When a bank forecloses on a home in a South Carolina homeowners association, the property may sell for more than the amount owed on the mortgage. The remaining money, known as surplus funds, may provide an opportunity for the HOA to recover unpaid assessments and other amounts owed by the former owner.
My colleague, Jim Slaughter, recently wrote about the possibility of recovering surplus funds following a bank foreclosure in North Carolina. Here is what managers and board of directors in South Carolina need to know:
1. The HOA should receive notice
It is common for an HOA to be named as a defendant in the bank’s foreclosure action. If that is the case, it should generally receive notice if surplus funds are available. If the HOA was not named, an attorney can take steps to help ensure the Association receives notice.
2. Other creditors may have priority
The existence of surplus funds does not guarantee that the HOA will recover its outstanding balance. Other creditors may have superior claims, meaning the HOA could receive all, some, or none of the remaining funds.
3. Deadlines matter
An HOA has a limited amount of time to submit a claim for surplus funds. If a board member, community manager, or registered agent receives notice from the court, the Association should act promptly to protect its rights.
4. The HOA must pursue its claim
An attorney can prepare and submit a claim for surplus funds on the Association’s behalf. After the claims deadline passes, the court will generally schedule a hearing to determine entitlement to any remaining funds.
Summary
Foreclosure surplus funds can provide South Carolina HOAs with an opportunity to recover delinquent assessments that might otherwise go unpaid. However, timely action is essential, and recovery depends on the competing claims and their legal priority.
David C. Wilson is a partner at Law Firm Carolinas whose practice focuses on homeowner and condominium association law. Our attorneys at Law Firm Carolinas are always willing and able to discuss surplus funds following a foreclosure, or any other association matters. Should your community association need assistance, one of our community association attorneys would be happy to help.