                  THE STATE OF SOUTH CAROLINA
                       In The Supreme Court

           Winrose Homeowners' Association, Inc. and Regime
           Solutions LLC, Respondents,

           v.

           Devery A. Hale and Tina T. Hale, Petitioners.

           Appellate Case No. 2018-001238



      ON WRIT OF CERTIORARI TO THE COURT OF APPEALS


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


                           Opinion No. 27934
            Heard September 24, 2019 – Filed December 18, 2019


                      REVERSED AND REMANDED


           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.


JUSTICE KITTREDGE: 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 $128,000. Through an affidavit,
Tina Hale explained the reason for the Hales' default:


1
  Specifically, the Master listed $500 in principal due, but credited the Hales for
their $250 payment made after the HOA filed its complaint but before the order
was filed.
2
 By that time, the amount due to the HOA had increased to $3,011.58. Therefore,
Regime's bid resulted in a surplus of $24.42.
        When we were served with the lawsuit to take away our home, I put
        the papers in a drawer and forgot about them. Some time after that,
        we received a bill from the HOA asking for the $250.00. I paid that
        without a problem. In November, we received a letter from the law
        firm of [the HOA] telling us that the Lien had been Satisfied. . . . I
        thought that everything was OK after that. The next thing I know,
        someone is knocking on my door telling me that they bought my
        home and that me and my family were being evicted.

At the subsequent rule to show cause hearing, the primary issue was whether and
how to account for the senior mortgage in evaluating Regime's winning bid as a
percentage of the Property's value. The Master apparently did not consider the fact
that the Hales continued to make their monthly mortgage payment, and Regime
had made no effort to assume responsibility for the senior mortgage. Ultimately,
the Master denied the Hales' motion to vacate the sale, relying on this Court's
plurality opinion in Arrow Bonding Co. v. Warren3 and adopted the fiction that
Regime had paid an "effective sales price" of $69,040, consisting of the successful
bid ($3,036) plus the outstanding balance on the mortgage ($66,004). The Master
reasoned this method of calculation of debt was appropriate because Regime was
theoretically required to assume the mortgage in order to re-sell the Property.4 As
a result, the Master found the effective sale price ($69,040) was approximately
54% of the Property's fair market value ($128,000), and therefore it did not shock
the conscience of the court.

On appeal, a majority of the court of appeals' panel affirmed. Winrose
Homeowners' Ass'n, Inc. v. Hale, 423 S.C. 220, 813 S.E.2d 894 (Ct. App. 2018).

3
    399 S.C. 603, 732 S.E.2d 622 (2012) (plurality opinion).
4
 In fact, the Hales demonstrated that Regime's business model is not to assume the
senior mortgage, instead either (1) allowing the senior lienor to (re)foreclose on the
purchased property, or (2) quitclaiming the foreclosed property back to the original
homeowners in exchange for a hefty fee. See Pet'r's Br. at 12 n.4 ("An updated
search of the Richland County public records shows that between November 4,
2013 and October 11, 2016: (1) Regime [] purchased 38 properties as to which a
bank later foreclosed, meaning Regime [] did not pay off the [senior] mortgage; (2)
Regime [] purchased 15 properties that it quitclaimed back to the owners for a
profit between $2,911 and $13,984 per property; and (3) Regime [] purchased 6
properties of which it is still the owner of record and there is still an open
mortgage."). Regime has not disputed or otherwise responded to these allegations.
Chief Judge Lockemy dissented, finding it was nonsensical to credit Regime for
the balance of the outstanding mortgage because Regime had not actually assumed
or made any attempt to assume the mortgage on the Property:

      A buyer at a judicial sale in which a senior lienholder is not a party
      takes the property subject to that lien, but the buyer is not responsible
      for its payment. The evidence in this case shows [the Hales] have
      continued to pay the mortgage for a home for which they have no title
      because they will suffer the severe consequences of default if they do
      not. The buyer [(Regime)] has paid nothing. I do not believe it
      proper to give a judicial sale buyer credit for assuming a debt which it
      is not legally required to pay.

Id. at 222–23, 813 S.E.2d at 900 (Lockemy, C.J., dissenting). We granted the
Hales' petition for a writ of certiorari to review the court of appeals' decision.

                                          II.
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.
Singleton v. Mullins Lumber Co., 234 S.C. 330, 351, 108 S.E.2d 414, 424 (1959);
see also BFP v. Resolution Tr. Corp., 511 U.S. 531, 542 (1994) ("[I]t is 'black
letter' law that mere inadequacy of the foreclosure sale price is no basis for setting
the sale aside, though it may be set aside []under state foreclosure law . . . if the
price is so low as to shock the conscience or raise a presumption of fraud or
unfairness." (emphasis omitted) (some internal quotation marks omitted)); In re
Krohn, 52 P.3d 774, 781 (Ariz. 2002) (en banc) (distinguishing between an
inadequate price and a grossly inadequate price, and explaining a mere inadequate
price must be accompanied by "some element of fraud, unfairness, or oppression,"
whereas a grossly inadequate price, standing alone, is prima facie proof of
unfairness (emphasis omitted) (citing Restatement (Third) of Prop.: Mortgages §
8.3));5 Restatement (Third) of Prop.: Mortgages § 8.3(a) (October 2019 Update)
("A foreclosure sale price obtained pursuant to a foreclosure proceeding that is



5
 Our court of appeals has made a similar distinction. See E. Sav. Bank, FSB v.
Sanders, 373 S.C. 349, 358, 644 S.E.2d 802, 807 (Ct. App. 2007).
otherwise regularly conducted in compliance with applicable law does not render
the foreclosure defective unless the price is grossly inadequate.").

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. However, as the court of appeals recently
noted in an unrelated case, "a search of South Carolina jurisprudence reveals only
when judicial sales are for less than [10%] of a property's actual value[] have our
courts consistently held the discrepancy to shock the conscience of the court."
Bloody Point Prop. Owners Ass'n, Inc. v. Ashton, 410 S.C. 62, 70, 762 S.E.2d 729,
734 (Ct. App. 2014) (citation omitted). Because the parties have not argued for us
to either formally adopt this threshold or choose a different threshold (as other
states have done), we will analyze the sale of the Property using the 10% threshold
as the measure of whether the sale shocked the conscience. But see Restatement
(Third) of Prop.: Mortgages § 8.3 cmt. b ("Generally, [] a court is warranted in
invalidating a sale where the sale price is less than 20[%] of fair market value and,
absent other foreclosure defects, is usually not warranted in invalidating a sale that
yields in excess of that amount."); id. at Reporter's Note cmt. b (collecting cases
from other jurisdictions that use different thresholds, ranging from 10% to 40% of
the value of the foreclosed property).6

                                         III.
As alluded to above, there are two methods used to calculate whether a bid price is
so grossly inadequate as to shock the conscience. The first method is known as the
Debt Method, as it focuses on the amount of debt a foreclosure purchaser must
incur before gaining a free-and-clear title to the foreclosed property. Under the
Debt Method, the outstanding mortgage is considered a "debt" that must be
assumed by the foreclosure purchaser before receiving a free-and-clear title,
thereby freeing the purchaser to resell the foreclosed property to a third-party.

6
  It is worth noting that our appellate courts have never had the opportunity to
consider a case in which the winning bid amounted to between 10% and 30% of
the actual value of the property, and thus have not had an opportunity to set a
different threshold. But see Poole v. Jefferson Std. Life Ins. Co., 174 S.C. 150,
159–60, 177 S.E. 24, 28 (1934) (discussing with approval a case in which the
Court affirmed the circuit court's decision to set aside a foreclosure sale with a
winning bid of approximately 26% of the actual value of the property, although the
Court did not use the "shock the conscience" language (citing In re Ragland, 172
S.C. 544, 174 S.E. 592 (1934))).
Thus, the Debt Method is a ratio comparing the foreclosure purchaser's total debt
related to the property (i.e., the winning bid plus the amount of the outstanding
mortgage) to the fair market value of the property. Here, using this method of
calculation, a court would acknowledge Regime had paid (or will have to pay in
the future) approximately 53.9% of the Property's value.7

In contrast, the second method of calculation is known as the Equity Method, as it
focuses on the amount of equity the foreclosure purchaser stands to gain through
the foreclosure sale. Under the Equity Method, the outstanding mortgage is
considered a liability that devalues the purchased property, meaning the
outstanding mortgage is subtracted from the fair market value of the property
rather than added to the winning bid price. Thus, the Equity Method is a ratio
comparing the winning bid price to the amount of equity (i.e. the fair market value
minus the amount of the outstanding mortgage) in the foreclosed property. Here,
using this alternative method of calculation, Regime has only paid approximately
4.9% of the Property's value—a percentage that falls below the 10% necessary to
shock the conscience of the court, which would require us to overturn the sale.8

No appellate court in South Carolina has ever held courts must apply one method
of calculation over the other. See, e.g., Arrow Bonding, 399 S.C. at 606 & n.5, 732
S.E.2d at 624 & n.5 (applying the Debt Method, but specifically noting the parties
had not challenged the propriety of this method of calculation on appeal, and the
Court therefore would not consider alternative ways of calculating the percentage
of the foreclosure sale, such as the Equity Method); see also Winrose Homeowners'
Ass'n, 423 S.C. at 227, 813 S.E.2d at 898 ("Arrow Bonding does not conclusively
establish whether the Debt or Equity Method is the law in South Carolina.").
Nonetheless, in most circumstances, a foreclosure purchaser will assume any
obligation to pay outstanding senior liens in order to obtain free-and-clear title to
the property. In those cases, it follows the Debt Method should be used.



7
  Specifically, supposing Regime assumed the Hales' mortgage, its total debt
incurred to obtain the Property would be $69,040 (the $3,036 winning bid plus the
$66,004 outstanding mortgage), which is $53.9% of the Property's fair market
value of $128,000.
8
  Specifically, Regime's $3,036 winning bid price is 4.9% of the $61,996 of equity
in the Property (the $128,000 fair market value minus the $66,004 outstanding
mortgage).
However, we reject the notion of a categorical, blind application of the Debt
Method in all instances for exactly the circumstances presented in this case. Here,
despite the foreclosure sale, the Hales have continued paying their mortgage and,
thus, have continued to substantially reduce the amount of the outstanding senior
lien. Just as Chief Judge Lockemy observed, it would be absurd under these
circumstances to apply the Debt Method and give Regime credit for assuming the
amount of the outstanding mortgage—it has taken no affirmative steps to legally
obligate itself to take on the debt. Accordingly, the facts of this case demonstrate
why, under certain circumstances, applying the Equity Method is the only logical
option.

Under the Equity Method, Regime's bid accounted for approximately 4.9% of the
value of the Property, which was far less than the 10% threshold we have looked to
in the past. As a result, under the circumstances presented in this case, Regime's
winning bid was so grossly inadequate as to shock the conscience of the court. We
therefore set aside the foreclosure sale and remand to the Master for further
proceedings, including accounting for the fact that the Hales have continued to pay
the mortgage on the Property. Regardless of their previous default, we order the
Master and the parties to give notice of any further proceedings to the Hales to
ensure they are given an opportunity to participate.9

                                         IV.
We note our concern about this foreclosure proceeding. A foreclosure proceeding
is a solemn judicial proceeding. While the HOA had the legal right to pursue
collection of the debt owed, including foreclosure of the Property to satisfy that
debt, this foreclosure action quickly morphed into a proxy to capitalize on a small
debt. We are especially troubled by Regime'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.10

9
  The issue of failing to give notice to the Hales of the foreclosure proceedings and
sale is one of potential concern to the Court, despite the Hales' failure to respond to
the initial summons and complaint. However, the absence of notice was not raised
by the parties as an issue in this case, and we therefore do not address it. In any
event, our reversal of the judicial sale renders the notice issue moot.
10
  Once they were aware the Property had been sold at a foreclosure sale, the Hales
offered $9,000 to Regime to settle the approximately $3,000 debt. In response,
Regime offered to let the Hales keep their home in exchange for a payment of
$35,000. We acknowledge that settlement negotiations may not be considered "to
Regime's manipulation of the foreclosure proceeding is perhaps best illustrated by
its practice of not following the typical foreclosure course and assuming
responsibility for the senior mortgage.

However, Regime would not have had an opportunity to engage in its questionable
business practices had the HOA and its attorney not chosen to pursue foreclosure
in the first place. The Hales were minimally in arrears on their HOA dues, yet the
HOA foreclosed on a $128,000 home in its eagerness to collect the outstanding
$250—an overdue amount less than 0.2% of the fair market value of the home,
notwithstanding the amount of the outstanding mortgage. The true nature of this
foreclosure action is illustrated by the service and filing fees (which are more than
double the amount of the principal due) and attorney's fees (which were eight times
the amount of the principal due).

Similarly, at the initial hearing on Regime's rule to show cause, the circuit court
commented the HOA's attorney's law firm "ha[d] become a pioneer in that whole
effort [to treat defaulted regime fees as ruthlessly and quickly as defaulted
mortgages] and ha[d] yet to convince anybody . . . that there's anything wrong with
what [it was] doing." In response, the HOA's attorney brazenly bragged her firm
had already received seven judgments in favor of various HOA clients in their first
two to three years of business.

A foreclosure proceeding is a last resort, not a business model to be swiftly
invoked for the purpose of exploiting property owners. We do not countenance the
improper use of foreclosure proceedings by the HOA, its attorney, or Regime. It is
the utilization of the Equity Method (in terms of determining the effective sale
price of the Property) that restores an objective measure of reasonableness to the
facts presented and achieves a proper resolution of this matter.

                                         V.
Our decision today should not be read as a shift toward providing relief to
homeowners despite their own poor choices, in particular here, falling behind on a
minimal amount of HOA dues and subsequently failing to respond to the summons
and complaint. Rather, there are serious consequences to default, and had the
HOA and Regime pursued foreclosure in the normal course and made affirmative


prove liability for or invalidity of the claim or its amount." Rule 408, SCRE.
Here, the settlement negotiations are referenced as evidence of Regime's
manipulation of a foreclosure procedure to engage in strong-arm tactics.
efforts to assume the Hales' mortgage, this case could have turned out very
differently.

However, under the unique facts of this case, the Hales have demonstrated
Regime'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. For the foregoing
reasons, we vacate the judicial sale of the Property and reverse and remand to the
Master for further proceedings consistent with this opinion.

REVERSED AND REMANDED.

HEARN, FEW and JAMES, JJ., concur. BEATTY, C.J., concurring in a
separate opinion.
       CHIEF JUSTICE BEATTY: I concur in the conclusion that the bid in this
case is grossly inadequate and shocks the conscience. I would go a step further and
adopt the Equity Method of determining an adequate sale price for residential
property in a foreclosure action. Additionally, I would require that a homeowner,
who is in default, receive notice of the date and time of the foreclosure sale.

       Homeownership is the quintessential American dream. Purchasing a home is
the largest investment that most South Carolinians will make. To allow the hard-
earned equity to be confiscated by a bidder's minimal investment is unconscionable.
This is especially troubling when the foreclosure sale is the result of an HOA lien.
