Background
In August 2019, a mortgage lender filed a lis pendens and complaint to foreclose on a York County property owned by Laura Kephart. In February 2020, before the scheduled foreclosure sale, the Master-in-Equity entered a judgment of foreclosure. That same month, Kephart conveyed the property by quitclaim deed to Robin Hood Investments, LLC (the LLC) for $5. A day after that quitclaim deed was executed, the LLC entered into a lease-with-option-to-purchase agreement with Byron Chavarria. Chavarria paid a $30,000 deposit, made monthly payments of $1,000, and spent approximately $16,325 improving the property. He moved in during April 2020.
The foreclosure sale—delayed by the COVID-19 pandemic—ultimately proceeded on December 4, 2023. The property sold to Quality Home Remodeling (QHR) for a price generating $37,561.08 in surplus funds. QHR sought to eject Chavarria, and a rule to show cause was entered. On February 13, 2024—more than four years after the foreclosure complaint was filed and more than two months after the sale closed and the deed was recorded—Chavarria filed a motion to intervene and claimed the surplus funds. Kephart also filed a claim for surplus funds. After a hearing, the Master-in-Equity denied Chavarria’s motion to intervene and awarded the surplus funds to Kephart.
The Court’s Holding
Affirmed. The Court of Appeals held that Chavarria’s motion to intervene was untimely under Rule 24 of the South Carolina Rules of Civil Procedure and upheld the Master’s denial on that basis alone, without reaching the other factors for intervention as of right.
South Carolina courts apply a four-part test for timeliness of intervention under Rule 24(a)(2): (1) the time that has passed since the applicant knew or should have known of his interest; (2) the reason for the delay; (3) the stage to which the litigation had progressed; and (4) the prejudice to the original parties. Failure to satisfy any one factor defeats intervention.
On factor one, Chavarria had constructive notice of the foreclosure action from the moment he signed his lease-with-option in March 2020—because the lis pendens had been filed in August 2019 and was already a matter of public record before he ever entered into any agreement concerning the property. In South Carolina, a lis pendens gives constructive notice to all subsequent purchasers and leaseholders of the pending litigation affecting the property. Chavarria therefore “should have known” of the foreclosure action from the outset of his involvement with the property.
On factor two, Chavarria offered only that his language barrier and lack of legal representation prevented him from understanding his rights and responsibilities under the lease. The court found that explanation insufficient to excuse a four-year delay. On factor three, by February 2024 the property had already been sold at auction and the deed recorded—the litigation had run its full course. The Master correctly found that allowing intervention at that late stage would prejudice the original parties. Because untimeliness alone defeats intervention under Rule 24(a)(2), the court declined to address Chavarria’s claim on the merits.
Key Takeaways
- A recorded lis pendens gives constructive notice to all subsequent buyers, leaseholders, and option-holders; a party who enters into a lease or purchase agreement after a lis pendens is on the record is deemed to have known of the pending foreclosure from the moment of their transaction.
- Under Rule 24(a)(2), SCRCP, timeliness is a threshold requirement—failure to satisfy it defeats a motion to intervene without need to address any of the other three factors (interest, impairment, inadequate representation).
- A claim of language barrier and absence of legal representation, standing alone, is insufficient to explain a four-year delay in seeking to intervene in a pending foreclosure action.
- Parties who invest money in a property pursuant to a lease-with-option-to-purchase agreement must independently investigate whether any foreclosure proceedings are pending before closing; if a lis pendens has already been filed, they should consult counsel immediately to protect their interests—including potential claims to surplus funds if the property sells for more than the debt.
Why It Matters
Chavarria is a cautionary tale about the practical consequences of lis pendens law for tenants and contract purchasers of distressed real property. Surplus funds from a foreclosure sale do not automatically flow to parties who invested money in or improved the property outside the formal chain of title; they flow to the mortgagor and recorded lienholders under the court’s disbursement order. The only way a party like Chavarria can assert a right to surplus funds is by intervening in the foreclosure action while it is still pending—and that requires acting well before the sale.
For South Carolina real estate practitioners advising clients who are considering lease-purchase agreements, the threshold question must be: is there an existing lis pendens on this property? A quick search of the county register of deeds before the client commits any money can answer that question and open the door to protective measures—whether negotiating a different deal, seeking appointment as a party to the foreclosure, or establishing a different contractual arrangement that preserves the client’s right to surplus proceeds. Once the sale is complete and the deed is recorded, the window for intervention is effectively closed.