Are deficiency judgments allowed in South Dakota State? Unfortunately for borrowers who are underwater on their mortgages, the answer is “yes.”
What Is a Deficiency Judgment?
When a lender forecloses on property (almost always because the borrower defaulted on the mortgage), they take possession of it and sell it to satisfy the loan. The money from the sale, less administrative costs of the sale, is applied against the mortgage. If the mortgage is paid off, the borrower will not owe anything more. However, sometimes—especially in today’s housing market—the remaining amount owed on the mortgage is more than the property brings in foreclosure. This is generally called being “under water” on the loan, and when it happens, there is a remaining balance—or “deficiency”—owed to the lender even after the property was foreclosed upon.
Since the lender has a right to be paid the full amount due it, it can sue the borrower for this remaining balance. A deficiency judgment is when the lender sues to recover the remaining amount owed (the deficiency) on the loan and wins, obtaining a court judgment for the money.
South Dakota Allows Deficiency Judgments
Some states do not allow deficiency judgments at all. Other states give the lender an option: use a cheaper, faster, more streamlined method to take possession of the property—but give up your right to a deficiency judgment—or else use a more formal, cumbersome method of foreclosure, but retain the ability to proceed against the borrower for the deficiency.
Then there are the many states that simply allow deficiency judgments. South Dakota is one of them, so foreclosure is not necessarily the end of the matter for distressed South Dakota homeowners.
How an Attorney Can Help
If you are the lender, a South Dakota lawyer can help you decide whether it’s worthwhile pursuing a deficiency judgment—then help you do so. If you are the borrower, a lawyer can defend you if the borrow tries to obtain a deficiency judgment; or alternatively--if there is no way to avoid the judgment entirely (as is often the case; sometimes, the borrow simply owes the money and can’t do anything about it), the lawyer can often settle the matter for less than it would take otherwise. In addition, the attorney can help the homeowner understand if bankruptcy is a viable option to get out from under his or her debts, including any deficiency judgments.
