Foreclosure Surplus Funds: How To Claim Money After Sale

Many homeowners use mortgage loans to buy their homes. If you can’t make your loan payments, the mortgage holder can foreclose. They repossess your home and sell it. If they receive more money than you owed, you’re entitled to those surplus funds.

What Is a Foreclosure?

Foreclosure is how lenders take and sell your home when you miss payments. Mortgages are secured loans, so your house is collateral. If you fall behind, the lender can sell your home to recover their money. They often sell through an auction. Foreclosure rules vary by state.

Foreclosures fall into three categories:

• Judicial foreclosure: The most common type in the United States. The lender files a lawsuit against you. If the court rules for the lender, it issues a judgment. Your property gets sold at a public auction.

• Strict foreclosure: Less common and only used in a few states. The lender files a lawsuit. The property transfers directly to the lender without a sale.

• Nonjudicial foreclosure: Some states allow lenders to foreclose without courts. The lender follows a process outlined by state law. They send notices and observe specific waiting periods before selling.

What Happens to Your Home After Foreclosure?

After foreclosure, most homes are sold at public auction. The lender can place a credit bid at this sale. A credit bid lets the lender bid without using actual cash. They apply the amount owed toward the bid. They don’t pay out of pocket if no one bids higher.

Credit bidding helps lenders reclaim property when auctions don’t attract buyers. Once the lender owns your home, they may sell it later. You might be able to stay during the auction process. Some homeowners remain until the sale completes or even afterward.

In some states, you have a right of redemption. You can buy back your property after the auction. You pay the sale price, interest, and fees to the winning bidder. You have a limited window to do so. State laws control how long you can stay in the home before eviction.

What Are Foreclosure Surplus Funds?

If your property sells for less than you owe, the remaining balance is a deficiency. In some states, lenders can sue you for this amount. They get a deficiency judgment from the court. You must pay the unpaid balance. If you don’t, lenders may garnish your wages or levy your bank account.

If your foreclosed property sells for more than you owed, the extra money is foreclosure surplus funds. You may be entitled to claim this money after the sale.

How to Claim Foreclosure Surplus Funds

The process for handling surplus funds depends on your foreclosure type:

• If it was nonjudicial, the lender appoints a foreclosure trustee. The trustee oversees the sale and manages any surplus funds.

• If it was judicial, the court assigns a foreclosure officer. The officer handles these responsibilities.

Surplus funds may be held by the trustee or deposited with the court. As the former homeowner, you have the right to claim this money. The process varies by location.

The trustee or court officer should send a notice to your last known address. The notice includes details about how to claim the funds. If you don’t receive notice promptly, check your prior foreclosure notices. Call the trustee or officer to ask about the surplus.

Be cautious of foreclosure surplus fund scams. If you receive suspicious communication, contact the trustee or court directly. Verify the legitimacy of any claim before taking action.

Steps to Recover Surplus Funds

Surplus funds are calculated by subtracting the outstanding loan balance and foreclosure costs. These costs include legal fees and auction expenses. If there are junior liens, those are paid next. Junior liens include second mortgages or unpaid property taxes. If money remains, it’s distributed to you.

To recover excess funds, you need to act quickly. You have a limited window to make your claim. Read the surplus funds notice carefully. The process often includes:

• Providing proof of prior ownership. Show that you were the legal owner.

• Completing a claim form. You may need to fill out and submit a specific form.

• Attending a court hearing. You may have to prove your right to the surplus funds.

If you fail to claim funds within the required time, the court may treat the money as unclaimed property. Recovering unclaimed surplus funds later is much more difficult.

If you believe you’re entitled to surplus funds, act immediately. Many people seek professional guidance from an attorney. An attorney ensures you don’t miss out on what you’re owed.

How Do Liens Impact Foreclosure and Surplus Funds?

Whether you’re entitled to surplus funds depends on who else has a claim. Any claim on your property is recorded as a lien in the land records. The first recorded lien is usually your mortgage lender. They have priority when proceeds are distributed. After the lender and special debts are settled, remaining funds go to other claimants.

What Are Junior Liens?

If you have additional liens, these are junior liens or subordinate liens. Examples include a second mortgage or credit card judgment lien. Junior lienholders get paid after the primary mortgage lender. They also get paid after higher-priority debts like taxes. If funds remain after all lienholders are paid, you receive those funds.

However, if there are junior lienholders, you probably won’t receive surplus money. Foreclosure sale proceeds often don’t cover both the first mortgage and all junior liens. The surplus funds may be entirely used to pay off these debts. Nothing is left over for you.

If you’re unsure about liens on your property, contact the trustee or court. Consider consulting an attorney to better understand your situation and options.

Foreclosure and Bankruptcy: How Can Filing Help?

Filing for bankruptcy can stop a foreclosure immediately. Even if your property is scheduled for auction tomorrow, you can stop it. The automatic stay is a powerful legal protection. It kicks in the moment you file your bankruptcy case. The automatic stay pauses all collection activities.

Chapter 7 and Chapter 13 bankruptcy both give you an automatic stay. Your home is handled differently in each type of bankruptcy.

How Chapter 7 Bankruptcy Affects Your Home

If you file Chapter 7 bankruptcy, the automatic stay temporarily delays foreclosure. You get a few weeks to figure out your next steps. You could negotiate a mortgage modification or catch up on payments. Chapter 7 doesn’t provide a long-term solution for saving your home. It doesn’t allow you to spread out missed payments.

How Chapter 13 Bankruptcy Can Save Your Home

Chapter 13 bankruptcy is often better for homeowners behind on their mortgage. You can reorganize your debts into a repayment plan. The plan lasts 3 to 5 years. Through this plan, you catch up on missed mortgage payments. You continue making regular monthly payments moving forward. Chapter 13 can be a lifeline if you’re struggling to bring your loan current.

If you’re facing foreclosure and mounting debt, speak with a bankruptcy attorney for free to explore your options.