South Carolina real estate law - foreclosure, deed, title questions

StephenT1
Posts: 6

Posted:

Looking for someone familiar with South Carolina real estate law. I understand this topic may be outside the scope of this forum.

Short version: In SC, when a mortgaged property is sold at a foreclosure auction, who gets the title? The court order *deed* shows the transfer of ownership to the party which bid the highest amount and paid; does that party actually gain control (title) of the property?

Long version: Our HOA filed a lien against a mortgaged unit which was delinquent in paying monthly fees. After several years the homeowner filed for bankruptcy and after a couple more years, during which the mortgaged holder failed to act, the HOA foreclosed on the unit. At auction, the HOA was the sole bidder and the Master-in-Equity in the county court sold the property to the HOA. The bid, a nominal amount, was paid to the court and a "court equity deed" was filed with the county Recorder of Deeds. The legal notice of the foreclosure auction stated that the sale was subject to first and second mortgage assignments and lists the amounts, but they (the mortgages) are not mentioned at all in the court equity deed.

Questions:
Does the HOA now own the property? Where is the title? Is the lien from the mortgage holder still effective? Is the HOA obligated for the amount of the mortgage?

Does the HOA now own an asset which should be budgeted for maintenance, depreciated, etc.?

Is the HOA obligated for the property taxes, unpaid and/or current, on the property?

Is the HOA obligated for the current monthly assessments? I assume the HOA can pay itself, which is a wash, but shouldn't there be bookkeeping entries showing the monthly transactions? (Because the HOA was the winning and sole bidder, there are no new funds from which the pay the past due assessments, which I guess was the intent of forcing the foreclosure and sale in the first place).

Can the HOA legally rent the unit? And keep the rent income to offset the current and back assessments and other expenses?

Can the HOA legally sell the unit? Would the proceeds go to the HOA or the mortgage holder(s)? Does the existing mortgage effectively (or actually) prevent a further sale?

I would appreciate any insight or links to authoritative online sources.

RichardP13 (California)
Posts: 3,868

Posted:

Stephen

First thing you need to do is find out who actually has title to the property in question. Find someone who has access to title or property reports, such as someone in the mortgage or real estate field.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Stephen,

How did your HOA get so far into this proceeding without a lawyer?

I once almost placed a bid on a foreclosure at a trustee's sale. Fortunately, I discovered that the foreclosure was for a second mortgage. Had I been the winning bidder then, by state law, I would have had 30 days in which to pay off the first mortgage.

In most states, a first mortgage has priority over an HOA lien. (If it was not that way no home in an HOA would ever have a mortgage.) An HOA foreclosure will not extinguish the first mortgage lien. This is likely why no one else placed a bid at the foreclosure auction.

The rest of your questions should be directed to the lawyer who handled the foreclosure for your association.

RichardP13 (California)
Posts: 3,868

Posted:

In general, before an HOA forecloses on a lien it may have placed on a property, it needs to know if the property is upside down and by how much. If it is, then this would be an opportunity for the HOA to recoup their loses. But it is a business that should be left to professionals, if not, well the consequences could be devastating.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Places to start looking:

http://www.nolo.com/legal-encyclopedia/south-carolina-hoa-coa-foreclosures.html

http://www.nolo.com/legal-encyclopedia/what-happens-mortgages-the-hoa-forecloses-lien.html

The first is specifically about SC
The second is more general and some things may not apply to SC.

Sikubali jukumu. Read all posts at your own risk.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I was in a similar situation when we foreclosed on a property. Luckily, I got someone else to outbid the HOA. Otherwise, YES the HOA owns that property and the debt owed on it. Which is a bad idea for the most part as you can tell. It means the HOA does owe the mortgage pay off, taxes, HOA dues, maintenance, and repairs. That money ALL comes out of the HOA budget. So depending on the money owed on the house, your HOA just got itself a house payment...

Now, for who has the title. This is going to need a lawyer. This time a Real Estate lawyer is the right type. Our lawyer dropped the ball and did not give us the check for like 6 months after the foreclosure. He found it in a file while I was working on a lien issue. So it could be the case that somewhere in a lawyer's office your check is sitting in a file somewhere. It may be in the lawyer's office that handled the foreclosure most likely.

There is also the right for redemption. Which means the owner CAN up to a certain time buy back the house. They would have to pay back the bid amount, the amount owed on the house, and any improvements one did in that time period. I did NOT specify a time because EACH state is different. Some states do NOT offer it at all while others it's up to a year the owner can come back. That means basically owning the property during that period puts you in a huge holding pattern. Can not sell the property during that time. Most of the money is just going into a money pit till then.

It would be best for the HOA to sell the property once they know they own it. Anyone who has owned rental property know the headache. This will just triple with an HOA involved. Why? Because it's the WHOLE HOA's responsibility to take care of it. Including repairs, dues, utilities, legal issues, and eviction issues. There is this thing called "Tenant's rights". An renter can take up to a year NOT paying rent without a way to evict. Can the HOA afford to keep paying the mortgage and expenses? Best to unload it and run with any money that may be made.

My foreclosure got more complicated after the foreclosure. My buyer backed out causing it to go into a Tax lien situation. The house stayed empty for another year or so. It had a water pipe break. The owner/tenant were involved in a lawsuit over the issue. I had to testify. All told it was a 3 year struggle over this property that glad we got rid of.

Former HOA President

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By StephenT1 on 05/07/2016 10:16 AM

Questions:
Does the HOA now own the property? Where is the title? Is the lien from the mortgage holder still effective? Is the HOA obligated for the amount of the mortgage?

My understanding is when a property is foreclosed, any lesser liens are extinguished from the property.

Typically, with a few excepetions based on State law, the lender who has the mortgage has a superior lien to the HOA. Therefore, when the HOA forecloses, they would have an encumbered title to the property.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By TimB4 on 05/08/2016 7:48 AM

Posted By StephenT1 on 05/07/2016 10:16 AM

Questions:
Does the HOA now own the property? Where is the title? Is the lien from the mortgage holder still effective? Is the HOA obligated for the amount of the mortgage?

My understanding is when a property is foreclosed, any lesser liens are extinguished from the property.

Typically, with a few excepetions based on State law, the lender who has the mortgage has a superior lien to the HOA. Therefore, when the HOA forecloses, they would have an encumbered title to the property.

Around 22 states have created super-lien priority to HOA obligations (most are for 6 mos prior to actual title transfer, some longer).

Over the past couple of years, state courts have interpreted these laws to mean that the HOA's 6 mo lien has top priority. If the HOA lien is foreclosed, the mortgage is considered a secondary lien and is wiped out.

Mortgage companies are fighting back now saying that the HOA's 6 mo lien is only a payment priority and not a lien priority. No cases yet on this.

Also, freddy mac and fannie mae are now challenging the HOA foreclosures because government entities must pre-approve any foreclosure on the property - and of course, they aren't going to approve an HOA foreclosure when they own the mortgage.

In other words - stay tuned.

Sikubali jukumu. Read all posts at your own risk.

StephenT1
Posts: 6

Posted:

Thanks for all of the responses and helpful information.

For LarryB13: The HOA does have an attorney who has been filing all of the papers and documents for the foreclosure. I expect to present my questions to the attorney eventually, but wanted to better understand the situation beforehand.

For RichardP13: I may have some trouble understanding the difference between a deed and a title. The county recorder of deeds has a list of documents which can be recorded, but "title" is not among them. I located the "court equity deed" with an online search, but nothing about title. Is it possible that South Carolina does not use titles for real property? (Among the papers for the unit I purchased is a deed transferring the property from the seller to me, but nothing about a title. I paid cash, so there is no current mortgage).

When I asked the HOA Board several questions about this transaction, I was told that the HOA does not "own" the property, rather only has a deed, but not a clear title, and thus does not have to pay the mortgage(s). The HOA is now waiting for the bank to act (foreclose?) and then sell the unit to a new owner. The HOA doesn't have to pay the property taxes; they are added to the lien. I don't know the status of the previous owner's bankruptcy, but the legal announcement of the sale at auction said the sale is subject to the two mortgages, so they were apparently not eliminated.

Is it possible to have a deed and not a title? What does that even mean?

If the HOA forced the foreclosure and sale at auction in order to recover the lost assessments (and legal fees), why would the HOA bid for the unit? If the HOA paid the bid amount, how and when does it recover any money?

I brought my questions to this forum because I thought there might be something unique to SC that frames this transaction, Otherwise it makes no sense to me at all. If I am able to eventually find an explanation, I'll report it back here.

Thanks,

LarryB13 (Arizona)
Posts: 4,099

Posted:

Stephen,

I have always used the term "title" to refer to any type of deed. There are many types of deeds and the word "title" is just a less-precise word for deeds in general. I am not sure how others may interpret the term.

RichardP13 (California)
Posts: 3,868

Posted:

Stephen

A grant or mortgage is ownership. Title is referred to security interest in the property, but is not ownership in the regular sense of the term. The HOA, if they foreclosed, doesn't have ownership, only a security interest in the property. The bank has ownership, evidenced by the Note they or the investor holds.

My advice, you, as HOA better know what they are doing or they can get BURNED!

NpS (Pennsylvania)
Posts: 4,216

Posted:

State laws are not all the same.

There are lien theory states and title theory states. In a lien theory state, a mortgage is considered a lien but not ownership. In a title theory state (like what Richard is talking about), a mortgage is considered comparable to a deed. Some states, like mine, can't figure out what they are - and courts have ruled both ways - sometimes following lien theory and sometimes title theory.

SC appears to be a lien theory state (so Richard's comments that mortgage is ownership wouldn't apply).

As others have said, Deed = Title.

Your HOA got equitable deed subject to the existing mortgages. So obviously you don't have clear title.

Don't understand why your HOA went through the expense of foreclosure if the house was financially under water (debts exceeded market value).

IMO, if HOA is going to wait til a bank forecloses on the mortgage, they could have sat and waited without spending money to foreclose themselves.

Topic can be extremely complex, and you should not proceed without a lawyer IMO.

Sikubali jukumu. Read all posts at your own risk.

RichardP13 (California)
Posts: 3,868

Posted:

Quote:

Posted By NpS on 05/09/2016 6:43 PM
State laws are not all the same.

There are lien theory states and title theory states. In a lien theory state, a mortgage is considered a lien but not ownership. In a title theory state (like what Richard is talking about), a mortgage is considered comparable to a deed. Some states, like mine, can't figure out what they are - and courts have ruled both ways - sometimes following lien theory and sometimes title theory.

SC appears to be a lien theory state (so Richard's comments that mortgage is ownership wouldn't apply).

As others have said, Deed = Title.

Your HOA got equitable deed subject to the existing mortgages. So obviously you don't have clear title.

Don't understand why your HOA went through the expense of foreclosure if the house was financially under water (debts exceeded market value).

IMO, if HOA is going to wait til a bank forecloses on the mortgage, they could have sat and waited without spending money to foreclose themselves.

Topic can be extremely complex, and you should not proceed without a lawyer IMO.

Having worked for the largest mortgage lender in the world, I have seen every note and deed from every state for every type of loan. One document entails ownership while the other entails security and in the event of default who has the power or authority to foreclose.

In many states, there is a way for an HOA to take over title, make lots of money before the first mortgagee decides to actually foreclose on the HOA. I've done it, and have seen it done very successfully. Have to have a solid game plan and be committed, if not, you will fail.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By RichardP13 on 05/09/2016 7:09 PM
In many states, there is a way for an HOA to take over title, make lots of money before the first mortgagee decides to actually foreclose on the HOA. I've done it, and have seen it done very successfully. Have to have a solid game plan and be committed, if not, you will fail.

That's possible in the 22 states where HOA liens are given super-lien priority status. SC is not one of them.

But where deed in foreclosure is subject to the mortgages (as in OP's case), there would have to be sufficient equity in the property above and beyond the mortgage debt.

Sikubali jukumu. Read all posts at your own risk.

RichardP13 (California)
Posts: 3,868

Posted:

Quote:

Posted By NpS on 05/09/2016 7:52 PM

Posted By RichardP13 on 05/09/2016 7:09 PM
In many states, there is a way for an HOA to take over title, make lots of money before the first mortgagee decides to actually foreclose on the HOA. I've done it, and have seen it done very successfully. Have to have a solid game plan and be committed, if not, you will fail.

That's possible in the 22 states where HOA liens are given super-lien priority status. SC is not one of them.

But where deed in foreclosure is subject to the mortgages (as in OP's case), there would have to be sufficient equity in the property above and beyond the mortgage debt.

Why?

Foreclose on the property. Get a sheriff to remove the owners. Depending on the rental market, you can make 12K to 30K a year on one property. Pay 6% to the rental company.

As long as the property is upside down, the mortgagee will stay away and you can continue to make money. You don't pay tax as you are recouping a bad debt.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By RichardP13 on 05/09/2016 8:17 PM

Posted By NpS on 05/09/2016 7:52 PM

Posted By RichardP13 on 05/09/2016 7:09 PM
In many states, there is a way for an HOA to take over title, make lots of money before the first mortgagee decides to actually foreclose on the HOA. I've done it, and have seen it done very successfully. Have to have a solid game plan and be committed, if not, you will fail.

That's possible in the 22 states where HOA liens are given super-lien priority status. SC is not one of them.

But where deed in foreclosure is subject to the mortgages (as in OP's case), there would have to be sufficient equity in the property above and beyond the mortgage debt.

Why?

Foreclose on the property. Get a sheriff to remove the owners. Depending on the rental market, you can make 12K to 30K a year on one property. Pay 6% to the rental company.

As long as the property is upside down, the mortgagee will stay away and you can continue to make money. You don't pay tax as you are recouping a bad debt.

Hadn't thought about rental. In my experience, condition of property has killed any chance of renting. Other concern would be lease term - Can you offer a long term lease?

Also would depend on foreclosure cost. Around here, minimum of $2-3k.

Sikubali jukumu. Read all posts at your own risk.

RichardP13 (California)
Posts: 3,868

Posted:

There is a special lease form for property under foreclosure. In one community made $200K in two years on 4 properties.