USA - SOUTH CAROLINA Law and Practice Contributed by: Matt Norton and Christian Kolic, K&L Gates
3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate
The transfer tax is also subject to a number of technical exceptions, and it is sometimes pos - sible to structure the transaction so as to avoid the imposition of the transfer tax entirely. The transfer tax applies only to transfers con - veyed by way of a deed, and it generally does not apply to economic changes in ownership resulting from equity transfers by the title-holding entity. Some local jurisdictions, however, require that notice of an equity transfer be given to the local taxing authorities; this notice may trigger a reassessment of the value of the property in the year following the equity transfer, resulting in an increase in annual taxation. 2.11 Legal Restrictions on Foreign Investors Foreign investors should be aware of certain laws that affect real estate investors. Under the Foreign Investment in Real Property Tax Act, up to 15% of the proceeds from the sale of real property by a foreign seller may be required to be withheld and applied to the seller’s federal income tax liability. A purchaser of agricultural land may be required to make a filing under the Agriculture Foreign Investment Disclosure Act of 1978. If the foreign purchaser conducts a US business enterprise in connection with the property, a fil - ing with the US Bureau of Economic Analysis, an agency of the US Department of Commerce, may be required. The purchase of property located near critical infrastructure or sensitive government facilities may require approval from the Committee on Foreign Investment in the United States. Under South Carolina law, a sin - gle foreign purchaser may not own more than 500,000 acres of land in the state.
Acquisition of commercial real estate is gener - ally financed by mortgage lenders, who may be either institutional lenders or private equity funds, by way of JV investment or some combination of the foregoing. In addition, mezzanine financing is becoming more common and may be used in conjunction with the more traditional mortgage loan. Many loans of income-producing property are structured to the rating agency requirements for inclusion in a commercial mortgage-backed loan package. Larger real estate portfolio acquisitions are frequently financed by private equity or multi- lender loans. 3.2 Typical Security Created by Commercial Investors Most real estate financing is secured by a mort - gage, which will grant to the lender a lien on the subject real property. Upon default by the borrower, the lender may institute judicial fore - closure proceedings and cause the public sale by the court of the mortgaged property. The pro - ceeds of that sale will be applied to reduce the borrower’s indebtedness secured by mortgage. Deficiency Whether the borrower is potentially liable for any deficiency remaining after the sale is determined by the terms of the financing documents. Moreo - ver, South Carolina has an anti-deficiency stat - ute that allows a borrower to use an appraisal process to potentially reduce or eliminate any deficiency judgment. A borrower’s rights under this anti-deficiency statute may be waived, but the waiver must meet a number of statutory and procedural requirements, including the giving of
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