November 7, 2014
by Harrison Rushton and Reggie Corley
Scott Law Firm, PA
USFN Member (South Carolina)
There are two different areas to consider when examining Homeowners Associations (HOA) in South Carolina: one is governed by the Horizontal Property Regime Act [S.C. Code Ann. § 27-31-10, et seq. (HPR)], and the other is the “Wild West” of uncodified and unregulated HOAs.
Those HOAs governed by the HPR are subject to clear statutory guidelines regarding the priority of HOA liens and mortgage liens that encumber the subject units. However, despite numerous attempts to codify the regulations of the vast majority of HOAs in South Carolina — those not governed by the HPR — another year has come and gone with a proposed bill that died in committee. Although the proposed legislation had more emphasis on bringing HOAs under the watchful eye of the South Carolina Office of Consumer Affairs than protecting a mortgagee’s priority over any subsequent liens, it did have the potential to shed some light on this nebulous area of real estate law.
Timeshare properties is another area in which associations are governed by statute. However, because timeshare foreclosures are handled differently than mortgage foreclosures in South Carolina, HOA issues in mortgage foreclosure actions will be the focus of this article. There is virtually no case law regarding HOAs, but the one published opinion from the South Carolina Supreme Court [Battery Homeowners Association v. Lincoln Financial Resources, Inc., 309 S.C. 247, 422 S.E.2d 93 (1992)] discusses whether a townhouse development was covered under the HPR when the master deed for the townhouse development did not expressly state that it was to be covered by the HPR. The clear implication from Battery HOA is that if the master deed does not state an intent to be covered by the HPR, then the townhouse development is not subject to the HPR and, thus, not subject to the statutory guidelines regarding lien priority. However, if the master deed grants the association the right to enforce restrictions and assessments over the lots or units, then the association has the right to do so, regardless of its lack of governance by the HPR.
As a practical matter and from an REO perspective, virtually all HOAs understand that they will not be entitled to dues that accrue during the course of a foreclosure. It is important to note that by most accounts, an HOA lien is a continuing, perpetual lien subject to the covenants, conditions, and restrictions of the HOA. In an HPR situation, the statutory language clearly addresses priority: “Where the mortgagee of any mortgage of record or other purchaser of an apartment obtains title at the foreclosure sale of such a mortgage, such acquirer of title, … shall not be liable for the share of the common expenses or assessments … accruing after the date of recording such mortgage but prior to the acquisition of title to such apartment by such acquirer. Such unpaid share of common expenses or assessments shall be deemed to be common expenses collectible from all of the apartment owners…” [S.C. Code Ann. § 27-31-210(b)].
Inasmuch as the HPR makes a distinction between those liens accruing prior to a mortgage being recorded and those accruing afterwards, this distinction seems to have carried over as a rule of thumb to the other HOA arena. As a general practice, default counsel in the judicial state of South Carolina will want to name the HOA as a defendant in the foreclosure action and add language to address any outstanding or prior liens, as well as those dues and liens that may accrue after the filing of the mortgage or during the course of the foreclosure action. Naming the HOA as a defendant in this manner will ensure that the lien of the HOA is released from the subject property by virtue of the foreclosure sale. [S.C. Code Ann. § 15-39-880].
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Autumn 2014 USFN Report