This article was originally published in the May/June, 1995 issue of the South Carolina Lawyer magazine. It is published here with the permission of the author and the South Carolina Bar.
Whether one likes it or not, sooner or later most lawyers will have clients seeking to foreclose a note and mortgage. The primary purpose, of course, in a mortgage foreclosure suit is to have the mortgaged property sold and the proceeds of sale applied against the debt secured by the property. This article will guide the reader through a fairly typical mortgage foreclosure action.
In counties having Equity Court Judges, also known as Masters in Equity, those courts handle most of the mortgage foreclosure actions. Circuit courts also have jurisdiction to hear foreclosures and do so most often in counties without Equity Judges. In order to foreclose a mortgage efficiently and correctly, a lawyer needs to take the following steps.
1) Review of the Documents. Take a close look at the note, mortgage and any other related documents to ensure that the debtor is, in fact, in default on the note and mortgage. Never fall into the trap of assuming that what the client tells the lawyer is necessarily accurate. Also, the client may not be aware that certain legal requirements in the note and mortgage or the South Carolina Code may be applicable.
2) Title Exam. Have a title exam performed to determine what parties may have mortgages, liens or other claims on the property. The lawyer should name these other parties as defendants The purpose of the foreclosure suit is, of course, to bring before the court all parties necessary to a complete determination or settlement of the issues.
Caveats.1) A creditor having a superior lien to the mortgage being foreclosed is a proper party, but not a necessary party. The property may be sold subject to the lien. 2) One who acquires title to the mortgaged property after the proper filing of the lis pendens is not a necessary party. A subsequent purchaser is bound by the foreclosure decree to the same extent as if made a party.
3) Lis Pendens. The plaintiff must file a lis pendens in all mortgage foreclosure suits pursuant to S.C. Code Ann. § 15-11-10 et. seq. (1976). The lis pendens gives constructive notice of the foreclosure action to any subsequent purchasers or creditors. A lis pendens must be filed no more than 20 days before the filing of the complaint and no less than 20 days prior to the entry of a foreclosure decree. §15-11-10. If filed more than 20 days before the filing of the complaint, the lis pendens is automatically invalid. Service of the lis pendens must be made within 60 days after the date of its filing or it will be rendered invalid. § 15-11-30.
4) Complaint. The complaint is controlled by the South Carolina Rules of Civil Procedure. All pertinent information should be set forth in the complaint, such as the note and the mortgage, and a description of the real property being foreclosed. The complaint should demand foreclosure of the equity of redemption and a judgment for the sale of the mortgaged property to satisfy the mortgage debt. The complaint should also state whether the plaintiff is seeking or waiving a deficiency judgment. (See paragraph 8 below.)
5) Receiver. In some foreclosure actions it may be prudent to seek appointment of a receiver to collect rents, etc., from the property during the pendency of the action. Be sure to look at the note and mortgage to determine if appointment of a receiver is authorized. Appointment of receivers is controlled by § 14-65-10 and -130.
6) Reference. Most mortgage foreclosures suits are referred to an Equity Court Judge or in counties in which there is no Equity Judge, a Special Referee. See Rule 71, SCRCP. Generally, a reference is made upon consent by all parties not in default. Rule 53(b), SCRCP. But, a compulsory reference is proper in that a mortgage foreclosure action is equitable in nature. Rule 71(a), SCRCP; Collier v. Green, 244 S.C. 267, 137 S.E.2d 277 (1964).
7) Hearing. Be sure to provide notice of the hearing to all parties at least three days before the scheduled hearing. See Rule 55(b) SCRCP. While there appears to be some conflict between court rules, case law and common practice, the better practice is to afford all defendants a notice of hearing. At the hearing itself, general rules of evidence apply. However, in default cases, most practitioners testify on behalf of their clients, without the necessity of having the client present in court. Most lawyers will provide an Affidavit of Debt from their client setting forth all the particulars of the debt, as well as the total amount due. This should also include the per diem rate from the date of the hearing. See Rule 71, SCRCP.
8) Deficiency Judgment. In order to request a deficiency judgment, the better practice is for the plaintiff to specifically request it in the pleadings. If a deficiency is waived, the order will not be a personal judgment against the mortgagor. Absent such a waiver, the decree of foreclosure establishes a personal judgment against the debtor. There are two ways this personal judgment may be entered. First, the court may enter a personal judgment for the total debt after the hearing. The net proceeds of the sale are then applied to reduce the balance due on the judgment debt. Alternatively, the court can order that a deficiency judgment be granted after the sale. After the sale, the court determines the amount of the deficiency and enters a personal judgment for that amount. Under either procedure, the debtor or other proper defendants may demand that the property be appraised to determine if the high bid at sale was a fair price for the property. § 29-3-660 through -730.
9) Sale of the Property. The terms and conditions of the sale of the mortgaged property are controlled by the court order, Rule 71, SCRCP, and the practice and custom of the county in which the property is being sold. See Federal National Mortgage Assoc. v. Brooks, 304 S.C. 506, 405 S.E.2d 604 (1991). Sales are also generally governed by § 15-3-610 through -900.
Generally, if the deficiency judgment is being waived, the successful bidder has 20 days to comply with his or her bid. If a deficiency judgment is being sought, then the bidding must remain open for a period of 30 days to allow for additional bids. § 15-39-760 and § 15-39-720. Property is sold in the county in which it is located. However, where the property being foreclosed upon lies in more than one county, the court may determine the county where the sale will take place, with the advertising of the Notice of Sale being in all counties in which the land lies. § 15-39-630.
Prior to the property being sold at public sale, the Notice of Sale must be advertised once a week for three weeks prior to the sale date. § 15-39-650. The advertisement must specify the property to be sold, the time and place of sale, the property owner's name and the plaintiff's name. If the deficiency is waived, the Notice of Sale must state that the bidding will not remain open for 30 days. § 15-39-760.
10) Confirmation of Sale If the case has been referred with finality, the Equity Judge may issue an order, an Order of Sale, Receipts and Disbursements and an Order of Confirmation all as a single document. Rule 71(b). If, however, the case was not referred for final judgment, the Equity Judge issues a Report on Sale, Receipts and Disbursements and provides notice of the Report to all parties who have appeared in the action. Rule 53(e)(1). The Plaintiff may take exception to this Report within 10 days. Rule 53 (e)(2). If no exceptions are served within 10 days, an order confirming the sale is issued by the circuit court.
11) Deed. Once the high bidder has complied with his or her bid, the Equity Judge or other court officer making the sale executes a deed to the purchaser. Rule 71(b). This is not a general warranty deed but is a Master's Deed. In other words, the Master's Deed conveys whatever title is represented by the property interests properly before the court. If there is a defect in the foreclosure action itself, the Master's Deed may not even convey clear, marketable title.
12) Surplus Fund. Occasionally there are funds remaining on deposit with the court after the plaintiff's debt and costs are paid. Rule 71(c), SCRCP, addresses the procedure to be followed in this case.
13) The "Oops" Rule. Occasionally even the most well-seasoned practitioner will omit a junior lienholder or junior mortgagor. An omitted junior lienholder or omitted junior mortgagor retains its right of redemption and retains its lien in the property itself. See Peeples v. Snyder, 141 S.C. 152, 139 S.E. 409 (1927). If this occurs, the lawyer handling the mortgage foreclosure action may bring a Rule to Show Cause requiring the omitted lienholder or mortgage holder to show cause why the lienholder or mortgage holder should not be bound by the foreclosure proceedings. The omitted junior lienholder or mortgage holder can prevail only if the land is worth more than the total of the prior encumbrances and if it is established that, in all probability, a resale of the land would generate proceeds which would reach the claim of the junior lienholder or mortgage holder. See Union National Bank of Columbia v. Cook, 110 S.C. 99, 96 S.E. 484 (1918).
14) Writ of Assistance. If, after the high bidder has complied with the bid and received a deed, the debtor or other occupants refuse to vacate the property, the successful purchaser has the right to return to the court to seek a Writ of Assistance that directs the sheriff to eject the person remaining on the property. See Griggs v. Griggs, 205 S.C. 276, 31 S.E.2d 505 (1944).
In closing, it is important to understand that this article is in no way meant to be an exhaustive study of the law of mortgage foreclosures. Rather, this brief summary is meant as a primer for lawyers who only occasionally handle foreclosure cases.
Charles B. Simmons Jr. is an Equity Court Judge (Master in Equity) in Greenville County. He also serves as a special circuit judge.
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