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Blog Posts Tagged "creditors' rights"

Creditors’ Rights Trump Ownership Restrictions in LLC Operating Agreements

A recent South Carolina Supreme Court decision affirms the supremacy of creditors’ foreclosure rights, and sounds a cautionary note for LLCs. The state’s high court said that LLCs can’t use an operating agreement to force a creditor to sell a distributional interest it obtained via judicial foreclosure. 

The ruling came in Levy v. Carolinian, LLC, a case involving an LLC that owns an oceanfront hotel. One of the members, who owned about a quarter of the LLC, found himself on the wrong end of a judgment for $2.5 million. Creditors obtained a charging order – essentially a lien – against their debtor’s distributional interest in the LLC. The creditors then foreclosed on its charging lien and purchased the member’s distributional interest at public auction. 

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Guarantors Can’t Slow Down Foreclosures by Asking for a Jury Trial

One way for debtors to slow down the foreclosure process in South Carolina has been to file counterclaims and request a jury trial. For guarantors of bad loans, that door was closed in January, thanks to a decision by the South Carolina Supreme Court. In what banks should regard as a victory for creditors’ rights, the high court said that guarantors who have been included in a foreclosure action in order to seek a deficiency judgment do not have a right to a jury trial. 

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