III. The Foreclosure Action

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

III. The Foreclosure Action

A. Documents and Information Needed to Begin the Foreclosure Action

In preparation for beginning the foreclosure action, the following is a list of documents that should be requested from the mortgage lender/servicer and reviewed for drafting the lis pendens, summons, and compliant:

1. Promissory note with all endorsements and allonges
2. Recorded mortgage
3. All recorded assignments of mortgage
4. Loan modification agreements - recorded or unrecorded (if applicable)
5. A copy of the mortgagee title insurance commitment and the mortgagee title insurance policy from origination and closing
6. Manufactured home certificate of title or any documentation from closing containing the make, model, year, and serial/vehicle identification number
7. Origination appraisal from closing
8. Acceleration notice/Demand letter to each borrower/mortgagor (as required by the loan documents)
9. HUD-1 settlement statement
10. Payoff amount
11. Loan data sheet, including borrowers' names and addresses, social security number, unpaid principal balance, date of default, type of loan (VA, FHA, USDA, FHLMC, FNMA, Conventional, etc.), payment history for the loan, processor notes and all correspondence between the mortgage servicer/lender and borrower
12. Death certificate (if available) or other information (obituary, etc.), if borrower/mortgagor is deceased.

Generally, it is not necessary to request the original documents above from the mortgage servicer/lender unless they are required by the judge at the foreclosure hearing or if the foreclosure case becomes contested.

B. Pre-Foreclosure Title Search

Immediately upon receipt of a new foreclosure referral from the mortgage servicer/lender, foreclosure counsel must request a title search from the county's register of deeds or clerk of court's office. If there is a mortgagee title insurance policy, then only an update from the date of the recording of the subject mortgage being foreclosed may be required. In some cases, a full 40-year title search may be required.⁷⁴ The pre-foreclosure title search is necessary to determine the parties who must be named as party-defendants in the foreclosure action, including the original mortgagors, current owners (if different), holders of junior mortgages and judgment liens, federal, state and local taxing authorities with liens on the property, tenants under a recorded lease, personal representatives or heirs in an estate case, etc.⁷⁵ If a creditor has a lien of record that is superior to the subject mortgage lien being foreclosed and the superior lien has not been paid in full, then it is not a necessary party to the foreclosure action, as the foreclosure sale will be subject to its superior lien.⁷⁶

C. Filing the Lis Pendens, Summons, Complaint, Notice of Foreclosure Intervention, and CARES Act Certification

The summons and complaint should conform to the general rules governing pleadings in civil actions in South Carolina state court.⁷⁷ If the United States government or any of its agencies is named as a party-defendant to the foreclosure action, an additional paragraph should be included in the summons to state that it has 60 days to answer the summons and complaint.⁷⁸ Allegations of the location of the real property to be foreclosed, the residency of the individual party-defendants, and the basis for conferring jurisdiction over the corporate party-defendants are necessary for a finding of jurisdiction. Venue is proper in the county where the mortgaged property is located, even when the defendant lives in another county. If the mortgaged property lies in more than one county (either as one tract or multiple tracts of property), a single foreclosure action may be filed in one of the counties where the property lies.⁷⁹ Additionally, the publication of the notice of sale must occur in all counties where the mortgage property is located.⁸⁰

The promissory note, mortgage, and any assignments of record or subsequent loan modifications should be described, and the subject real property should be identified by the legal description, along with the deed derivation. The date of default, total amount due on the subject mortgage, and the current interest rate should also be included. All proper and necessary parties should be made a party-defendant to the foreclosure action and likewise, service of process should be conducted on these party-defendants. The complaint should include and describe junior mortgage and judgment lienholders, and although not required, it is prudent and a best practice to also described any superior liens that the foreclosure sale will be subject to and that will survive the foreclosure action. The prayer of the complaint should request that the court determine the amount of the total mortgage debt, including allowable attorney's fees and costs, and extinguish the liens of subordinate lienholders. It should also state that the property will be sold at public auction and that the court preserves jurisdiction to handle matters that arise after the final foreclosure order and judgment is signed, including executing the foreclosure deed and issuing a writ of assistance, if eviction is necessary. Additionally, and where applicable, per South Carolina Supreme Court Administrative Order 2011-05-02-01, a notice of foreclosure intervention must be included within the filed foreclosure pleadings and served on all mortgagors. The Administrative Order defines "mortgagors" as "every owner, mortgagor, and debtor under the note and mortgage at issue." Finally, a CARES Act certification in full compliance with South Carolina Supreme Court Administrative Orders 2020-04-30-02 and 2020-05-06-01.

1. Lis Pendens

Lis pendens is Latin for "a suit pending" and is legal notice to the world that there is a dispute as to the title to the subject real property.⁸¹ It is also defined as a legal notice recorded to show pending litigation relating to real property, and it gives notice that anyone acquiring an interest in the property after the date the lis pendens is filed may be bound by the outcome of the litigation.⁸² The lis pendens must be filed in the county where the property is located ($10.00 filing fee) not more than 20 days prior to filing the summons and complaint and not less than 20 days before judgment.⁸³ The lis pendens must contain specific information including the date of the mortgage, the parties to the pending action, and the time and place of recording the subject mortgage.⁸⁴ Any subsequent purchaser or lienholder who acquires an interest in the subject real property after the filing of the lis pendens will be bound by the foreclosure action from the time of the filing of the lis pendens, and is not a necessary party.⁸⁵ The lis pendens gives constructive notice to any subsequent purchaser or lienholder, and they are bound by the foreclosure judgment and sale in the same manner as if they were named as a party-defendant to the foreclosure action.⁸⁶

The lis pendens should be filed as soon as the decision to foreclose is made or contemporaneously with the filing of the foreclosure summons and complaint to announce the foreclosing plaintiff's pending claim to the real property. Foreclosure counsel should make sufficient inquiry to ensure the lis pendens names all proper parties as party-defendants and that the legal description and mortgage recording information are correct. After the title search is completed, if corrections must be made, an amended lis pendens can be filed. Conversely, if the lis pendens is filed together with the foreclosure summons and complaint, the title search should be updated from the date of the initial, pre-foreclosure title search to the date of the filing of the lis pendens to ensure no additional lienholders or parties need to be added as party-defendants to the foreclosure action.

In addition to the two statutory lis pendens filing deadlines outlined above, foreclosure counsel must serve at least one party-defendant or first publish (if service is by publication) within 60 days of the filing of the lis pendens or the protections of the lis pendens will be lost and intervening lienholders or purchasers will not be bound by or subject to the foreclosure action.⁸⁷ If a foreclosure action proceeds for more than five years, the lis pendens must be refiled prior to the five-year mark to remain effective.⁸⁸ Prior to filing the master's report or final order of judgment, the judge must ensure that the lis pendens has been properly filed.⁸⁹ If the foreclosure case is settled and dismissed, the lis pendens should be canceled of record.⁹⁰

D. Plaintiff

In a standard mortgage foreclosure action, the first step in the process is to determine with the mortgage lender/servicer the correct name of the foreclosing plaintiff.⁹¹ The mortgage lending industry is in a constant state of mergers and acquisitions. Sales of mortgage-backed securities on the secondary market often cause timing issues with recording assignments of mortgage. Routinely those mergers and acquisitions continue during the foreclosure action, often causing foreclosure counsel to obtain additional assignments of mortgage and/or file a motion to substitute the assignee as the foreclosing plaintiff and real party in interest.⁹²

If the assignment of mortgage occurs during the early stages of the foreclosure action, before the foreclosure hearing, foreclosure counsel may record the new assignment of mortgage and file a motion to substitute the new assignee as the foreclosing plaintiff.⁹³ As an alternative, the existing foreclosure plaintiff may continue the foreclosure action in its name and assign the bid or the funds from the foreclosure sale to the new assignee after the foreclosure sale and as the grantee of the foreclosure deed.⁹⁴ The only disadvantage to assigning the bid and not substituting the foreclosure plaintiff is the requirement that the new assignee/grantee of the foreclosure deed pay transfer taxes/"deed stamps" at the time...