August 1, 2014
by Ron Scott & Reggie Corley
Scott Law Firm, P.A. – USFN Member (South Carolina)
Over the last year, several issues with bidding instructions have been observed for cases where deficiency judgment is demanded.
Background — In South Carolina, a demand for deficiency judgment must be affirmatively pleaded in the complaint (e.g., “first legal”). If a deficiency judgment is demanded, the first sale date is not the final sale date, and the bidding must remain open for an additional thirty (30) days for additional, upset bidding. On the thirtieth (30th) day, the final sale is reopened at 11:00 AM EST for additional bidding until the property is ultimately sold to the highest bidder.
The plaintiff/mortgage company may bid competitively at a non-deficiency sale, but if a deficiency judgment is demanded, the plaintiff/mortgage company must enter one bid only — at least the appraised value of the property — at the initial sale.
Recently, these authors have been receiving a large number of bidding instructions for sales where deficiency judgment is demanded that state either: (1) enter a bid of total debt plus fees and costs; or (2) begin bidding at 80 percent of total debt plus fees and costs; and in the event of competitive bidding, bid up to total debt plus fees and costs.
The problem is that the plaintiff/mortgage company is only entitled to one bid in a case where a deficiency judgment was demanded in the original summons and complaint. Accordingly, and in order to fully comply with the bidding instructions, the one bid entered at the foreclosure sale is entered for total debt plus fees and costs. Bidding total debt plus fees and costs as the one and only bid in a deficiency judgment-demanded case causes several unintended issues: (1) It eliminates any deficiency judgment as a result of the foreclosure sale; (2) If no third-party outbids the one total debt plus fees and costs bid, it ensures that the plaintiff/mortgage company is the successful purchaser for significantly more than the original judgment amount; and (3) It requires that a higher commission on sale be paid to the court. Pursuant to South Carolina statute, when a deficiency judgment is demanded, the successful purchaser at the foreclosure sale must pay to the court a 1 percent commission of the final sale price with the minimum amount being twenty-five dollars ($25) and the maximum amount being two thousand five hundred dollars ($2,500; e.g., the property is sold for $250,000 or more).
If Item 2 occurs, many courts have recently ordered that the overage (e.g., the difference between the judgment and final bid amounts) be paid into the court by the plaintiff/mortgage company. In order to attempt to recover this overage, the plaintiff/mortgage company must then file a claim for surplus funds with the court pursuant to Rule 71(c) of the South Carolina Rules of Civil Procedure and attend the surplus funds hearing before the court. If the plaintiff/mortgage company can adequately support in itemized detail the reason for the overage, the court may award it the surplus funds. Otherwise, the court will order the surplus funds to be disbursed to the other defendants/lienholders according to their lien priority.
Lastly, if there is a case where a deficiency judgment is demanded and these authors’ law firm receives bidding instructions that contemplate a bid of total debt plus fees and costs, we may waive the deficiency judgment to allow the plaintiff/mortgage company to begin bidding at a nominal amount and bid up to total debt plus fees and costs, if competitive bidding occurs. However, the bidding instructions must be received in a timely manner so that they can be reviewed and the court notified (in writing) of the waiver of deficiency judgment. Most judges require that the deficiency judgment be waived (in writing) at least ten (10) days prior to the date of the foreclosure sale.
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