Your property can be sold by foreclosure to pay off the remaining balance on your mortgage. This excess money is referred to as a surplus when your property sells for more than the amount you owe on it.
Claiming Surplus Funds from a foreclosure sale after your property has been auctioned is legal. It is the right of the previous property owner to claim the surplus funds. California law states that any excess funds can go to the original owner of the property.
Read more to learn more about foreclosure mortgage surplus funds.
Are Surplus Funds Real?
Mortgage surplus funds from foreclosures are real. In the state of California, state law stipulates that the previous owner is entitled to excess funds after a foreclosure.
If another party has a claim to the property, such as a second mortgage, the surplus funds will be utilized to pay down the debt, and the remaining funds can be claimed by the previous owner once secured liens have been paid off.
What Are Mortgage Surplus Funds?
Surplus funds, also known as overage or surplus money, are the funds left over after a mortgage is paid off through a foreclosure auction.
The trustee appointed at the foreclosure auction is in charge of allocating the funds without additional fees.
A foreclosure might be judicial or nonjudicial, depending on the state legislation and the circumstances. A trustee or a court authority, such as the sheriff, will usually conduct a foreclosure sale at the completion of the procedure.
In the past, foreclosure sales were typically conducted by an auctioneer from the courthouse steps or another public location. The auction can now be held either live (in person) or online. Online foreclosure auctions are becoming increasingly popular.
The highest bidder at a foreclosure auction could be the foreclosing lender or a third party. If no one else makes a higher offer than the lender, the property is acquired by the lender and becomes REO (real estate owned by the bank). If a third party submits the highest bid, that person or entity must then pay for the home with a money order, cashier’s check, or cash to become the new owner.
How Do You Get A Surplus Fund?
The mortgage surplus is the difference between the price the house is sold for at the foreclosure sale and the loan balance. When the sale amount is more than the cumulative total of the mortgage loan and outstanding liens, there is a mortgage surplus.
The lender is able to recoup the unpaid balance on the mortgage through the foreclosure sale. The opening bid may be set at the amount of the mortgage debt plus additional interest charges and other expenses by the lender. At a foreclosure auction, the winning bidder may bid an amount higher than these cumulative costs and agree to acquire the home for more than the outstanding mortgage debt.
The lender does not get to keep any of the extra revenue from a foreclosure sale. The lender is only entitled to an amount that is adequate to pay off the loan’s outstanding balance plus the costs of the foreclosure and sale.
In most cases, the extra money belongs to the foreclosed borrower; however, if there were any junior liens on the property, such as a second mortgage or HELOC, or if a creditor lodged a judgment lien against the property, those parties get first ‘go’ after the lender of the proceeds. After paying off these debts, whatever money is leftover belongs to the former homeowner.
How To File A Claim For Surplus Funds?
If you owned the house before the foreclosure and believe you are entitled to surplus funds, you should contact the trustee as soon as possible following the auction.
On the Notice of Trustee Sale, you’ll see the trustee’s contact information. If necessary, a copy of this notice can be obtained from the local recorder’s office. Because most people are unaware that they are entitled to any surplus funds, they often leave a foreclosed property without providing a forwarding address. As a result, finding foreclosed homeowners after a sale can be difficult for a trustee or anyone attempting to reach the borrower.
If the property has subordinate lienholders, the surplus cash will be distributed in the order of precedence of each lienholder. If there is a second mortgage, for example, the surplus funds are used to pay off the second mortgage’s balance first.
As the former homeowner you’re are entitled to the mortgage surplus if any funds remain after junior lienholders have been paid. The former homeowner in both judicial and nonjudicial foreclosure situations must be advised of the existence of any surplus funds
If you suspect your home has a mortgage surplus as a result of a foreclosure sale, you can contact the court that handles surplus funds disbursement in judicial foreclosure states, or the trustee nominated to oversee the foreclosure sale in nonjudicial foreclosure states to see if you are entitled to any of the surplus funds.
It’s a good idea to keep track of the process because a sale could result in extra money. The selling date, which will be contained in the foreclosure documentation you receive, should be noted. Contact the trustee or officer who sold the property after the auction.
If you are entitled to an overage, you’ll need to inquire about how to apply for the money, as each state has its own set of regulations.
You can petition the court for the surplus cash once the final foreclosure judgment has been issued. You must file a Petition to Turn Over Surplus Funds, as well as any other court-mandated forms, with the circuit clerk.
After you have completed the documents, you will have to wait 30 days for the foreclosure on your home to be completed. You can send in your forms for any surplus once your foreclosure case has reached a final verdict.
Following the filing of the surplus documents, the judge may issue an order granting you the right to money based on the surplus from your foreclosure. Take this order to the office where your surplus is kept. The order will then be processed by this office, which will take about 10 business days. The surplus funds will be released after that.
What Is A Surplus Recovery Agent?
A surplus recovery agent is someone who helps the previous owner claim their surplus funds.
It can be difficult to recover this cash, and surplus recovery agencies can assist you.
Some Mortgage recovery companies and ‘investors’ pressure homeowners facing foreclosure to assign their rights to become the owner’s beneficiary for the money from the foreclosed home. This could be considered illegal in some cases, especially if the mortgage recovery company persuades someone to sign over their rights to the surplus funds with little or no benefit to the homeowner. False assertions that the homeowner has limited or no rights to the surplus monies should be strictly ignored.
Surplus mortgage fund fraud does occur. Be cautious.
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