In South Carolina, if you go through foreclosure and the sale price is not enough to cover the balance of your mortgage, your lender can come after you for the difference (called a "deficiency"). But the lender might waive its right to a deficiency judgment. (To learn what to do, and what not do, if you’re facing a foreclosure, read Foreclosure Do's and Don'ts.)
Read on to learn what a deficiency judgment is, when your mortgage lender can collect one against you in South Carolina, and what happens to the deficiency in a short sale or a deed in lieu of foreclosure in South Carolina.
When a lender forecloses, the total debt the borrowers owe to the lender frequently exceeds the foreclosure sale price. The difference between the sale price and the total debt is called a deficiency.
Example. Say the total debt owed is $250,000, but the home only sells for $200,000 at the foreclosure sale. The deficiency is $50,000.
In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount (in our example, $50,000) from the borrowers by doing such things as garnishing the borrowers’ wages or levying the borrowers’ bank account. (Learn about methods that creditors can use to collect judgments.)
(To learn more about deficiency judgments in the foreclosure context, see Deficiency Judgments: Will You Still Owe Money After the Foreclosure?)
Foreclosures in South Carolina are judicial, which means the lender has to go through state court. (To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?) The lender initiates the foreclosure by filing a complaint with the court. The complaint is served to the homeowner, along with a summons.
Generally, the lender should 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)).
If the lender waives the deficiency judgment, then there is no upset bid period after the sale. (S.C. Code Ann. § 15-39-720, § 15-39-760). (An “upset bid” happens when someone is allowed to make a higher bid after the foreclosure sale and become the winning bidder.)
If the 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 date of the sale. (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)).
Generally, when a senior lienholder forecloses, any junior liens (these would include second mortgages and HELOCs, among others) are also foreclosed and those junior lienholders lose their security interest in the real estate. If a junior mortgage holder has been sold-out in this manner, that junior mortgage holder can sue you personally on the promissory note. This means that if the equity in your home doesn’t cover second and third mortgages, you may face lawsuits from those lenders to collect the balance of the loans. (Learn more in our article What Happens to Liens and Second Mortgages in Foreclosure?)
A short sale is when you sell your home for less than the total debt balance remaining on your mortgage and the proceeds of the sale pay off a portion of the mortgage balance. (Learn more about short sales to avoid foreclosure.)
In South Carolina, a lender can get a deficiency judgment following a short sale. To avoid a deficiency judgment, the short sale agreement must expressly state that the lender waives its right to the deficiency. If the short sale agreement does not contain this waiver, the lender may file a lawsuit to obtain a deficiency judgment. Though, if the lender forgives the deficiency, you might face tax consequences.
A deed in lieu of foreclosure occurs when a lender agrees to accept a deed to the property instead of foreclosing in order to obtain title. With a deed in lieu of foreclosure, the deficiency amount is the difference between the fair market value of the property and the total debt. (Learn more about deeds in lieu of foreclosure.)
In South Carolina, a lender can get a deficiency judgment following a deed in lieu of foreclosure. To avoid a deficiency judgment with a deed in lieu of foreclosure, the agreement must expressly state that the transaction is in full satisfaction of the debt. If the deed in lieu of foreclosure agreement does not contain this provision, the lender may file a lawsuit to obtain a deficiency judgment against you. (Again, if the debt is forgiven, you might have a tax liability.)
To find the statutes that govern deficiency judgments, go to the South Carolina Legislature’s webpage at www.scstatehouse.gov. Click on “Code of Laws.” The relevant statutes are in Title 29, Chapter 3 (§§ 29-3-630 through 29-3-790).
To find the South Carolina Rule of Civil Procedure pertaining to deficiency judgments, go to www.sccourts.org and click on the “Legal Community” tab in the middle of the page. Select “Court Rules,” then click on the “Civil” tab, and go to Rule 71 (Foreclosure and Partition).
If you’re facing a foreclosure in South Carolina, consider talking to a foreclosure lawyer. A lawyer can tell you more about how the foreclosure process works and whether you have any possible defenses to the foreclosure. If you want more information about alternatives to foreclosure, a HUD-approved housing counselor is an excellent resource.
For more articles on foreclosure in South Carolina, visit our South Carolina Foreclosure Law Center.