If you lose your South Dakota home to a foreclosure, you might have to pay a deficiency judgment if the process was judicial or nonjudicial. But under certain circumstances, the amount of the deficiency is limited to the difference between the total debt and the property’s fair market value.
And, if the foreclosure is a “voluntary foreclosure,” the bank can’t get a deficiency judgment.
What Is a Deficiency Judgment?
If a property sells at a foreclosure sale for less than the full outstanding mortgage debt, the difference is commonly called a "deficiency balance." Some states allow a foreclosing bank to get a deficiency judgment (a personal judgment) against the borrower for the amount of the deficiency balance.
Once a bank gets a deficiency judgment, it can use common collections methods to collect the deficiency from the borrower by, for example, garnishing wages or levying a bank account.
Are Deficiency Judgments After a Home Foreclosure Allowed in All the States?
Some states have anti-deficiency laws prohibiting deficiency judgments after foreclosure in certain circumstances. South Dakota doesn't allow deficiency judgments with voluntary foreclosures.
Does South Dakota Allow Deficiency Judgments?
Yes, South Dakota allows a deficiency judgment after a judicial or nonjudicial foreclosure. But if you go through a voluntary foreclosure, the bank can't get one.
How Do South Dakota Foreclosures Work?
In South Dakota, a foreclosure is normally judicial or nonjudicial. You can also arrange a voluntary foreclosure.
How Judicial Foreclosures in South Dakota Work
The bank starts a judicial foreclosure by filing a lawsuit and serving a copy of the suit on the borrower. If the borrower doesn’t answer the suit (or responds to the suit but fails to raise a valid defense), the court will enter a judgment against the borrower and order a foreclosure sale.
How Nonjudicial Foreclosures in South Dakota Work
In a South Dakota nonjudicial foreclosure, the bank must serve the borrower a notice of sale 21 or more days before the sale date, as well as publish the notice in a newspaper once per week for four weeks.
But you can force the bank into court by filing an application if you have a defense. To ensure that you follow the procedure, you’ll want to consult with a South Dakota attorney. A lawyer will take steps to comply with all legal requirements.
Voluntary Foreclosures in South Dakota
Under South Dakota law, the bank and borrower can complete a "voluntary foreclosure" wherein both parties stipulate that the bank will get immediate possession of the home without going through the judicial or nonjudicial process. This process is similar to a deed in lieu of foreclosure. In return, the bank will agree to forgo a deficiency judgment.
How to Calculate the Deficiency Amount
For example, suppose you lose your job and fall behind on your mortgage payments. The bank that holds (owns) your mortgage loan decides to foreclose judicially through the court system. The court eventually enters a judgment against you and orders a foreclosure sale.
At the foreclosure sale, the foreclosing bank buys the home for $400,000 using a credit bid. (Basically, the bank can bid the debt you owe as a credit. Sometimes, it bids the full debt amount; sometimes, it bids less.) But at the time of the foreclosure, you owe the bank $425,000. The deficiency in your case is $25,000.
What Are the Legal Requirements for Deficiency Judgments in South Dakota?
In South Dakota, the foreclosing bank may go after you for a deficiency judgment in a judicial foreclosure or after a nonjudicial foreclosure. But the bank can’t get a deficiency judgment as part of a voluntary foreclosure.
Deficiency judgments are allowed in judicial foreclosures. The deficiency judgment amount will generally be the total debt minus the foreclosure sale price. However, the court may consider the property’s value when setting the amount of the deficiency (S.D. Codified Laws § 21-47-16, § 21-47-17).
Deficiency judgments are allowed after nonjudicial foreclosures. South Dakota law permits a deficiency judgment after a nonjudicial foreclosure. However, the amount of the deficiency is limited to the difference between the total debt and the property’s fair market value if the lender is the purchaser of the property at the foreclosure auction (S.D. Codified Laws § 21-48-14).
Deficiency judgments aren't allowed after voluntary foreclosures. A deficiency judgment isn’t allowed if the foreclosing bank and the borrower agree to a voluntary foreclosure. (S.D. Codified Laws § 21-48A-1).
Do Foreclosures Always Result in a Deficiency?
If the sale price equals or exceeds the mortgage debt amount, there's no deficiency. In fact, if the sale results in surplus funds (more than what's needed to pay off any other liens, like a second mortgage or HELOC), you might be entitled to that extra money following the foreclosure sale.
Finding South Dakota's Foreclosure Laws
South Dakota’s foreclosure laws are in the South Dakota Codified Laws (sections 21-47-1 through 21-47-25 for judicial foreclosures and sections 21-48-1 through 21-48-26 for nonjudicial foreclosures). Statutes change, so checking them is always a good idea.
How courts and agencies interpret and apply the law can also change. And some rules can even vary within a state. These are just some of the reasons to consult with an attorney if you’re facing a foreclosure.
Getting Help
If you're facing a South Dakota foreclosure and you want more information about the process, deficiency judgments, or ways to avoid a foreclosure, consider talking to a foreclosure attorney. Consider also talking to a HUD-approved housing counselor if you need help with loss mitigation.
If a bank already has a deficiency judgment against you and you want information about whether you can discharge (get rid of) the debt in bankruptcy and whether filing for bankruptcy is appropriate for your situation, consider talking to a bankruptcy attorney.