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Inc. v. Hale

Supreme Court of South Carolina

December 18, 2019

Winrose Homeowners' Association, Inc. and Regime Solutions LLC, Respondents,
v.
Devery A. Hale and Tina T. Hale, Petitioners. Appellate Case No. 2018-001238

          Heard September 24, 2019

          Appeal From Richland County Joseph M. Strickland, Master-in-Equity.

         ON WRIT OF CERTIORARI TO THE COURT OF APPEALS

          Kathleen C. Barnes, of Barnes Law Firm, LLC, of Hampton; and Brian L. Boger, of Columbia, for Petitioners.

          Eric C. Hale and Elias Fain, both of Clarkson & Hale, LLC, of Columbia, and Stephanie C. Trotter, of McCabe, Trotter & Beverly, PC, of Columbia, for Respondents.

          E KITTREDGE JUSTIC.

         Homeowners Devery and Tina Hale purchased their home (the Property) twenty-one years ago and have made timely mortgage payments ever since, accruing over $60, 000 in equity in the Property, which has a fair market value of $128, 000. However, after failing to pay $250 in homeowners' association dues to Winrose Homeowners' Association, Inc. (the HOA), the HOA foreclosed on the Property, and a third-party purchaser, Regime Solutions, LLC (Regime), bought it for a pittance. The Hales now challenge the judicial sale, arguing the winning bid price of approximately $3, 000 was grossly inadequate compared to the value of the Property.

         There are two methods used to determine whether a winning bid at a foreclosure is grossly inadequate. One method assumes the foreclosure purchaser will become responsible for the mortgage on the property and thus adds the value of the outstanding mortgage to the winning bid, whereas the other method does not. While we do not draw a bright-line rule requiring the use of one method over the other, here, Regime has taken no affirmative steps to assume the Hales' mortgage. As a result, in determining whether the purchase price was grossly inadequate, we find it would be wholly inappropriate to add the value of the mortgage to Regime's winning bid. When the value of the mortgage is not added to Regime's winning bid, the bid shocks the conscience of the court. We therefore reverse the judicial sale and remand to the master-in-equity (the Master).

         I.

         In April 1998, the Hales bought the Property for $104, 250 and assumed the obligation to pay HOA dues. The HOA's covenants and restrictions provided:

If the [HOA dues] assessment is not paid within thirty (30) days after the delinquency date, the assessment shall bear interest from the date of delinquency at the rate of eight percent per annum, and the [HOA] may bring legal action against the owner personally obligated to pay the same or may enforce or foreclose the lien against the lot or lots; and in the event judgment is obtained, such judgment shall include interest on the assessment as provided and a reasonable attorney's fee to be fixed by the court, together with costs of the action.

         Petitioners fell behind paying their dues in January 2011. As a result, in April 2011, the HOA filed a lien against the Property in connection with the unpaid dues. The HOA subsequently filed a foreclosure complaint seeking the sale of the Property in exchange for satisfaction of $566.41 in principal and interest. Petitioners failed to answer or otherwise respond to the complaint, so the HOA submitted an affidavit of default. Following the affidavit of default, the Hales received no further notice of any proceedings or orders, including the judgment of foreclosure or the foreclosure sale. See Rule 71(a), SCRCP ("Only parties who have appeared and filed pleadings in the [foreclosure] action shall be entitled to the usual notice of hearings and other proceedings . . . ."); Rule 77(d), SCRCP ("Immediately upon the entry of an order or judgment the clerk shall serve a notice of the entry by first class mail upon every party affected thereby who is not in default for failure to appear . . . .").

         Nonetheless, at some point after the HOA filed its complaint but before the Master entered a default judgment against the Hales, the HOA sent the Hales a bill for $250 in connection with their past due regime fees. The Hales promptly paid the bill, thinking the payment resolved the matter. In fact, the law firm representing the HOA sent the Hales a notice that the lien had been satisfied. The HOA, however, did not withdraw its suit.

         Three months after the HOA filed the affidavit of default, the Master entered a default Judgment of Foreclosure and Sale against the Hales, calculating the amount due to the HOA as $2, 898.67, which was comprised of: (1) $250 in principal due;[1](2) $80.87 in interest; (3) $542.80 in litigation costs, such as service and filing fees; and (4) $2, 025 in attorney's fees. As a result, the Master authorized a judicial sale of the Property at public auction, noting the sale would be subject to senior encumbrances, including a mortgage. As noted above, the Hales were not served with this order. See Rule 77(d), SCRCP.

         Two weeks later, the Property was sold at public auction, again without notice to the Hales. Regime was the highest bidder with a bid of $3, 036.[2] Regime then sought a rule to show cause seeking to evict the Hales from the Property.

         Having at last received notice of the proceedings via Regime's efforts to evict them, the Hales filed a motion to vacate the foreclosure sale, arguing the winning bid of $3, 036 was so grossly inadequate as to shock the conscience of the court compared to the Property's fair market value of $128, ...


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