Authored by Jim Slaughter & Jason Pruett
In an opinion issued yesterday (December 18, 2019), the South Carolina Supreme Court ruled that an HOA foreclosure for $250 was unconscionable given the specific facts of that case. The ruling is in Winrose Homeowners’ Association, Inc. and Regime Solutions, LLC v. Hale.
In Winrose, the homeowners bought their property in 1998 for $104,250, but in 2011 fell behind in their association assessment payments. The HOA filed a Complaint seeking foreclosure for nonpayment of dues. After the Complaint was filed, the homeowners received and paid a bill to the Association for $250, which they thought resolved the assessment dispute. Because the homeowners failed to answer or otherwise respond to the Complaint, they received no further notice of any proceedings or orders. Eventually, a Master in Equity (Judge) entered a default Judgment of Foreclosure and Sale against the homeowners for $2,898.67 (consisting of $250 in dues, $80.87 in interest, $542.80 in litigation costs, and $2,025 in attorney’s fees). The property was sold at public auction to a third party purchaser, again with no notice to the homeowners.
On these facts, the Supreme Court noted that a judicial sale can be set aside if “(1) the price was so grossly inadequate as to shock the conscience of the court, or (2) an inadequate–but not grossly inadequate–price at sale is accompanied by other circumstances from which the court may infer fraud has been committed.” A South Carolina Court of Appeals decision was noted in the Winrose case for the proposition that a judicial sale for less than 10% of a property’s actual value is a “discrepancy to shock the conscience of the court.” The Court then considered at length different methods for valuing a property.
Without getting into all the details, the end result is that the Court deemed the winning bid “so grossly inadequate as to shock the conscience of the court.” That was particularly the case as the third party purchaser took no steps to assume the outstanding mortgage on the property, a fact that is considered in South Carolina in determining the adequacy of a bid. The foreclosure was set aside and remanded to the Master in Equity for further proceedings, “including accounting for the fact that the Hales have continued to pay the mortgage on the Property.”
There are far too many details of the case to summarize here. However, it’s clear throughout the Winrose decision that the Court was displeased with the actions of the HOA, the association attorney, and the third party purchaser of the property. (“We note our concern about this foreclosure proceeding.” . . . “We are especially troubled by [the third party purchaser’s] participation in a foreclosure proceeding to accommodate its business model of leveraging a nominal debt to secure an exorbitant return from homeowners who fear the prospect of eviction.” . . . “We do not countenance the improper use of foreclosure proceedings by the HOA, its attorney, or [the third party purchaser].” Etc.) As its closing paragraph, the Court rules that “under the unique facts of this case, the [homeowners] have demonstrated [the third party purchaser’s] winning bid price at the foreclosure sale–standing alone, as the outstanding mortgage cannot logically be added to it–is so grossly inadequate that it shocks the conscience of the court and cannot be sustained.”
Over the next several months, we’ll likely receive guidance from the courts in the matters we are handling as to whether the Winrose decision is limited to the egregious circumstances of that case, or whether the case has broader application in South Carolina. (As a South Carolina case, Winrose is not binding authority in North Carolina, nor is it likely to have any impact since HOA foreclosures in North Carolina are governed by a specific HOA statute.) We will provide any additional information as it comes available.
To read the entire Winrose opinion, visit https://www.sccourts.org/opinions/HTMLFiles/SC/27934.pdf
For advice on how this decision may impact your association or for assistance with any SC or NC community association collection issue, contact one of our HOA/condo attorneys in our Greensboro, Charlotte, Triangle or Coastal offices.