In South Dakota, if you go through a judicial or nonjudicial foreclosure and the sale price is not enough to cover the balance of your mortgage, your lender can come after you for the "deficiency." However, South Dakota law places a limit on the amount of the deficiency judgment in nonjudicial foreclosures and, if the foreclosure is voluntary, prohibits the lender from getting a deficiency judgment altogether.
Read on to learn what a deficiency judgment is, when your mortgage lender can collect one against you in South Dakota and when it cannot, and what happens to the deficiency in a short sale or a deed in lieu of foreclosure in South Dakota.
(For more articles on foreclosure in South Dakota, visit our South Dakota Foreclosure Law Center.)
When a lender forecloses on a mortgage, the total debt owed by the borrowers to the lender frequently exceeds the foreclosure sale price. The difference between the sale price and the total debt is called a deficiency.
Example. Say the total debt owed is $200,000, but the home only sells for $150,000 at the foreclosure sale. The deficiency is $50,000.
In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount (in our example, $50,000) from the borrowers by doing such things as garnishing the borrowers’ wages or levying the borrowers’ bank account. (Learn about methods that creditors can use to collect judgments.)
(To learn more about deficiency judgments in the foreclosure context, see our Deficiency Judgments After Foreclosure area.)
The majority of foreclosures in South Dakota are nonjudicial, which means the lender does not have to go through state court to get one. However, sometimes foreclosures in South Dakota are judicial (the homeowner can opt for a judicial foreclosure rather than nonjudicial) and go through the state court system.
To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?
Learn more about the South Dakota foreclosure process.
While South Dakota law permits a deficiency judgment after a nonjudicial foreclosure, 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 are also allowed in judicial foreclosures. The deficiency judgment amount will generally be the total debt minus the foreclosure sale price, though the court may consider the property’s value when setting the amount of the deficiency (S.D. Codified Laws § 21-47-16).
South Dakota has a procedure known as a “voluntary foreclosure” that is similar to a deed in lieu of foreclosure. In a voluntary foreclosure, the borrower transfers possession of the property directly to the lender. A deficiency judgment is not allowed if the borrower and lender agree to a voluntary foreclosure (S.D. Codified Laws § § 21-48A-1).
Generally, when a senior lienholder forecloses, any junior liens (these would include second mortgages and HELOCs, among others) are also foreclosed and those junior lienholders lose their security interest in the real estate. If a junior mortgage holder has been sold-out in this manner, that junior mortgage holder can sue you personally on the promissory note. This means that if the equity in your home doesn’t cover second and third mortgages, you may face lawsuits from those lenders to collect the balance of the loans.
Learn more in our article What Happens to Liens and Second Mortgages in Foreclosure?
A short sale is when you sell your home for less than the total debt balance remaining on your mortgage and the proceeds of the sale pay off a portion of the mortgage balance. (Learn more about short sales to avoid foreclosure.)
In South Dakota, a lender can get a deficiency judgment following a short sale. To avoid a deficiency judgment, the short sale agreement must expressly state that the lender waives its right to the deficiency. If the short sale agreement does not contain this waiver, the lender may file a lawsuit to obtain a deficiency judgment.
A deed in lieu of foreclosure occurs when a lender agrees to accept a deed to the property instead of foreclosing in order to obtain title. With a deed in lieu of foreclosure, the deficiency amount is the difference between the fair market value of the property and the total debt. (Learn more about deeds in lieu of foreclosure.)
In South Dakota, a lender can get a deficiency judgment following a deed in lieu of foreclosure. To avoid a deficiency judgment with a deed in lieu of foreclosure, the agreement must expressly state that the transaction is in full satisfaction of the debt. If the deed in lieu of foreclosure agreement does not contain this provision, the lender may file a lawsuit to obtain a deficiency judgment against you.
To find the laws that govern South Dakota foreclosures, go to the South Dakota State Legislature’s webpage at http://legis.state.sd.us. Click on “Codified Laws” and then “Title List.” The statutes governing foreclosures (judicial, nonjudicial, and voluntary) in South Dakota can be found in Title 21, Chapters 47, 48, and 48A.