How to Claim Surplus Funds After a Foreclosure: A Step-by-Step Guide for Former Owners

What foreclosure surplus funds are

When a lender forecloses, the property is sold at auction to pay the loan. The lender usually opens the bidding at about what it is owed. If other bidders push the price higher, the sale brings in more than the debt, and that extra money is the surplus. You will also see it called excess proceeds, overages or overbid, depending on the state and the office holding it.

The surplus does not go to the lender, and it does not go to the auction buyer. It goes first to anyone else with a lien on the property, in order of priority, and whatever remains belongs to the person who owned the home when the foreclosure began.

Many former owners never hear about it. The notice goes to the address of the home they lost. If they have moved, or the owner has died, the money can sit with the clerk until it is reported to the state as unclaimed property.

This guide is about mortgage foreclosures. If your property was sold for unpaid property taxes, the process is different. Start with Overages Meaning: What Tax Sale Overages Are.

Who gets paid before you

The surplus is paid out in order of priority. The foreclosing lender is paid from the sale price itself, along with the costs of the sale. After that, anyone with a recorded claim against the property that was wiped out by the foreclosure can claim from the surplus before the owner. That usually means:

• A second mortgage or home equity line of credit.
• A homeowners or condominium association lien.
• Judgment liens recorded against the owner.
• Government liens, such as code enforcement liens or certain tax liens.

Only what remains after those claims belongs to you. Here is a worked example with round numbers, to show how quickly the amount can change.

Where your surplus is held

Before you can claim, you need to know who is holding the money. That depends on how your home was foreclosed.

Court foreclosure (judicial). In states such as Florida, Ohio, New York, New Jersey and Illinois, a lender forecloses by filing a lawsuit, and a court orders the sale. The surplus is deposited with the clerk of that court, in your foreclosure case. You claim it by filing in that case.

Trustee sale (non-judicial). In states such as California, Texas, Georgia and Arizona, most foreclosures happen without a lawsuit, under a power of sale in the deed of trust or security deed. A trustee runs the sale. The trustee either pays the surplus to the people entitled to it or, when there are competing claims, deposits it with a court and asks the court to decide.

Public trustee. Colorado is its own system. The county public trustee runs foreclosure sales and holds any overbid.

If you do not know which applies to you, look at the papers you received during the foreclosure. A case number and a court name mean a court foreclosure. A notice of trustee's sale means a trustee sale.

How to claim, step by step

1. Confirm there is a surplus. Look at the sale result in your case file, on the clerk's surplus or unclaimed funds list, or on the trustee's notice. Our free surplus funds list shows the foreclosure surplus records we track, with links to the official source.

2. Find out who holds it. Use the section above. The office that holds the money is the only one that can pay it.

3. Get the claim form. Many clerks have a standard form or motion for surplus funds. Trustees usually want a written claim with your identification and proof of ownership.

4. Gather your documents. Expect to need photo identification, proof that you were the owner of record (your deed or the foreclosure complaint naming you), and your current address. If the owner has died, you will need probate or heirship documents.

5. File and serve. File the claim with the clerk or send it to the trustee. Some courts require you to send a copy to other parties in the case, such as the lender's attorney and other lienholders.

6. Answer competing claims. If a second lender or an association also claims, the court decides who is paid. Keep proof of anything you have already paid off, such as a satisfied second mortgage.

7. Receive payment. Once the clerk, court or trustee approves your claim, you are paid by check or as the court orders.

Deadlines in the states we have verified

Every state sets its own rules for how long the money is held and what happens to it after that. These are the three states where TaxLienSimple publishes mortgage foreclosure surplus and has read the statute. For any other state, read your case papers and the statute, or ask the clerk.

What foreclosure surplus looks like in our data

TaxLienSimple publishes 1,392 mortgage foreclosure surplus records from 23 counties in 4 states so far, read from county clerk and public trustee lists. The amounts are larger than tax sale surplus because homes usually carry more equity than tax debt.

If your state is not on the list, the clerk of the court in your county is still the place to ask. Many clerks publish an unclaimed funds or surplus list on their website.

If the owner has died, or you filed bankruptcy

If the owner has died, the surplus belongs to the estate. The court or clerk will want to see who has authority to receive it, usually a personal representative appointed in probate, or heirs under the state's small estate or heirship process. Start that paperwork early, because it often takes longer than the surplus claim itself.

If you filed bankruptcy before or after the foreclosure, the surplus may be part of the bankruptcy estate, and the bankruptcy trustee may have a claim to it. Talk to your bankruptcy attorney before you file a surplus claim.

If the property was jointly owned, each owner of record usually has a share. A divorce decree or other court order can change who is entitled, so include it with your claim.

Red flags when someone offers to help

Plenty of honest agents and attorneys help former owners with surplus claims, especially when there are competing liens or an estate. A few habits mark the ones to avoid.

• They do not tell you that you can claim the money yourself for free.
• They ask for money up front, before anything is paid.
• They will not tell you the exact amount or where it is held. That information is public, and you can check it.
• They charge more than the state allows, such as more than 12 percent of Florida foreclosure surplus.
• They want you to sign a deed, a power of attorney or a blank form.

A fair agreement states the surplus amount, the fee in dollars and as a percentage, and that you could have claimed for free. If you would rather handle it yourself, the clerk's office can usually tell you which form to use. If you are a professional, our guide to becoming a surplus funds recovery agent covers the rules on your side.

Frequently Asked Questions

Common questions about claiming surplus funds after a foreclosure.