A foreclosing lender in South Carolina has the ability to obtain a deficiency judgment against you. However, it may have an incentive not to do so.
If you are going through a foreclosure in South Carolina, the foreclosure auction may result in a shortfall. (When the foreclosure selling price does not meet the amount of the borrower’s mortgage obligation, the difference is referred to as a “deficiency.”)
If a foreclosure sale results in a shortfall, the lender may obtain a “deficiency judgment” (a personal judgment) against the borrower for the amount of the deficiency. The lender may get a shortfall judgment under South Carolina law. However, there may be an incentive for it not to do so since relinquishing the right to a deficiency judgment removes the post-sale upset bid period (see below). Even if the lender pursues a deficiency judgment, you might request that the amount of the deficit be limited if the property sold for less than its fair market value at the foreclosure auction.
The Process of Foreclosure Sales
If you fail on your mortgage loan, the lender might sell your property via a legal procedure known as “foreclosure” to satisfy the unpaid amount. After the lender has met all of the legal conditions for foreclosure, the last stage in a judicial or nonjudicial foreclosure is the foreclosure sale, in which the house is sold at a public auction to a new owner.
The foreclosing lender makes the initial offer at the auction, known as a “credit bid.” A credit bid provides the lender with credit in the amount of the borrower’s debt. The lender has the option of bidding up to the complete amount of the debt, including foreclosure fees and charges, or bidding less. Because no one else offers, the lender usually makes the highest bid during the auction and becomes the new owner of the property. If the lender purchases the property during the sale and obtains title, the property is termed “real estate owned” (REO).
At foreclosure auctions, lenders often bid less than the whole amount of a borrower’s mortgage obligation.
After a Foreclosure Sale, What Is a “Deficiency Judgment”?
When a lender takes possession of a property via foreclosure, and if state law permits it, the lender might pursue a personal judgment against the borrower to collect any deficit. A “deficiency judgment” is a kind of money judgment. As part of the judicial foreclosure procedure in certain jurisdictions, the lender may seek a deficiency judgment. In certain areas, the lender must sue the borrower separately after the foreclosure to get a deficiency judgment.
However, if the selling price is equal to or more than the mortgage debt amount, you are not liable since there is no deficiency—even if the lender is unable to resell the property for the same amount after the foreclosure sale. In fact, if the sale resulted in a surplus of funds, you may be entitled to that additional cash after the foreclosure auction. However, if the residence has any junior liens, such as a second mortgage or HELOC, or if a creditor lodged a judgment lien on the property, those parties get the cash to settle the amount owing. The funds remaining after paying off these obligations then go to the foreclosed homeowner.
Deficiency judgments are sometimes limited by state law.
Deficiency judgements are occasionally subject to limitations under state law. Some jurisdictions limit the amount of a deficiency judgment, such as requiring the borrower to get credit for the home’s fair market value if the foreclosure sale price is less. In other words, while computing the shortfall amount, the property’s fair market value is substituted for the foreclosure sale price.
Other states impose time restrictions for lenders to obtain a deficiency judgment against a borrower, ranging from three months to one year following the foreclosure sale. (Speak with a foreclosure lawyer in your state to learn the time restriction in your state.) Furthermore, different jurisdictions have different procedural criteria for obtaining a deficit judgment, and some states do not allow deficiency judgments in certain instances, such as following nonjudicial foreclosures.
How Do Lenders Get Deficiency Judgments?
In general, if a lender obtains a deficiency judgment, it may collect the amount (in the case above, $50,000) from the borrower by traditional collection tactics such as wage garnishment or levying a bank account.
Even if your lender obtains a shortfall judgment, you may very certainly discharge your responsibility for a deficiency judgment, along with many other dischargeable debts, in a Chapter 7 or Chapter 13 bankruptcy.
Will My Lender File a Deficiency Judgment Against Me?
Even though your lender has the legal authority to pursue you for a deficiency judgment, it may choose not to do so, particularly if you don’t have a lot of assets to fulfill the judgment. The lender may determine that it is not worth the cost and effort of obtaining a deficit judgment.
Nonetheless, you should be aware of the possibility of your lender pursuing you for a deficit following a foreclosure. Furthermore, even if the lender chooses not to sue you for a deficiency judgment, it may subsequently transfer the loan to a debt buyer, who may later sue you for the deficit.
Deficit Judgments Following South Carolina Foreclosures
In South Carolina, foreclosures are judicial, which means the lender must foreclose via the state court system. A judicial foreclosure starts when a lender files a lawsuit (a “complaint”) seeking a judge to provide permission for a foreclosure sale.
Deficiency South Carolina allows for judgments.
In most cases, the lender must retain the right to a defect in the complaint. However, if the lender waives its right to a deficit judgment in the complaint or afterwards, it cannot get one. 29-3-660, S.C. Code Ann., and S.C. Rules Civ. Proc. Rule 71(b)).
Why Might the Lender Waive the Deficiency?
There is no upset bid period following the sale if the lender waives the deficit judgment. An “upset bid” occurs when a bidder is permitted to make a greater offer after the foreclosure auction and become the winning bidder. In South Carolina, the bidding does not finish on the day of the foreclosure auction unless the foreclosure documentation states that no personal or deficiency judgment is sought or any right to such judgment is specifically relinquished in writing. Instead, bidding will be available until the 30th day after the sale, excluding the selling day. As a result, since an upset-bid period slows the conclusion of the foreclosure procedure, the lender may often waive a deficiency judgment. 15-39-720, 15-39-760, S.C. Rules Civ. Proc. Rule 71(b)).
lowering the amount of deficiency
Even if the lender pursues a deficiency judgment, if you believe the foreclosure sale price was less than the property’s real worth, you may get an appraisal order from the court within 30 days after the sale. 29-3-680 South Carolina Code Ann. You, the lender, and the court will then each choose an appraiser to assess the property’s fair market value as of the selling date. 29-3-710 (S.C. Code Ann.). The deficit will be restricted to the entire outstanding debt minus the fair market value after the assessment is completed (a majority of the appraisers must agree on the valuation). 29-3-740 (S.C. Code Ann.).
However, you may forgo your appraisal rights (S.C. Code Ann. 29-3-680)—for example, in the mortgage—unless the foreclosure pertains to a dwelling place, as defined in S.C. Code Ann. 12-37-250 (essentially, if the property is your permanent home and legal abode), or to a consumer credit transaction. (See S.C. Code Ann. 37-1-301(11)).
What Happens to Second Mortgages, Home Equity Lines of Credit, and Other Junior Liens?
When a senior lienholder forecloses, any junior liens, such as second mortgages and HELOCs, are likewise foreclosed, and the junior lienholders lose their security interest in the real estate. Junior lienholders are frequently referred to as “sold-out junior lienholders” in this case. However, this does not absolve you of your obligation to junior lienholders.
Assume a junior lienholder, such as a second mortgage lender, is sold out in this fashion, and the profits of the foreclosure sale are insufficient to cover what you owe to that junior lienholder. In such instance, the second mortgage lender might sue you personally under the terms of the loan’s promissory note. So, if the equity in your property is insufficient to satisfy second and third mortgages, for example, you may face litigation from those lenders to collect the remaining balances.
Obtaining Foreclosure Assistance in South Carolina
Consider speaking with a foreclosure attorney if you have concerns regarding South Carolina’s foreclosure procedure or want to learn about viable foreclosure defenses and maybe challenge the foreclosure in court.