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Home / Opinion Digests / Real Property / Real Property – Foreclosure Price – Equity & Debt Methods – Homeowners’ Association Dues – Senior Encumbrance

Real Property – Foreclosure Price – Equity & Debt Methods – Homeowners’ Association Dues – Senior Encumbrance

In this case, which seeks to set aside a foreclosure sale arising from unpaid homeowners’ association dues, the court follows the equity method and adds the amount of the home’s mortgage to the price paid at the foreclosure sale to determine that the sale price does not shock the conscience.

We affirm the master-in-equity’s denial of appellants’ motion to set aside the foreclosure sale.

The parties agree that the fair market value of the property in question was $128,000. There was a mortgage balance of $66,004 when the homeowners’ association foreclosed because appellants had failed to pay their association dues. Respondent Regime Solutions LLC’s successful bid at the foreclosure sale was for $3,036.

Equity Method

Appellants contend that the sale price shocks the conscience. They rely on the “Equity Method”: subtracting the amount of the senior encumbrance (the mortgage) from the property’s fair market value. The resulting number is the amount of equity in the property. The equity is then compared to the successful bid.

According to appellants, the successful bid must be greater than 10 percent of the equity or it should be set aside because such a sale would shock the conscience. In this case, under the Equity Method, the successful bid was 4.89 percent of the equity and thus should be set aside.

Appellants claim the Equity Method is proper because the buyer was not required to assume appellants’ mortgage.

Debt Method

Respondents advocate for the “Debt Method”: combining the amount of the successful bid with the amount of the senior encumbrance in order to create an effective bid price. The effective bid price is then compared to the fair market value. As long as the effective bid price is greater than 10 percent of the fair market value, the sale should be upheld.

In this case, under the Debt Method, the effective bid price was 53.94 percent of the fair market value. We agree with respondents that the Debt Method is the proper method for considering a senior encumbrance.

Our courts have not established a bright line rule for what percentage the sale value must be with respect to the fair market value in order to shock the conscience of the court. Application of the Debt Method and the Equity Method appears in various past decisions of our appellate courts.

In this case, we find the Debt Method is the more reasonable method for determining whether a successful bid shocks the conscience because the successful bidder is required to satisfy the senior encumbrance dollar for dollar prior to obtaining clear title to the property. Also, it is reasonable to assume any bidder at a foreclosure sale is aware of the existence of a senior encumbrance and adjusts its bid accordingly.

Further, application of the Debt Method is consistent with our general policy of upholding properly conducted judicial sales because the Debt Method will result in fewer set asides.

The dissent suggests applying the Debt Method could lead judicial sale buyers to purchase properties and rent them for income without ever satisfying the senior encumbrance. First, we believe this is a solution in search of a problem because appellants presented no evidence or arguments to the master to suggest Regime, or any other entity, was engaging in this kind of scheme.

Second, we question whether such a scheme would be profitable considering the timelines involved with purchasing a property at a judicial sale, evicting the prior owner, and finding a tenant versus the senior mortgage holder foreclosing the property and cutting off the flow of rental income.

Third, we believe the circumstances of this case are rare: where a homeowner decided to forego satisfying a “de minimis” junior encumbrance for several years, despite having the ability to pay, while continuing to pay the monthly mortgage payment.

Finally, with regard to the idea that the law should redress the alleged injustice that may result from judicial sale buyers employing this rental scheme, we believe the legislature is better suited to address the concern.

We affirm the master’s ruling that the Debt Method is the proper method to account for a senior encumbrance and that Regime’s bid did not shock the conscience.


(Lockemy, C.J.) The Equity Method is a better vehicle to determine whether a bid shocks the conscience.

A buyer at a judicial sale in which a senior lienholder is not a party takes the property subject to that lien, but the buyer is not responsible for its payment. I do not believe it proper to give a judicial sale buyer credit for assuming a debt which it is not legally required to pay.

Such a rule could create a perverse circumstance where a judicial sale bidder purchases a property for a de minimis amount simply to capitalize on rental revenue until the senior lienholder forecloses its mortgage. Whether rare or the impetus to create a business of judicial buyers seeking a windfall profit, in my view, the result is unjust.

The law should provide an avenue of redress for this injustice. Adopting the Equity Method at least opens up that avenue for consideration by the courts.

Applying the Equity Method, the price paid by Regime was so inadequate as to shock the conscience. The judicial sale should be set aside.

Winrose Homeowners’ Association, Inc. v. Hale (Lawyers Weekly No. 011-037-18, 11 pp.) (Paula Thomas, J.) (James Lockemy, C.J., dissenting) Appealed from Richland County (Joseph Strickland, Master-in-Equity) Phillip Anthony Curiale and Brian L. Boger for Appellants; Stephanie Carol Trotter for Respondent Winrose Homeowners’ Association, Inc.; Eric Christopher Hale for Respondent Regime Solutions, LLC. S.C. App.


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