South Carolina: Bankruptcy Court Moves to Conduit Mortgage Payments Effective October 1, 2016. 

By John S. Kay | Hutchens Law Firm – USFN Member (SC)

South Carolina has been one of the few states still requiring bankruptcy debtors to make post-petition mortgage payments directly to the mortgage lender or servicer. This will change on October 1, 2016 pursuant to Operating Orders issued by the three U.S. Bankruptcy Judges in South Carolina. The requirements for Mortgage Conduit Payments for Judge Helen Elizabeth Burris are contained in Operating Order 16-03 and the requirements for Judges John E. Waites and David R. Duncan are contained in Operating Order 16-02. While the requirements are listed in two separate Operating Orders, the essential difference between the two Orders is that under Judge Burris, the Conduit Mortgage Payments are not mandatory.  

The Operating Order for Judges Waites and Duncan require the use of Conduit Mortgage Payments under the following conditions: 

A. When, as of the Petition Date, the Debtor is delinquent six (6) months or more in payments owed to a mortgage creditor, or 

B. As part of a Section 362 Settlement Order involving a Mortgage Payment delinquency that proposes a cure of a post-petition default in Mortgage Payments that were delinquent for four (4) months or more on the day the motion for stay relief was filed; or

C. If requested by the Debtor and without objection from or with the agreement of the Mortgage Creditor and Trustee; or

D. As otherwise ordered by the Court. 

There are several other important issues raised by the new procedure:

A. If a mortgage creditor has not filed a Proof of Claim in the case, the Chapter 13 Trustee may file a request for a Mortgage Creditor Report and a request for a formal hearing on the matter. The information sought will be the pre-petition arrearage, escrow status, and ongoing payment amount. If this is not provided by the creditor prior to the hearing, to the Trustee’s satisfaction, counsel for the creditor and a representative of the creditor must appear at the Trustee’s hearing.        

B. If the Trustee has commenced disbursements to the creditor prior to the filing of a Proof of Claim, the payment amount disbursed by the Trustee will be deemed the correct amount.

C. No Payment Change Notice filed by the creditor will be effective until the creditor has filed a Proof of Claim.   

The new Conduit Payment procedure places even more emphasis on making absolutely sure that the creditor files an accurate Proof of Claim as quickly as possible to avoid payments by the Trustee at an amount less than called for by the loan terms or having to have a representative  appear at a hearing on the matter.