Heard April 16, 2015
Appeal From Beaufort County Marvin H. Dukes, III, Master-in-Equity.
Keating L. Simons, III, Simons & Dean, of Charleston, for Appellants.
Charles S. Altman and Meredith L. Coker, Altman & Coker, LLC, both of Charleston, for Respondent.
[413 S.C. 609] FEW, C.J.
Atlantic Private Equity Group, LLC defaulted on a promissory note personally guaranteed by Terry L. Rohlfing and Jerry T. Caldwell. The master-inequity ordered foreclosure of the mortgage securing the note and entered a deficiency judgment against Atlantic. On appeal, Atlantic challenges the master's admission of evidence on authentication and hearsay grounds. We affirm the judgment of foreclosure because we find the loan documents upon which the judgment was based were properly admitted into evidence. However, we reverse the deficiency judgment because the testimony of the amount remaining due on the note was hearsay. In addition, we vacate the master's finding that Rohlfing and Caldwell were liable on the guaranties because the finding was outside the scope of the order of reference. We remand for further proceedings.
I. Facts and Procedural History
On March 27, 2008, Atlantic executed a promissory note to Community First Bank for a commercial loan in the amount of $2,000,000. The note was secured by a mortgage on two parcels of real estate in Beaufort County. Rohlfing and Caldwell executed personal guaranties to ensure payment of the note. When Atlantic defaulted, Community First brought a foreclosure action against Atlantic and breach of guaranty claims against Rohlfing and Caldwell. It sought deficiency judgments against all three. While the action was pending, Community First merged with Crescent Bank and became known as CresCom Bank, which later assigned the loan to the respondent, Deep Keel, LLC.
[413 S.C. 610] Atlantic, Rohlfing, and Caldwell filed a joint answer in which they admitted Community First made a loan to Atlantic, the loan was secured by a mortgage, and " not all monthly payments have been timely made." However, they denied Deep Keel was entitled to foreclosure or a deficiency judgment.
The circuit court referred the case to the master " for the purposes of adjudicating the foreclosure action." The order of reference provided that upon resolution " of the foreclosure action, this case is to be returned to the Circuit Court for final hearing and disposition as to any issues triable by jury against [Rohlfing and Caldwell]." At the beginning of the foreclosure hearing, the master acknowledged Deep Keel's breach of guaranty claims against Rohlfing and Caldwell " would be heard in a separate action."
To support its claim for foreclosure, Deep Keel offered into evidence six documents (the " loan documents" ) through its sole member--Scott Bynum--to establish the existence and terms of the loan. Atlantic objected, arguing the loan documents were inadmissible because (1) Deep Keel failed to authenticate them and (2) they contained hearsay to which no exception applied. The master overruled the objections and admitted the loan documents.
Deep Keel attempted to establish the amount remaining due on the loan through Bynum's testimony. The testimony was based on documentation Bynum received from CresCom Bank at the time the loan was assigned, but Deep Keel did not offer those documents into evidence. Atlantic objected on hearsay grounds, and the master overruled its objection.
The master ordered foreclosure of the mortgage, found there was $1,655,027 remaining due on the note, and granted Deep Keel a deficiency judgment against Atlantic. Although the master returned the case to the circuit court as the order of reference directed, the foreclosure order included a finding that Rohlfing and Caldwell " executed and delivered . . . personal Guaranties" and were " liable for a limited principal amount of $350,000."
II. Admission of Loan Documents
Atlantic disputes the admissibility of the loan documents, which include (1) a promissory note; (2) a mortgage; (3) an assignment of leases, rents, and profits;  (4) a loan modification agreement dated April 2009; (5) a loan modification agreement dated May 2010; and (6) a partial release of mortgage and assignment of leases, rents, and profits. Atlantic argues Deep Keel failed to properly authenticate ...