to a foreclosure. If within 30 days after service the mortgagor fails, refuses or voluntarily elects not to participate in any foreclosure intervention process, the case may proceed once foreclosure counsel certifies this fact to the court through the appropriate certificate filing.

These procedural steps are applicable only to the foreclosures of owner-occupied properties. If the foreclosure action involves a non-owner-occupied property, foreclosure counsel may...