I live in Greenville, South Carolina, and I’m planning to purchase a home at a foreclosure sale. I do have one major concern, though. Based on what I’ve read, it sounds like the owners might be able to get the house back after the foreclosure. I don’t really understand how that would work though. How could they do this?
While South Carolina law doesn't permit foreclosed homeowners to repurchase or "redeem" the home after a foreclosure, in some situations, the homeowners or another party can place an "upset bid" and thereby take the home away from you after you’ve bought it at the sale. (We’ll describe below how the upset bid process works and how South Carolina’s laws might affect your ability to settle into your new home without worrying that you’ll eventually lose it.)
In addition, not only do you have to maybe worry about someone making an upset bid, there are some circumstances in which the IRS may be able to take the home away from you by redeeming it after the sale. This rarely happens, however.
In South Carolina, in some situations, the bidding period remains open for 30 days after the foreclosure sale and another party may enter an upset bid (S.C. Code Ann. § 15-39-720). This happens only if the lender demands a deficiency judgment from the homeowners in the foreclosure (S.C. Code Ann. § 15-39-760).
What is an upset bid? Even after the sale, another party can come in and make a higher bid than you made at the foreclosure sale. This is called an upset bid. What this means for you is that someone else can potentially take the home away from you, despite the fact that you already bought it at the original foreclosure sale.
What is a deficiency judgment? When a lender forecloses on a mortgage, the total debt owed by the homeowners to the lender frequently exceeds the foreclosure sale price. The difference between the sale price and the total debt is called a deficiency. In some states, including South Carolina, the lender can seek a personal judgment against the homeowner to recover the deficiency. (Learn more about Deficiency Judgments After Foreclosure in South Carolina.)
Under South Carolina law, if the lender waives (gives up) the right to a deficiency judgment, then there is no upset-bid period and the original sale is final.
To find out whether the lender is demanding or waiving a deficiency judgment, check the notice of foreclosure sale that was published in the local newspaper as part of the foreclosure process. South Carolina law requires that the notice of sale include information about the deficiency (S.C. Code Ann. § 15-39-760). You can often find these online. Also, sometimes, the party conducting the sale will announce at the sale if the lender is seeking a deficiency.
Most of the time, the lender will waive the deficiency, to prevent the sale from being held open. This means that in the majority of South Carolina foreclosures, the winning bidder at the original foreclosure sale gets the house.
It's also possible, but not common, for the IRS to redeem the home after someone has purchased it at the foreclosure sale. This can occur only if there was a federal tax lien on the home. The IRS would have to reimburse you the amount you paid at the foreclosure sale (plus interest and expenses) within 120 days after the sale in order to redeem. If the IRS considers redeeming the house, it would send you a notice letting you know.
To find the statutes that discuss upset bids after a foreclosure sale in South Carolina, go to Title 15, Chapter 39 of the South Carolina code of Laws.