If you default on your home loan payments in South Dakota, the servicer (on behalf of the loan owner, called the “lender” in this article) will eventually begin the foreclosure process. The method will most likely be nonjudicial, although judicial foreclosures are also allowed. South Dakota law specifies how nonjudicial procedures work, and both federal and state laws give you rights and protections throughout the foreclosure.
If you get a loan to buy residential real estate in South Dakota, you'll likely sign two documents: a promissory note and a mortgage. The promissory note is the document that contains your promise to repay the loan along with the repayment terms. The mortgage is the document that gives the lender a security interest in the property. If you fail to make the payments, the mortgage gives the lender the ability to sell the home at a foreclosure sale to recoup the money it loaned you.
If you miss a payment, the servicer can usually charge a late fee after the grace period expires. Most mortgage loans give a grace period of ten to fifteen days, for example, before you’ll incur late charges. To find out the grace period in your situation and the amount of the late fee, review the promissory note or your monthly billing statement.
If you miss a few mortgage payments, the servicer will probably send letters and call you to try to collect. Federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called “loss mitigation” options—no later than 36 days after a missed payment and again within 36 days after each following missed payment. No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available, and assign personnel to help you. Some exceptions to a few of these requirements exist, like if you file for bankruptcy or tell the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Many mortgages in South Dakota have a provision that requires the lender to send a breach letter if you fall behind in payments. This notice tells you that the loan is in default. If you don’t cure the default, the lender can accelerate the loan (call it due) and go ahead with the foreclosure.
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before officially starting a foreclosure. However, in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
Again, most South Dakota foreclosures are nonjudicial. In a South Dakota nonjudicial foreclosure, the lender must serve you (the borrower) a notice of sale at least 21 days before the sale date. (S.D. Codified Laws § 21-48-6.1). The lender must also publish the notice in a newspaper at least once each week for four successive weeks. (S.D. Codified Laws § 21-48-6).
Even if the lender starts a nonjudicial foreclosure, you can require the lender to foreclose judicially through the court system by making an application in the appropriate court. (S.D. Codified Laws § 21-48-9). To learn the process and deadline for converting a nonjudicial foreclosure into a judicial one, talk to a local attorney. Or, the lender might opt to foreclose judicially from the beginning.
South Dakota also permits “voluntary” foreclosures. In this type of foreclosure, the lender and borrower mutually agree that the lender may take immediate possession of the property. The borrower agrees to forfeit the right to redeem the property and the lender agrees to forfeit the right to go after the borrower for a deficiency judgment. (S.D. Codified Laws § 21-48A-1).
The sale is a public sale, open to all bidders. The lender usually makes a bid on the property using a "credit bid" rather than bidding cash. With a credit bid, the lender gets a credit up to the amount of the borrower’s debt. The highest bidder at the sale becomes the new owner of the property.
“Reinstating” is when a borrower pays the overdue amount, plus fees and costs, to bring the loan current and stop a foreclosure.
South Dakota law doesn’t provide a borrower with the right to cure the default and reinstate the loan before the foreclosure sale in a nonjudicial foreclosure. But the mortgage contract might provide reinstatement rights. If you’re facing a nonjudicial foreclosure, check the mortgage you signed when taking out the loan to find out if it gives you a right to reinstate, and, if so, how long you have in which to do so.
If the foreclosure is judicial, you do get the right to reinstate under state law. If you pay the reinstatement amount before the court enters a judgment in a judicial foreclosure, the court will dismiss the foreclosure action. But if you reinstate after judgment, but before the sale, the court will stay (postpone) the foreclosure action. If you default again, the foreclosure can continue. (S.D. Codified Laws §§ 21-47-8, 21-47-10).
Sometimes, a foreclosure sale doesn’t bring in enough money to pay off the full amount owed on the loan. The difference between the sale price and the total debt is called a “deficiency balance.” Many states allow the lender to get a personal judgment, called a deficiency judgment, for this amount against the borrower.
South Dakota law allows the lender to get a deficiency judgment after a nonjudicial foreclosure. If the lender purchases the property, the amount of the deficiency is limited to the difference between the total debt and the property’s fair market value. (S.D. Codified Laws § 21-48-14).
Deficiency judgments are also sometimes allowed in judicial foreclosures. The court will take the property’s value into account and look at other factors when deciding whether a deficiency exists. (S.D. Codified Laws § 21-47-16).
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. Under South Dakota law, you’ll get one year, 180 days, or 60 days to redeem the home after the foreclosure, depending on the circumstances. In general, the borrower gets one year to redeem the home after a foreclosure sale. (S.D. Codified Laws § 21-52-11).
But if the mortgage is a short-term redemption mortgage, the redemption period is 180 days after the purchaser from the foreclosure sale records a certificate of sale in the land records. (S.D. Codified Laws § 21-49-30, § 21-52-11). If you abandon the home, the purchaser can ask the court to reduce the redemption period to 60 days. (S.D. Codified Laws § 21-49-13(8), § 21-49-38).
Foreclosure laws are complicated. Servicers and lenders sometimes make errors or forget steps. If you think your servicer or lender failed to complete a required step, made a mistake, or violated state or federal foreclosure laws, you might have a defense that could force a restart to the foreclosure or you might have leverage to work out an alternative.
Consider talking to a local foreclosure attorney or legal aid office immediately to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure. Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.