V. Foreclosure Sale

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

V. Foreclosure Sale

Once the foreclosure judgment has been filed by the court, the notice of sale ("NOS") must be published once a week for three consecutive weeks in a newspaper of general circulation in the county where the subject property is located.¹⁴⁹ The selling officer, which in most cases is the Master-in-Equity or Special Referee, may instruct which newspaper the NOS should be published. After the foreclosure hearing, foreclosure counsel will request the bidding instructions from the mortgage servicer/lender. If the value of the subject mortgage is less than the total judgment amount, the bidding instructions will often direct a bid less than the total mortgage amount, known as a "specified bid." In the event a deficiency judgment is requested, the foreclosing plaintiff must enter one bid in the amount desired to be accepted in lieu of the property, which should be at least the appraised value of the subject property. The foreclosing plaintiff may only bid (one bid) at the initial foreclosure sale and cannot enter additional bids at the second, deficiency judgment foreclosure sale (which is, by statute, 30 days after the initial foreclosure sale).¹⁵⁰ If deficiency judgment is waived, the common practice is for the foreclosing plaintiff to enter a minimum bid of $2,500 or less, since the minimum commission paid to the selling officer is $25.The selling officer must collect from the successful purchaser 1% of the final purchaser price, with the maximum commission amount being $2,500.¹⁵¹ The successful purchaser at the foreclosure sale is required to pay a good-faith deposit/percentage of the bid (usually 5%) to the selling officer in cash or its equivalent by late afternoon on the date of the foreclosure sale, with the balance usually due within 20 or 30 days, depending on the specific county.¹⁵² In the event the deposit is not made to the court or the bid is not timely complied with by the successful bidder, the court may direct the bidder to show cause why she should not be held in contempt of court, and if paid to the court, why the deposit should not be forfeited to the foreclosing plaintiff and the subject property resold at the next available foreclosure sale.

A. Bidding at the Foreclosure Sale

In Winrose v. Hale,¹⁵³ the South Carolina Supreme Court gives guidance on proper bidding for mortgage and other lienholders at foreclosure sales. A bid must not be so grossly inadequate as to shock the conscious of the court.¹⁵⁴ There are two methods in South Carolina to determine whether a winning bid at a foreclosure sale is grossly inadequate: the "debt method" and the "equity method." The debt method focuses on the amount of debt a foreclosure purchaser must incur before gaining free-and-clear title to the foreclosed property. The equity method, by contrast, focuses on the amount of equity the foreclosure purchaser stands to gain through the foreclosure sale. Any outstanding debt is subtracted from the fair market value of the property rather than added to the value of the winning bid price. Although no appellate court has held courts must apply one method over the other, Winrose clearly states that a bid price that is too low as compared to the absolute value of the subject property is "grossly inadequate" and shocks the conscious of the court.

It is worth noting that while South Carolina Courts have not established a bright-line rule for what percentage of the final foreclosure sale's price must be met with respect to the actual value of the subject property in order to shock the conscience of the court, South Carolina appellate courts have routinely held that properties that sold for less than 10% of the property's actual value have consistently shocked the conscience of the court.¹⁵⁵

As seen in action in Winrose, South Carolina law establishes that a senior mortgage holder is a proper, but not a necessary, party to a junior lienholder's (such as a homeowners' association ("HOA") lien) foreclosure action. However, if a junior lienholder forecloses its lien, the real estate is sold subject to the senior mortgage holder's lien interest.¹⁵⁶

To mitigate the issues presented in Winrose, a new process is being adopted by some counties whereby the Master-in-Equity notifies and requests that senior mortgage holders be invited to appear before the Equity Court in a HOA foreclosure case. The Equity Court is giving notice and requesting an appearance by the senior mortgage holders to determine the delinquency status of any senior mortgage on the property. As such, the senior mortgage holder may choose to appear at this hearing to evaluate the possibility of the homeowner/borrower either (1) drawing funds to satisfy the delinquent HOA lien and avoid the HOA judicial foreclosure sale by use of the senior mortgage's future advance clause or, (2) advancing the funds to pay and satisfy the delinquent HOA lien; or, pursuant to the standard mortgage contract language that allows for the advancement of costs to protect the mortgage holder's secured collateral.

B. Compliance by the Successful Purchaser with the Foreclosure Bid

Successful purchasers at foreclosure sales have, by placing their bid with the court, stipulated they have reviewed carefully the record title for the subject property, and they will comply with the terms of the foreclosure sale specified in the foreclosure judgment and notice of sale. Foreclosure sales in South Carolina are caveat emptor, which is Latin for "let the buyer beware," and means that interested third-party bidders should exercise extreme due diligence and caution prior to bidding at a foreclosure sale.

The well published rise in defaults of subprime mortgages has created tempting opportunities to purchase real estate at bargain prices. With foreclosure sales being scheduled daily, foreclosing 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 process prior to placing the first bid. In order to protect against the risks discussed above, a prudent bidder interested in buying property at a foreclosure sale will, prior to making a bid, spend the time and money necessary to conduct, to the extent possible, the same investigations conducted by buyers in traditional real estate transaction. Otherwise, the bidder may not get the anticipated bargain. Foreclosure sales may call for the clearest application of caveat emptor.¹⁵⁷

If the successful purchaser complies with the bid and later learns of a title defect with the...