McCullough v. Goodrich & Pennington Mortgage Fund, Inc.

In 1997, Advanta Mortgage Corp., USA (Advanta) started servicing mortgages for Goodrich & Pennington Mortgage Fund, Inc. (G&P), which involved collecting money due under G&P’s mortgage loans and taking action when borrowers defaulted on their payment obligations. Separate agreements provided the terms for Advanta’s payments to G&P related to the servicing of the mortgages. In 1999, HomeGold Financial, Inc. (HomeGold) made a series of loans to G&P totaling $1,000,000. As security, G&P gave HomeGold a security interest in its contractual right to receive the payments from Advanta. G&P notified Advanta of the security interest. In 2001, Advanta appointed Chase Home Finance, LLC (Chase) as its attorney-in-fact for the mortgage servicing. In December 2005, G&P defaulted on its loan with HomeGold. HomeGold’s bankruptcy trustee (Trustee) (plaintiff) filed suit in the United States District Court for the District of South Carolina against G&P for breach of contract and against Advanta and Chase (defendants) for negligent impairment of collateral. For the tort claim, the Trustee specifically alleged that G&P defaulted because Advanta and Chase negligently serviced G&P’s mortgage loans such that G&P failed to generate enough revenue to repay the loan. The district court found that South Carolina did not recognize a cause of action for negligent impairment of collateral and dismissed the tort claim against Advanta and Chase. Upon the Trustee’s motion, the district court certified the question to the South Carolina Supreme Court regarding whether South Carolina recognizes this cause of action.