USA – SOUTH CAROLINA Law and Practice Contributed by: Matt Norton and Christian Kolic, K&L Gates
the lender to be applied to the secured indebt - edness. South Carolina counsel should be con - sulted at the loan origination stage so that the necessary assignment of rents and receivership provisions are included. Pledged Security Where the equity owners of the real estate entity have pledged that equity as security, the lender is authorised under the Uniform Commercial Code to sell such equity at public or private sale after due notice to interested parties; no judicial action is required. The lender may credit bid at a public sale but may not bid at all in a private sale. 3.7 Subordinating Existing Debt to Newly Created Debt Existing indebtedness may be subordinated to new indebtedness by a contractual subordina - tion agreement. Otherwise, existing secured indebtedness will generally retain its priority. Although advances made in connection with construction financing will generally maintain priority based on the original filing date of the mortgage, advances made after both the filing and the service of a mechanic’s lien may lose priority to the mechanic’s lien. These priorities are determined in large part by the South Carolina recording acts, which are not straightforward and leave much to common law doctrine. For example, priority is not necessarily determined by the time of recording. In addition to general priority questions that are determined by ordinary priority rules, in extraor - dinary circumstances involving lender miscon - duct, a court may subordinate existing indebt - edness under the legal doctrine of “equitable subordination” . Finally, again, in extraordinary circumstances, usually in bankruptcy proceed - ings, debt may be recharacterised as equity, with
the result that the debt is effectively subordinat - ed to claims of other creditors. 3.8 Lenders’ Liability Under Environmental Laws As a general rule, a lender does not become lia - ble under environmental laws by virtue of hold- ing a mortgage or by virtue of foreclosing the mortgage and taking title to the property for the purpose of reselling it to an ultimate purchaser. A lender may nevertheless become liable if the lender actively participates in the management of the property. “Active participation” by a lender means that the lender exercised decision-mak - ing control over environmental compliance with respect to the property or exercised general management control such as that typically exer - cised by a manager of the facility or property. A lender may, however, inspect the property, require a borrower to respond to contamina - tion issues, provide the borrower with financial advice, or amend or restructure the mortgage or loan terms – these activities are not deemed to constitute active participation. 3.9 Effects of a Borrower Becoming Insolvent A filing of bankruptcy proceedings by or against a borrower will result in an automatic stay or injunction against all creditors. This automatic stay will prohibit any acts to enforce the mort - gage or collect the mortgage indebtedness. In order to proceed with foreclosure or collection activities, a lender must have this automatic stay modified by the bankruptcy court. A mortgage lender is deemed to be a secured creditor to the extent of the value of its collateral. As part of the bankruptcy process, the repay - ment terms of the mortgage indebtedness may be extended for a longer period and the interest
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