A "deficiency judgment" is a personal judgment against a borrower for the difference between the mortgage indebtedness and a lesser price paid for the home at a foreclosure sale.
If you’re a South Carolina homeowner about to go through a foreclosure, you should know that the foreclosing bank can get a deficiency judgment against you. But the bank can waive its right to a deficiency judgment if it wants to prevent an upset bid after the sale. (An "upset bid" is when, after the foreclosure sale, someone makes a higher bid than the winning bidder made at the foreclosure sale.)
Also, even if the bank does seek a deficiency judgment, you can ask the court to appraise the property and, if the value is more than the sale price, the deficiency is limited to the total outstanding debt minus the appraised value.
What Is a Foreclosure Deficiency in South Carolina?
When the foreclosure sale price doesn't cover the borrower's mortgage debt balance, the difference between the total debt and the sale price is called a "deficiency."
How to Calculate the Amount of the Deficiency in South Carolina
If the borrower’s total debt is $500,000, but the home sells to the highest bidder at a foreclosure sale for $450,000, the deficiency is $50,000.
What Is a “Deficiency Judgment” After a Foreclosure Sale?
After a foreclosure sale results in a deficiency, the bank can seek a personal judgment (a deficiency judgment) against the borrower to recover the deficiency amount.
In some states, the bank may ask for a deficiency judgment as part of a judicial foreclosure process. In other states, the bank has to file a separate lawsuit against the borrower after a foreclosure to get a deficiency judgment.
How Banks Collect Deficiency Judgments
Generally, once a bank gets a deficiency judgment, it may collect this amount (in the example above, $20,000) from the borrower using regular collection methods.
Does South Carolina Allow Deficiency Judgments?
Yes. South Carolina generally allows deficiency judgments, subject to some limitations.
What Are South Carolina's Deficiency Judgment Laws?
To find the statutes that govern deficiency judgments in South Carolina, go to the South Carolina Legislature’s webpage. 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).
How Do Deficiency Judgments Work in South Carolina?
Foreclosures in South Carolina are judicial, which means the bank must foreclose through the state court system. A judicial foreclosure begins when the bank files a lawsuit (a “complaint”) asking a court for an order allowing a foreclosure sale.
The bank may ask for a deficiency judgment in the foreclosure lawsuit.
What Are the Legal Requirements for a Deficiency Judgment in South Carolina?
The bank may reserve its right to a deficiency in the foreclosure complaint. However, if the bank waives the right to a deficiency judgment in the complaint or thereafter, it can't get one. (S.C. Code § 29-3-660 and S.C. Rules Civ. Proc. Rule 71(b)).
Why Banks Sometimes Waive the Deficiency in South Carolina
If the bank doesn’t waive a deficiency judgment, the sale remains open until the 30th day after the sale (excluding the day of the sale). If someone makes an upset bid—that is, a bid higher than the winning bid from the foreclosure sale—that bidder becomes the new winning bidder.
So, in many cases, banks waive a deficiency judgment because an upset bid period delays the completion of the foreclosure process. (S.C. Code § 15-39-720, § 15-39-760, S.C. Rules Civ. Proc. Rule 71(b)).
How to Challenge the Deficiency Amount in South Carolina
If a bank goes after you for a deficiency judgment, but you think the foreclosure sale price was less than the property’s true value, in most cases, you may ask the court for an appraisal. You have to make your official request to the court within 30 days after the sale. (S.C. Code § 29-3-680).
The borrower, bank, and judge then each designate an appraiser to determine the fair market value of the property as of the date of the sale. Following the appraisal (a majority of the appraisers have to agree on the value), the court will limit the deficiency to the total outstanding debt minus the fair market value. (S.C. Code § 29-3-740). To get details about how this process works, talk to a local attorney.
Under South Carolina law, you may waive your appraisal rights (S.C. Code § 29-3-680)—say, in the mortgage—unless the foreclosure relates to a dwelling place, as defined in S.C. Code § 12-37-250 (basically, if it's your permanent home and legal residence), or to a consumer credit transaction. (S.C. Code § 37-1-301(11)).
Can I Avoid a Deficiency Judgment in South Carolina?
If your bank gets a deficiency judgment against you, you might be able to eliminate your liability for the judgment (and other dischargeable debts) in a Chapter 7 or Chapter 13 bankruptcy. Or you might be able to raise a defense to the deficiency. Also, you might be able to limit the deficiency to the total outstanding debt minus the fair market value, as discussed above.
Getting Help
If you’re a homeowner in South Carolina and you’re facing a foreclosure, consider talking to a local attorney if you have questions about deficiency judgments, the foreclosure process in South Carolina, or any potential defenses you may have to a foreclosure.
If you need information about different options that might be available to you to prevent a foreclosure, like a loan modification, forbearance agreement, or repayment plan, consider talking to a HUD-approved housing counselor.