Texas Excess Proceeds: How Tax Sale Claims Work, and Why Only Attorneys Can Charge

The attorney-only rule comes first

Before anything else, if you are thinking about recovering Texas excess proceeds for other people, read this. Texas Tax Code 34.04(i) says a fee charged by an attorney to obtain excess proceeds for an owner may not be more than 25 percent of the amount obtained or $1,000, whichever is less. The same subsection says a person who is not an attorney may not charge a fee to obtain excess proceeds for an owner.

In practice, that means the finder business model common in other states does not work in Texas. A recovery agent cannot take a percentage, and an attorney's fee tops out at $1,000 per claim. Texas also tightly limits buying an owner's claim outright, which we cover below.

For owners, this is good news. The law keeps the cost of help low, and you can file the petition yourself.

What excess proceeds are in Texas

Texas collects delinquent property taxes through lawsuits. A taxing unit sues, gets a judgment, and the property is sold at a sheriff's or constable's sale, usually on the first Tuesday of the month. If the sale price is more than the judgment, taxes and costs, the difference is excess proceeds.

The officer pays the excess into the registry of the court that ordered the sale, and the district clerk holds it. Within 30 days of receiving more than $25 in excess proceeds, the clerk must send the former owner a certified letter that states the amount, explains the right to claim, and includes the text of Tax Code 34.03 and 34.04.

Texas also lets owners redeem some properties after a tax sale, usually within six months, or two years for a homestead or agricultural land. Redemption is about getting the property back. Excess proceeds are about the leftover money. They are separate processes.

Who is paid, and in what order

At the hearing, the court orders the money paid in this order to each party that proves its claim (Tax Code 34.04(c)):

• First, the tax sale buyer, if the sale was later declared void and the buyer won a judgment against the taxing units.
• Second, a taxing unit, for taxes that came due after the judgment or were left out of it by mistake.
• Third, other lienholders, such as a mortgage lender or a judgment creditor, in their legal order of priority.
• Fourth, a taxing unit, for amounts in the judgment the sale did not cover.
• Fifth, the former owner.

Not every former owner qualifies. The owner must have been a defendant in the tax judgment, be related within the third degree by blood or marriage to an owner who was a defendant, or have inherited a defendant owner's interest by will or intestate succession. Someone who bought into the property after the judgment generally cannot claim, unless they are such a relative or heir.

No interest is added. Whatever sits in the registry is what is divided.

How to claim Texas excess proceeds, step by step

1. Find the case. You need the cause number of the tax suit. The clerk's notice letter has it. Our Texas surplus funds list shows the county and links to the clerk's own report for each record.

2. Draft the petition. File a petition setting out your claim to the excess proceeds in the court that ordered the sale. It does not need to be a separate lawsuit. You can file it under the original cause number. Many district clerks and legal aid groups publish sample petitions.

3. Attach your proof. Include ID, proof that you were an owner and a defendant in the judgment (or are a qualifying relative or heir), and probate or heirship documents if the owner has died.

4. Serve the other parties. A copy of the petition must be served on every party to the original suit, under Texas Rule of Civil Procedure 21a, at least 20 days before the hearing. The taxing units' attorneys are usually among them.

5. Attend the hearing. The judge reviews the claims and signs an order dividing the money. Bring originals of anything you attached.

6. Collect payment. The clerk pays according to the order. Either side can appeal the order.

The two-year deadline, and what happens after

The petition must be filed before the second anniversary of the sale. The clerk keeps the money for two years unless the court orders otherwise.

If nobody proves a claim in that time, the clerk distributes the excess proceeds to the taxing units that took part in the sale, in proportion to what each was owed (Tax Code 34.03(b)). It does not go to the state's unclaimed property program in the owner's name, as it does in some other states.

That makes Texas one of the least forgiving states for owners who wait. If you received a clerk's letter about excess proceeds, act on it.

Assignments: why buying a claim is hard in Texas

Some people try to get around the fee rule by buying the owner's claim outright. Tax Code 34.04(f) makes that difficult. A person may not take an assignment of an owner's claim unless all of these are true:

• It is taken on or after the 36th day after the money was deposited with the court.
• It is in writing and signed by the owner.
• It did not come from an in-person or telephone solicitation.
• The buyer pays the owner at least 80 percent of the claim on the day of the assignment.
• The document includes a sworn statement by the owner covering, among other things, that it was voluntary, the amount paid, that the owner got the clerk's notice, and that the owner knows they may hire a lawyer.

The court may pay an assignee no more than 125 percent of what the assignee actually paid the owner. An assignee who skips these rules can be ordered to pay the owner the full amount collected plus attorney's fees. In short, the margin is thin and the risk is real.

What Texas excess proceeds look like right now

TaxLienSimple tracks 1,367 Texas excess proceeds records across 21 counties, totaling about $20.4 million. The median record is $4,437, and 486 records (36%) are above $10,000. 267 are still inside the two-year window on the county's report.

Dallas County has 158 records with a median of $13,000. Fort Bend has 121 with a median of $9,091, and Denton has 28 with a median of $26,234.

Dallas, Harris, Tarrant and Bexar

Most Texas excess proceeds searches mention one of the four largest counties. Each handles claims through its district clerk, in the court that ordered the sale.

Dallas. The Dallas County district clerk posts a list of excess proceeds from tax sales. We track 158 Dallas records, 89 still open.

Harris. The Harris County district clerk holds excess proceeds from Houston-area tax sales and publishes an excess funds report. We do not yet load Harris County.

Tarrant. The Tarrant County district clerk handles excess proceeds for Fort Worth-area sales. We do not yet load Tarrant County.

Bexar. The Bexar County district clerk handles San Antonio-area excess proceeds. We do not yet load Bexar County.

The process is the same in all four: a petition in the original tax case, service on the parties, and a hearing. We will add Harris, Tarrant and Bexar to the Texas list as soon as we can load their reports reliably.

Mistakes that cost Texas claimants money

Waiting past two years. After the second anniversary of the sale, unclaimed money goes to the taxing units, not to a state unclaimed property account.

Paying a non-attorney finder. Texas law says they may not charge you a fee. If you signed something, talk to an attorney or the clerk before you pay anyone.

Skipping service. A petition that was not served on the parties at least 20 days before the hearing can be reset or denied.

Forgetting the judgment requirement. Former owners generally must have been defendants in the tax judgment, or be qualifying relatives or heirs. If you bought the property after the judgment, you may not qualify.

Ignoring liens. Mortgage lenders and other lienholders are paid before the former owner. Check the case for recorded liens before you count on the full amount.

Frequently Asked Questions

Common questions about Texas excess proceeds.