Surplus funds are the remaining funds that come from a foreclosure after a loan is fully paid in a foreclosure auction. The previous owner of the property Is entitled to the remaining proceeds.
Many people may not have a thorough understanding of the legal procedures for submitting a claim for foreclosure excess money. Obtaining the assistance of an expert surplus fund lawyer can assist in the recovery of surplus monies from the foreclosure sale.
Read on to learn how to claim your surplus funds.
How Do You Get Surplus Funds?
The lender does not get to keep the money if a foreclosure sale results in excess proceeds. The lender is entitled to an amount sufficient to cover the loan’s outstanding balance as well as the costs of foreclosure and sale.
In most cases, the excess 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 registered a judgment lien against the property, those parties receive first pass at the cash. After paying off these debts, whatever money is leftover belongs to the former homeowner.
What Happens To The Proceeds Of A Foreclosure Sale?
In a foreclosure sale, the mortgaged property is auctioned off to the highest bidder. If the property is foreclosed in judicial action, the sale may be conducted by a sheriff or other public authority; if the property is foreclosed in a nonjudicial process, the sale is conducted by the trustee.
State regulations dictate when and where such sales can take place, although the courthouse steps is frequently the venue.
The money paid by the highest bidder is divided into the following:
First, the costs of the sale are paid first, followed by the amount due to the foreclosing mortgagee. However, only the mortgagee’s interest in the property is to be fully repaid, thus any money left over does not belong to them.
Next, in order of priority, the surplus is allocated to junior interest owners (which is generally the order in which the interests were created). Junior interests in the property are extinguished by the sale, therefore these parties have a claim against the proceeds to compensate them for their loss.
Lastly, after settling the junior interests, the mortgagor gets to keep any money that is leftover.
A court may reject a sale if the foreclosure processes were irregular in any manner, resulting in a low price, even if the bid represented a large proportion of the property’s market value. Sales have been declared illegal by courts for a variety of reasons, including the following:
- The foreclosing mortgagee failed to give the proper notifications as required by law.
- The high bidder conspired with other potential bidders to lower the amount bid, for example, by agreeing to split profits or paying them money not to bid.
- The foreclosing mortgagee lied about the property’s condition or title or otherwise prevented others from bidding.
- The foreclosing mortgagee sold several mortgaged lots in unfavorable combinations or in an unfavorable sequence to the mortgagor.
- The high bidder was the one who conducted the auction.
How To Check For Surplus Funds?
After your property is sold in a foreclosing auction, a Notice of Surplus will be sent to the owner by a foreclosing lawyer or officer. The notice will be sent to the address of the property unless the owners provide a forwarding address.
However, if the owner did not receive a Notice of Surplus, they can still check it on the database of their property’s jurisdiction.
The owner, or someone looking to see if they have foreclosure funds, can also obtain a list on the internet. Knowing the type of foreclosure, whether it is judicial or nonjudicial, can help the owner further to find a list online.
To find funds more easily you must know the following things:
- Who conducted the foreclosure? Was it the County Courthouse or the Sheriff’s Department?
- Where did the files go? You can find out by going to the county courthouse or sheriff’s department and asking where you would go to see a file from a previously completed foreclosure.
- Where did the money go? You can phone the Courthouse and/or the Sheriff’s Department and inquire about overages from tax sales or mortgage foreclosures.
If you believe the sale will yield additional cash, you should keep track of the process. Keep track of the date of the foreclosure sale in the paperwork you receive. After the foreclosure sale, contact the trustee or officer. Ask the trustee if the foreclosed property generated excess proceeds. If it did, leave a forwarding address together with your contact information.
How To File A Claim For Surplus Funds?
You can petition the court for the surplus cash once the final foreclosure judgment has been issued. You must submit a Petition to Turn Over Surplus Funds, as well as any other court-mandated papers, with the circuit clerk.
After you’ve completed the papers, you’ll have to wait 30 days for the foreclosure on your home to be completed. You can turn in your paperwork for any surplus once your foreclosure case has reached a final verdict.
Following the filing of the surplus documents, the court will issue an order granting you the right to money based on the surplus from your foreclosure. Take this order to the office where your excess is kept. The order will then be processed by this office, which will take around 10 business days. The surplus cash will be released after that.
These are the steps to be taken if you want to collect surplus cash from a foreclosure:
- Show proof of previous ownership. This is accomplished by demonstrating that you are the titleholder, which may be discovered by conducting a title search.
- Provide proof of funding. This is done by looking at the foreclosure records and deducting the loans/liens that have been paid. The remaining money will be given to the previous owner.
- Communicate with the trustee.
- After you’ve contacted your trustee, fill out a claim form and submit it to both the trustee and the court. If the extra monies are not claimed within 2-3 months, the money will be handed over to the court.
- Once you’ve gathered all of the necessary information, you’ll go through the court’s hearings and motions procedure to obtain your cash.
Who Can Get Surplus Funds After Foreclosure?
The surplus might be collected by the house or property owner. If the individual dies and you are their heir, you can also collect a surplus for them.
With a surplus, you don’t need to hire someone to assist you. The entire procedure is centered on filling out paperwork. If you are an heir, you can claim their surplus funds on their behalf by opening a probate estate. Because this is a more complicated legal process, you will almost certainly require the assistance of a lawyer.
If there are many heirs, each must agree to split the surplus, complete the paperwork, and appear in court. You will need to engage a lawyer if there is no agreement to split the surplus.
A renter residing in a foreclosed property is not entitled to a surplus.
What Is A Surplus Recovery Agent?
A surplus recovery agent is someone who seeks to reclaim the previous owner’s surplus cash. Trying to recover this amount might be tough at times, however excess recovery agents can assist you.
Some recovery agencies pressurize homeowners facing foreclosure to assign their rights to become the owner’s beneficiary for the money from the repossessed house. This might be considered unlawful in some cases, especially if the agent persuades someone to sign away 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 excess funds should be avoided, and there is no legal obligation for a surplus recovery agency to collect funds.
Surplus fund fraud does occur, and it is the homeowner’s entitlement to get payment from the foreclosure trustee as soon as possible. Knowing this, you should hire a professional attorney to handle your case and recover the cash for you.
Avoid being scammed! Unless there are extenuating circumstances, most persons may recover a surplus without needing to hire a lawyer. If you do decide to hire a lawyer, proceed with caution. Some people may try to take advantage of you by demanding a high fee to collect your excess. Many of them aren’t attorneys, and they’re doing business unlawfully. Others are lawyers who may or may not be performing at their best.
Only hire an attorney who offers to undertake the task for a low or free charge. If you are charged a fee, they should provide you with a formal contract that outlines your rights and obligations as well as how you will be invoiced. Also, if a lawyer’s fee is dependent on a percentage of your excess, be cautious. This may be a substantial sum of money.
When compared to the amount of money you are collecting from the surplus, the overall cost of collecting a surplus should be considerably lower.
Are Surplus Funds Taxable?
The United States government mandates that all income be taxed in the year in which it is earned. You may feel fortunate if you stumble across previously unclaimed monies, but depending on the source, you may still be required to pay taxes on this unexpected income.
Unclaimed money administrators have devised innovative ways to contact you about these monies. You will, however, be responsible for any taxes owed on such income.
The tax rate on unclaimed funds will vary depending on the nature of the funds. The vast majority will be classified as normal income and taxed at your usual rate. If you acquire cash as a consequence of previous investment, you will be subject to capital gains tax. This money may be subject to state taxes as well. Unclaimed money may drive you into a new income tax band, requiring you to pay a higher tax rate. If this is the case, it would be a good idea to make a tax-deductible donation to a recognized non-profit organization.
Conclusion
If a foreclosure sale resulted in extra proceeds, the lender does not get to keep the money. The lender is entitled to a sum sufficient to satisfy the outstanding balance of the loan, as well as the costs of foreclosure and sale. The foreclosed borrower owns the additional funds.
Once the final foreclosure decision has been issued, you can petition the court for the surplus funds. You must file a Petition to Turn Over Surplus Funds with the circuit clerk, along with any other court-mandated documents.
You’ll have to wait 30 days for the foreclosure on your house to be finalized after you’ve completed the paperwork. Once your foreclosure case has achieved a final decision, you may send in your papers for any excess.
The court will issue an order awarding you the right to money based on the surplus from your foreclosure once you file the paperwork for the surplus. Bring this order to the office where your surplus is held. This office will then process the order, which will take about 10 business days. After that, the excess funds will be released.
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