Court Opinion

ID: 9393796
Source: CourtListenerOpinion
Date Created: 2023-05-11 14:07:13.044027+00
Date Added: 2024-06-11T17:18:55.402951
License: Public Domain

THE STATE OF SOUTH CAROLINA
             In The Court of Appeals

Buffalo Creek Investments, Inc., Plaintiff,

v.

Stephen H. Pettus a/k/a Stephen Pettus and Christopher
Gravley, Respondents,

and

Edwin Young and Barrett Maners, Intervenors,

Of whom Edwin Young and Barrett Maners are the
Appellants.

Appellate Case No. 2020-000952

              Appeal From Lancaster County
              Wilson Davis, Special Referee

                   Opinion No. 5985
     Submitted December 1, 2022 – Filed May 11, 2023

                      REVERSED

Walter Keith Martens, of Hamilton Martens, LLC, of
Rock Hill, for Appellants.

Stephen H. Pettus, of Lancaster, pro se.

Christopher Gravley, of Lancaster, pro se.
LOCKEMY, A.J.: In this foreclosure action, Edwin Young and Barrett Maners
(collectively, Buyers) allege the special referee erred by granting Stephen H.
Pettus's and Christopher Gravely's (collectively, Mortgagors') motion to vacate a
foreclosure and set aside a judicial sale. We reverse.

FACTS/PROCEDURAL HISTORY
Mortgagors executed a promissory note payable to Buffalo Creek Investments, Inc.
(Mortgagee) for $50,000.00, together with a twelve percent interest rate and a
balloon payment provision. Mortgagors secured the note with a real estate
mortgage for their residence (Subject Property) in Lancaster County.

Mortgagee commenced this foreclosure action by filing a lis pendens, summons,
and complaint against Mortgagors. The complaint alleged that between July 2018
and December 2018, Mortgagors missed four monthly payments towards the note
and there were no subsequent payments after December. Mortgagee stated that as
of May 10, 2019, Mortgagors owed $58,442.75 plus interest towards their
promissory note obligations. Mortgagee also claimed the Subject Property was not
owner-occupied and was not subject to the terms of the May 2, 2011 administrative
order of the supreme court (2011-05-02-01) 1 (2011 Administrative Order) because
"the mortgage was granted to allow [Mortgagors] to invest in a business."
Mortgagee filed affidavits of service, stating that Mortgagors had been served with
Mortgagee's pleadings by delivering and leaving a copy of the pleadings at the
Subject Property. Mortgagee subsequently filed an affidavit of default, stating
Mortgagors had not provided any pleadings in response and were in default. The
circuit court referred this matter to the special referee.

An initial foreclosure hearing was scheduled but was rescheduled to allow
Mortgagee to appear and testify. At the second foreclosure hearing, Mortgagee

1
  S.C. Supreme Court Administrative Order 2011-05-02-01, In re Mortgage
Foreclosure Actions, was issued by Chief Justice Jean Hoefer Toal in response to
reports of "failed or delayed loss mitigation efforts" between lenders and
homeowners. In re Mortg. Foreclosure Actions, 396 S.C. 209, 210, 720 S.E.2d
908, 908 (2011). It intends to ensure that eligible homeowners and lenders have
"been afforded the benefits of loan modification or other loss mitigation where
possible" and parties take certain steps for mortgage foreclosure intervention
procedures. Id. at 210, 720 S.E.2d at 908. The 2011 Administrative Order
provides that if parties failed to comply with the order, a court could "impose such
sanctions as it determines to be reasonable and just under the circumstances." Id.
at 214, 720 S.E.2d at 910.
appeared but Mortgagors did not; the special referee commenced the hearing and at
its conclusion, issued a decree of foreclosure on September 20, 2019. The special
referee specifically found the 2011 Administrative Order did not apply because the
mortgage was a business line of credit. The referee determined (1) Mortgagee was
entitled to foreclose its real estate mortgage because Mortgagors were in default of
the promissory note; (2) Mortgagee had made a proper demand against
Mortgagors; and (3) the Subject Property was to be sold at a public auction.
Mortgagee served Mortgagors copies of the decree of foreclosure, notice of sale,
and record of sale.
At the public auction, Buyers purchased the property for $78,750 and satisfied
their bid in full on November 15, 2019. The special referee subsequently issued a
deed to Buyers and filed an order and report confirming the sale. Mortgagors did
not file a motion for reconsideration or an appeal of the decree of foreclosure or the
order and report confirming the sale.
Mortgagors subsequently filed a motion to vacate the foreclosure and set aside the
judicial sale. Buyers intervened to oppose the motion.

The same special referee held a hearing on Mortgagors' motion to vacate the
foreclosure sale. First, Mortgagors argued Buyers were not bona fide purchasers
for value and not protected under section 15-39-870 of the South Carolina Code
(2005) because Buyers were on notice of defects in the service process and the
failure to properly serve them removed this matter from the court's jurisdiction.
Second, they contended the 2011 Administrative Order was applicable because the
property was owner-occupied and the status of the property was available through
public tax records and through the public records related to the case, such as
Mortgagee's process of service affidavit, which stated Mortgagors were served by
leaving copies of the pleadings at their "usual place of abode," i.e. the Subject
Property. Third, according to Mortgagors, if the special referee did not vacate the
foreclosure sale, they would stand to lose $242,500, the full amount they paid for
the property, while Buyers would be returned the amount they paid at the sale if
the special referee vacated the foreclosure. Mortgagors therefore contended the
equities weighed in favor of vacating the foreclosure sale.
Buyers argued the special referee should not vacate the foreclosure sale. Buyers
asserted (1) they were bona fide purchasers for value without notice protected
under section 15-39-870; (2) issues raised by Mortgagors, regarding service and
applicability of the 2011 Administrative Order, did not affect their status as bona
fide purchasers because they were in no way responsible for "irregularities in the
proceedings or even an error in the judgment under which the sale [was] made"
and there were no accompanying circumstances to vacate the sale; and (3) the
purchase price at the foreclosure sale was not so low as to shock the conscience
and set aside the sale.
Following the hearing, the special referee vacated the foreclosure and set aside the
judicial sale. First, it determined Buyers were not bona fide purchasers for value
without notice because they had notice that the Subject Property was
owner-occupied and the 2011 Administrative Order applied. Second, the special
referee concluded it was just and equitable to vacate the foreclosure and set aside
the judicial sale because Buyers would be refunded their purchase price amount if
the sale was vacated, while Mortgagors stood to lose $242,500 if the sale was not
vacated. Third, the special referee determined a vacation of the foreclosure and
sale was necessary because the sale was so gross as to shock the court's conscience.
The referee ordered Mortgagee refund Buyers $78,750. It also ordered the
Register of Deeds of Lancaster County to void the title conveying the Subject
Property to Buyers.
Buyers filed a motion to reconsider, which the special referee denied. This appeal
followed.

ISSUES ON APPEAL
1. Did the special referee abuse its discretion in setting aside a valid foreclosure
sale when it failed to recognize that the purchasers were "bona fide purchasers for
value without notice" who should have been protected from Mortgagors' post-sale
challenge by the provisions of section 15-39-870?
2. Did the special referee abuse its discretion in setting aside a valid foreclosure
sale when it applied the incorrect standard of consideration to the Mortgagors'
motion to vacate, focusing on alleged irregularities in the underlying foreclosure
action and the "equities," rather than the absence of any evidence of irregularity in
the conduct of the sale?
3. Did the special referee abuse its discretion in setting aside a valid foreclosure
sale when it ignored long-standing precedent and found that Buyers' bid "shocked
the court's conscience" even though Buyers bid more than three times the amount
our courts have typically required as a minimum threshold?

STANDARD OF REVIEW
"A mortgage foreclosure is an action in equity." Hayne Fed. Credit Union v.
Bailey, 327 S.C. 242, 248, 489 S.E.2d 472, 475 (1997). "In actions in equity
referred to a special referee with finality, the appellate court may view the evidence
to determine the facts in accordance with its own view of the preponderance of the
evidence, though it is not required to disregard the findings of the special referee."
Florence Cnty. Sch. Dist. No. 2 v. Interkal, Inc., 348 S.C. 446, 450, 559 S.E.2d
866, 868 (Ct. App. 2002). "However, the determination of whether a judicial sale
should be set aside is a matter left to the sound discretion of the [special referee]."
Wells Fargo Bank, NA v. Turner, 378 S.C. 147, 150, 662 S.E.2d 424, 425 (Ct. App.
2008). "An abuse of discretion occurs when the conclusions of the [special
referee] are either controlled by an error of law or are based on unsupported factual
conclusions." Belle Hall Plantation Homeowner's Ass'n, Inc. v. Murray, 419 S.C.
605, 615, 799 S.E.2d 310, 315 (Ct. App. 2017).

LAW/ANALYSIS
As an initial matter, we address Buyers' argument that the special referee ignored
its prior determination that the 2011 Administrative Order did not apply and failed
to consider that Mortgagors did not appeal the decree of foreclosure. Buyers
contend Mortgagors lost their opportunity to challenge this finding when they
failed to appeal and it became the law of the case. We agree.

Pursuant to the law of the case doctrine, the special referee's determination in the
decree of foreclosure that the 2011 Administrative Order did not apply bound the
parties to this holding because no party appealed the decree. See Judy v. Martin,
381 S.C. 455, 458, 674 S.E.2d 151, 153 (2009) (determining that a party may not
seek relief from an order not appealed "because the order has become the law of
the case"); In re Morrison, 321 S.C. 370, 372 n.2, 468 S.E.2d 651, 652 n.2
(1996) (noting that an unappealed ruling becomes the law of the case and
precludes further consideration of the issue on appeal); Bartles v. Livingston, 282
S.C. 448, 461-62, 319 S.E.2d 707, 715 (Ct. App. 1984) (determining a party was
bound in all subsequent proceedings by a foreclosure decree it did not appeal); Atl.
Coast Builders & Contractors, LLC v. Lewis, 398 S.C. 323, 329, 730 S.E.2d 282,
285 (2012) (stating "an unappealed ruling, right or wrong, is the law of the case").
Therefore, the special referee erred in subsequently finding the 2011
Administrative Order did apply.
I.   Bona Fide Purchasers

Buyers argue the special referee erred in determining they were not bona fide
purchasers for value without notice and setting aside the judicial sale. They
contend they satisfied the elements and the referee erred in not finding Mortgagors'
claims were barred. We agree.
"A judicial sale should not be set aside except for cogent reasons. The purpose of
the law and of the proceedings in which a sale has been decreed is that it shall be
final." E. Sav. Bank, FSB v. Sanders, 373 S.C. 349, 355, 644 S.E.2d 802, 805 (Ct.
App. 2007). A party claiming the status of a bona fide purchaser must show: "(1)
actual payment of the purchase price of the property, (2) acquisition of legal title to
the property, or the best right to it, and (3) a bona fide purchase, 'i.e., in good faith
and with integrity of dealing, without notice of a lien or defect.'" Robinson v. Est.
of Harris, 378 S.C. 140, 146, 662 S.E.2d 420, 423 (Ct. App. 2008) (quoting Spence
v. Spence, 368 S.C. 106, 117, 628 S.E.2d 869, 874-75 (2006)).
             Upon the execution and delivery by the proper officer of
             the court of a deed for any property sold at a judicial sale
             under a decree of a court of competent jurisdiction the
             proceedings under which such sale is made shall be
             deemed res judicata as to any and all bona fide
             purchasers for value without notice, notwithstanding such
             sale may not subsequently be confirmed by the court.
§ 15-39-870.

"[A] purchaser in good faith at a judicial sale is not affected by irregularities in the
proceedings or even error in the judgment, under which the sale is made . . . ."
Bloody Point Prop. Owners Ass'n, Inc. v. Ashton, 410 S.C. 62, 67, 762 S.E.2d 729,
732 (Ct. App. 2014) (quoting Cumbie v. Newberry, 251 S.C. 33, 37, 159 S.E.2d
915, 917 (1968)).
             It must be presumed from the judgment rendered that the
             [special referee] considered and adjudicated the
             regularity and sufficiency of each and every step in the
             proceedings leading up to it, including the sufficiency of
             the complaint, the issuance and service of process upon
             the defendants, and the rights and interests of the parties
             to the action under the allegations and evidence; and
             although the conclusions with respect to those matters, or
             any of them, might have been erroneous, so that they
             would have been reversed on appeal, they do not make
             the judgment void collaterally.
Id. at 68, 762 S.E.2d at 733 (quoting Gladden v. Chapman, 106 S.C. 486, 491, 91
S.E. 796, 797 (1917)).
We hold the special referee erred in determining Buyers were not bona fide
purchasers for value without notice and in setting aside the judicial sale. See Wells
Fargo Bank, 378 S.C. at 150, 662 S.E.2d at 425 ("[T]he determination of whether a
judicial sale should be set aside is a matter left to the sound discretion of the trial
court."); Murray, 419 S.C. at 615, 799 S.E.2d at 315 ("An abuse of discretion
occurs when the conclusions of the circuit court are either controlled by an error of
law or are based on unsupported factual conclusions."). Here, Buyers were bona
fide purchasers for value without notice because they satisfied their bid in full and
received the deed pursuant to an order from the special referee. See Robinson, 378
S.C. at 146, 662 S.E.2d at 423 (determining two elements a party must satisfy to
claim the status of a bona fide purchaser for value without notice are "(1) actual
payment of the purchase price of the property, (2) acquisition of legal title to the
property, or the best right to it" (quoting Spence, 368 S.C. at 117, 628 S.E.2d at
874-75)). Furthermore, Buyers purchased the Subject Property in good faith and
without notice of defect. See id. (stating the party must have purchased the
property "in good faith and with integrity of dealing, without notice of a lien or
defect" to claim the status of a bona fide purchaser for value without notice). They
determined from filings that (1) Mortgagors did not respond to Mortgagee's
pleadings, (2) the special referee determined Mortgagors were in default, (3) the
2011 Administrative Order did not apply, and (4) they had no notice of any alleged
irregularities in the underlying lawsuit.
In regards to Mortgagors' arguments before the special referee that Mortgagee did
not properly serve them with its pleadings and therefore removed the matter from
the special referee's jurisdiction, we find Mortgagors' claims of defective service in
the underlying foreclosure action did not affect Buyers' status as bona fide
purchasers for value without notice. See Bloody Point, 410 S.C. at 67, 762 S.E.2d
at 732 (holding that "a purchaser in good faith at a judicial sale is not affected by
irregularities in the proceedings or even error in the judgment, under which the sale
is made"); id. at 68, 762 S.E.2d at 733 (stating that an appellate court presumes the
special referee "considered and adjudicated the regularity and sufficiency of each
and every step in the proceedings leading up to [the judgment] including the
sufficiency of the complaint [and] the issuance and service of process upon the
defendants" (quoting Gladden, 106 S.C. at 491, 91 S.E. at 797)). We are required
to presume the proceedings leading to the foreclosure sale were sufficient.
Therefore, we conclude the special referee erred in not affording Buyers protection
under section 15-39-870 as bona fide purchasers for value without notice and by
not determining res judicata barred Mortgagors' claims. Accordingly, we reverse
the special referee's finding that Buyers were not bona fide purchasers for value
without notice.
II.    Relative Equities

Buyers argue the special referee erred in considering the "relative equities" of
Buyers and Mortgagors in determining that a vacation of the foreclosure and set
aside of the judicial sale was just and equitable. We agree.

"A judicial sale will be set aside when either: (1) the sale price "is so gross as to
shock the conscience[;]" or (2) the sale "is accompanied by other circumstances
warranting the interference of the court." Wells Fargo Bank, 378 S.C. at 150, 662
S.E.2d at 425 (quoting Poole v. Jefferson Standard Life Ins. Co., 174 S.C. 150,
157, 177 S.E. 24, 27 (1934)).

We hold the special referee erred in weighing the equities of each party's potential
loss in vacating the foreclosure and setting aside the judicial sale. See Wells Fargo
Bank, 378 S.C. at 150, 662 S.E.2d at 425 ("[T]he determination of whether a
judicial sale should be set aside is a matter left to the sound discretion of the trial
court."); Murray, 419 S.C. at 615, 799 S.E.2d at 315 ("An abuse of discretion
occurs when the conclusions of the circuit court are either controlled by an error of
law or are based on unsupported factual conclusions."). The referee should have
examined whether "the sale was accompanied by other circumstances warranting
the interference of the court." See Wells Fargo Bank, 378 S.C. at 150, 662 S.E.2d
at 425. Because the special referee determined there were alleged irregularities in
the events preceding the sale and Mortgagors did not present any evidence of
irregularities with the sale proceeding itself, the special referee abused its
discretion. See Wachesaw Plantation E. Cmty. Servs. Ass'n, Inc. v. Alexander, 420
S.C. 251, 263, 802 S.E.2d 635, 642 (Ct. App. 2017) (standing for the proposition
that in the absence of mistake, fraud, misrepresentation, or other unfairness in the
course of a judicial sale proceedings, the sale should be upheld). Accordingly, we
reverse the special referee's determination that the equities weighed in favor of
vacating the foreclosure and setting aside the sale.

III.   Foreclosure Sale Price

Buyers argue the special referee abused its discretion in finding their sale price bid
was so low as to shock the court's conscience. We agree.
             A judicial sale will not be set aside due to an inadequate
             sale price unless: (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 the sale
             is accompanied by other circumstances from which the
             court may infer fraud has been committed.

Winrose Homeowners' Ass'n, Inc. v. Hale, 428 S.C. 563, 569, 837 S.E.2d 47, 50
(2019). "South Carolina courts have not established a bright-line rule for what
percentage of the sale price must be met with respect to the actual value of the
property in order to shock the conscience of the court." Id. at 570, 837 S.E.2d at
50. "However, a search of South Carolina jurisprudence reveals only when judicial
sales are for less than ten percent of a property's actual value, have our courts
consistently held the discrepancy to shock conscience of the court." E. Sav. Bank,
373 S.C. at 359, 644 S.E.2d at 807.

We hold the special referee erred in determining the sale price of the Subject
Property shocked the court's conscience and setting aside the judicial sale. First,
the special referee abused its discretion in comparing the amount Buyers paid for
the Subject Property with the amount Mortgagors paid, instead of analyzing the
actual value of the Subject Property presented through the evidence. See Winrose
Homeowners' Ass'n, 428 S.C. at 570, 837 S.E.2d at 50 ("South Carolina courts
have not established a bright-line rule for what percentage of the sale price must be
met with respect to the actual value of the property in order to shock the
conscience of the court.") (emphasis added). Additionally, while South Carolina
has not adopted a bright-line rule regarding the percentage amount a judicial sale
must surpass so as to not shock the court's conscience, Buyers' bid amount was an
acceptable amount because it was thirty-two percent of what Mortgagors paid for
the Subject Property and thirty-three percent of the assessed value. See E. Sav.
Bank, 373 S.C. at 359, 644 S.E.2d at 807 ("[A] search of South Carolina
jurisprudence reveals only when judicial sales are for less than ten percent of a
property's actual value, have our courts consistently held the discrepancy to shock
conscience of the court."). Therefore, the bid amount was greater than ten percent,
which is the percentage our appellate courts have generally applied to determine
adequacy of a sale price at a judicial sale absent other circumstances. Accordingly,
we reverse the special referee's finding that Buyers' bid amount was unacceptable
because it shocked the conscience.

CONCLUSION
Based on the foregoing, the special referee's order vacating the foreclosure and
setting aside the judicial sale is
REVERSED. 2

WILLIAMS, C.J., and THOMAS, J., concur.

2
    We decide this case without oral argument pursuant to Rule 215, SCACR.