Deficiency Judgments After Foreclosure in South Carolina

In South Carolina, a foreclosing lender has the right to get a deficiency judgment against you. But it might have an incentive not to do so.

If you go through a foreclosure in South Carolina, the foreclosure auction could result in a deficiency. (When the foreclosure sale price doesn't cover the balance of the borrower's mortgage debt, the difference between the total debt and the sale price is called a "deficiency.")

In most states, if a foreclosure sale results in a deficiency, the lender may get a "deficiency judgment" (a personal judgment) against the borrower for the deficiency amount. South Carolina law allows the lender to get a deficiency judgment. But it might have an incentive not to do so because waiving the right to a deficiency judgment eliminates the post-sale upset bid period (see below). And, even if the lender seeks a deficiency judgment, you can ask a court to limit the amount of the deficiency if the property sold for less than its fair market value at the foreclosure sale.

How Foreclosure Sales Work

If you default on your mortgage loan, the lender can go through a specific legal process called "foreclosure" to sell your home to repay the outstanding debt. After the lender fulfills all of the legal requirements for foreclosure, the final step in a judicial or nonjudicial foreclosure is the foreclosure sale, where the home is sold to a new owner at a public auction.

The foreclosing lender submits the first bid at the sale, which is a "credit bid." With a credit bid, the lender gets a credit in the amount of the borrower's debt. The lender can bid up to the total amount of the debt, including foreclosure fees and costs, or it might bid less. Most of the time, the lender makes the highest bid at the sale and becomes the new owner of the property because no one else bids. If the lender buys the property at the sale and gets title to the home, the property is considered "real estate owned" (REO).

Lenders regularly bid less than the total amount of a borrower's mortgage debt at foreclosure sales.

What Is a "Deficiency Judgment" After a Foreclosure Sale?

When the lender gains ownership of a property through the foreclosure process, and if state law allows it, the lender can seek a personal judgment against the borrower to recover the deficiency, if there is one. This kind of money judgment is called a "deficiency judgment." In some states, the lender may ask for a deficiency judgment as part of a judicial foreclosure process. In other states, the lender has to file a separate lawsuit against the borrower after the foreclosure to get a deficiency judgment.

But if the sale price is equal to, or more than, the mortgage debt amount, you're off the hook because no deficiency exists—even if the lender can't resell the property for the same amount after the foreclosure sale. In fact, if the sale results in excess proceeds, you might be entitled to that extra money following the foreclosure auction. But, if any junior liens were on the home, like a second mortgage or HELOC, or if a creditor recorded a judgment lien against the property, those parties get the funds to satisfy the amount they're owed. Then, any proceeds left over after paying off these liens belong to the foreclosed homeowner.

State Law Sometimes Limits Deficiency Judgments

State law sometimes imposes limits on deficiency judgments. Some states restrict deficiency judgment amounts, such as by requiring that the borrower get credit for the home's fair market value if the foreclosure sale price is less. That is, the property's fair market value is substituted for the foreclosure sale price when calculating the deficiency amount.

Other states limit set time limits for how long lenders get to seek a deficiency judgment against a borrower, typically ranging from three months to one year after the foreclosure sale. (To find out the time limit in your state, talk to a foreclosure lawyer.) Also, various states require specific procedural requirements to get a deficiency judgment, while some states don't allow deficiency judgments in certain circumstances, like after nonjudicial foreclosures.

How Lenders Collect Deficiency Judgments

Generally, once a lender gets a deficiency judgment, it may collect this amount (in the example above, $50,000) from the borrower using regular collection methods, like garnishing wages or levying a bank account.

Even if your lender gets a deficiency judgment, you can probably eliminate your liability for a deficiency judgment, like many other dischargeable debts, in a Chapter 7 or Chapter 13 bankruptcy.

Will My Lender Sue Me for a Deficiency Judgment?

Even if your lender has the right under state law to go after you for a deficiency judgment, it might decide not to do so—especially if you don't have many assets to satisfy the judgment. The lender might decide it isn't worth the expense and effort of getting a deficiency judgment.

Still, you should know whether your lender can potentially pursue you for a deficiency after a foreclosure. Also, even if the lender decides not to sue you for a deficiency judgment, it could later sell the debt to a debt buyer who might file a lawsuit against you for the deficiency later on.

Deficiency Judgments After South Carolina Foreclosures

Foreclosures in South Carolina are judicial, which means the lender must foreclose through the state court system. A judicial foreclosure begins when the lender files a lawsuit (a "complaint") asking a court for an order allowing a foreclosure sale.

Deficiency Judgments are Allowed in South Carolina

Generally, the lender has to reserve its right to a deficiency in the complaint. But if the lender waives the right to a deficiency judgment in the complaint or thereafter, it can't get one. (S.C. Code Ann. § 29-3-660 and S.C. Rules Civ. Proc. Rule 71(b)).

Why the Lender Might Waive the Deficiency

If the lender waives the deficiency judgment, then there is no upset bid period after the sale. An "upset bid" happens when someone is allowed to make a higher bid after the foreclosure sale and become the winning bidder. In South Carolina, unless the foreclosure paperwork says that no personal or deficiency judgment is demanded or any right to such judgment is expressly waived in writing, the bidding doesn't close on the day of the foreclosure sale. Instead, bidding remains open until the 30th day after the sale, exclusive of the sale day. So, in many cases, the lender will waive a deficiency judgment because an upset-bid period delays the completion of the foreclosure process. (S.C. Code Ann. § 15-39-720, § 15-39-760, S.C. Rules Civ. Proc. Rule 71(b)).

Reducing the Amount of the Deficiency

Even if the lender seeks a deficiency judgment, if you feel that the foreclosure sale price was less than the property's true value, in most cases, you may ask the court for an order of appraisal within 30 days of the sale. (S.C. Code Ann. § 29-3-680). You, the lender, and judge then each designate an appraiser to determine the fair market value of the property as of the sale date. (S.C. Code Ann. § 29-3-710). Once the appraisal has been completed (a majority of the appraisers must agree on the value), the deficiency will be limited to the total outstanding debt minus the fair market value. (S.C. Code Ann. § 29-3-740).

But under South Carolina law, you may waive your appraisal rights (S.C. Code Ann. § 29-3-680)—for example, in the mortgage—unless the foreclosure relates to a dwelling place, as defined in S.C. Code Ann. § 12-37-250 (basically, if the property is your permanent home and legal residence), or to a consumer credit transaction. (S.C. Code Ann. § 37-1-301(11)).

What Happens to Second Mortgages, HELOCs, and Other Junior Liens?

Generally, when a senior lienholder forecloses, any junior liens—like second mortgages and HELOCs, among others—are also foreclosed, and those junior lienholders lose their security interest in the real estate. In this situation, junior lienholders are sometimes called "sold-out junior lienholders." But that doesn't mean you're off the hook for the money you still owe to junior lienholders.

Suppose a junior lienholder, like a second mortgage lender, is sold out in this manner, and the foreclosure sale proceeds weren't sufficient to pay what you owe to that junior lienholder. In that case, the second mortgage lender could sue you personally on the loan's promissory note. So, if the equity in your home doesn't cover second and third mortgages, for example, you might face lawsuits from those lenders to collect the balance of those loans.

Getting Foreclosure Help in South Carolina

If you have questions about South Carolina's foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney.

It's also a good idea to talk to a HUD-approved housing counselor if you want to learn about different loss mitigation options. You can use the Consumer Financial Protection Bureau's Find a Counselor tool to get a list of HUD-approved housing counseling agencies in your area. You can also call the Homeownership Preservation Foundation (HOPE) Hotline, which is open 24 hours a day, seven days a week, at 888-995-HOPE (4673).

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