South Carolina Lawyer
SC Lawyer, January 2009, #3.
Prudent Bidding at a Foreclosure Sale
South Carolina LawyerJanuary 2009Prudent Bidding at a Foreclosure SaleBy Clifford P. Parson and C. Joseph RoofThe well-publicized rise in defaults of subprime mortgages has created tempting opportunities to purchase real estate at bargain prices. With foreclosure sales being scheduled on a daily basis, foreclosure attorneys frequently receive calls from clients and others wanting to be walked through the potential pitfalls in the foreclosure bidding process. There are risks, so a potential bidder should learn as much as possible about the property and the process prior to placing the first bid.
A binding contract
In a traditional residential real estate purchase transaction, a willing buyer and a willing seller enter into a negotiated contract that customarily provides that the buyer may terminate the contract if the results of a property inspection or title examination are not satisfactory. At a foreclosure sale, the final highest bid creates a binding contract on the terms set forth in the Notice of Sale regardless of defects in the physical condition of the property or the title. Although masters-in-equity and special referees are unlikely to compel compliance with a bid, the bidder runs the obvious risk of forfeiting a significant deposit since the high bidder has no right to terminate the contract. If the successful bidder refuses to close due to the physical condition of the property or the status of the title to the property, the selling court may have the technical right to hold the bidder to the contract and seek to recover all damages incurred due to the bidder's default. Failure to timely comply with the bid may render the sale subject to attack. FNMA v. Brooks, 304 S.C. 506, 405 S.E.2d 604 (Court of Appeals - 1991). Consequently, before making a bid that ultimately could create a binding contract with no good exit options, a prudent bidder should consider several issues.
Although a foreclosure sale may satisfy certain debts encumbering the property, the sale does not necessarily satisfy all such debts and will not cure other preexisting or superior liens or title defects. Property at a foreclosure sale is sold subject to all prior or senior liens and encumbrances. If, for example, the mortgage being...