South Carolina allows deficiency judgments against property owners—such as homeowners—who were underwater on their mortgages at the time their property was foreclosed.
What Is a Deficiency Judgment?
Foreclosure is essentially repossession for real estate (like a home). It’s a remedy available to the lender (e.g. the bank) when the borrower (the homeowner) doesn’t pay his or her mortgage. When that happens, the bank has the right to take possession of the property by foreclosing on it. It can then sell the property, and apply the proceeds of the sale against the amount owed under the mortgage.
When a property is “underwater” on its loan—also called being “upside down” on the loan—the outstanding balance on the loan is greater than the amount the property will bring in after being foreclosed. That in turn means there will be a “deficiency,” or a remaining balance.
South Carolina Allows Deficiency Judgments
The lender has the right to be paid in full. When foreclosing on the property doesn’t do that—doesn’t bring in enough to pay off the remaining balance of the loan—the lender can sue the borrower for the remaining balance or deficiency. A deficiency judgment is therefore when the lender sues to recover the remaining amount owed on the loan and wins, obtaining a court judgment for the money (the deficiency).
South Carolina is one of the states that allow a lender to seek a deficiency judgment against a borrower. The state affords borrowers slightly more protection than many other states that allow deficiency judgments, by extending the time for the auction at which the foreclosed property is sold. That provides an opportunity for a higher bid to come in. Since the deficiency is the difference between the amount outstanding on the loan and the amount the foreclosed property sells for, a higher bid means a smaller deficiency.
How an Attorney Can Help
A lawyer can help a lender decide whether it’s worthwhile pursuing a deficiency judgment—then help the lender do so. A lawyer can also help the homeowner, by defending against foreclosure and/or a deficiency judgment (if there are grounds for a defense); by negotiating with the lender to settle on more favorable terms; and/or by advising the borrower of other options, such as bankruptcy, which he or she should consider.
