When your foreclosed property is sold in an auction, sometimes the highest bidder ends up purchasing your property for more than you owe your lender. The excess of the final amount that the property was sold for, over the loan balance of the owner, is called Mortgage Surplus or Surplus Funds.
Read on to learn more about Mortgage Surplus Funds and if you are entitled to them.
What Are Mortgage Surplus Funds?
The mortgage surplus is the difference between the price the house was sold for at the foreclosure sale and the loan balance on the property when it was sold at a foreclosure auction.
The lender is able to recover the outstanding balance on the mortgage through the foreclosure sale. The beginning 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 agree to acquire the home for more than the outstanding mortgage sum. When a property is sold at a foreclosure auction for more than the outstanding balance on the mortgage debt, it is referred to as a property with surplus funds.
How To Find Surplus Funds?
After the property is sold in a foreclosure auction, a notice will be sent out to the previous property owner. A notice will be included along with needed documents and legal procedures on claiming surplus funds.
If there is a surplus after the property is sold, the financial institution or lienholder in charge of the foreclosure is not allowed to keep any funds after their debt and foreclosure expenses have been paid. The surplus should be deposited in a court registry, as is the proper procedure.
How To Claim Surplus Funds From Foreclosure?
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.
The previous property owner must be notified if they have any surplus funds whether it is a judicial or non-judicial foreclosure. However, if you are due surplus funds, you must determine how to apply for surplus funds since each state has its own requirements for claiming the money.
After you receive the Notice of Deposit of Surplus Funds, file a motion to the court of jurisdiction to distribute the funds. It is a straightforward motion and shows that the individual who is filing the claim is the owner of the property, or the person who files has a lien on the property, and they have priority over anyone else who wants to collect the surplus funds.
Although the motion is not unduly complicated, determining priority is frequently more difficult. It is advised to seek legal advice to assist you with the procedure. This is especially true if the property has an unusual ownership structure or many liens. Legal experts can examine the title and assist in determining who has precedence and in what order.
In general, the initial mortgage takes precedence, followed by any second/third mortgages, and ultimately any liens by contractors or other trades who have performed work on the property, as well as any court judgments. The homeowner is ultimately at the bottom of the priority list.
After all interested parties have submitted motions, the court will evaluate them and if necessary, parties will be invited to file responses or appear at a hearing. The court will next determine who has priority for the funds and will award the funds to the party who is “first-in-line” for the funds. Naturally, if that party is the previous owner, they will receive all leftover surplus funds.
If no one petitions the court for a release of the surplus money, the court will deem the funds abandoned and following a second notice to parties, will send them to the applicable government depository for safekeeping.
How Long Does It Take To Get Surplus Funds?
Each case is unique. The surplus funds will be placed with the clerk of the superior court in the county where the auction took place or has already been deposited. To get the cash released, you must file a motion with the court.
There is a thirty-day waiting time after filing the Notice of Claim, which is a document telling the local authority that you want to start the surplus claim process. After the motion is submitted, the Judge will either sign an order immediately granting surplus cash or appoint a trustee.
If a trustee is appointed, the trustee must produce a report detailing what other entities may have a claim to the funds and who should get them. Hearings are held by some trustees to determine this. The Court then receives the trustee’s report and approves an order allocating surplus cash to the legal recipients.
Conclusion
The amount of money left over after a mortgage loan has been satisfied at auction is referred to as a mortgage surplus. There is no surplus fund if the property is sold for less than what was due.
Set Up a Meeting
The previous owner of the property is entitled to the surplus fund. However, if the property has subordinate lienholders, the surplus cash will be distributed in the order of precedence of each lienholder.
Foreclosure is a painful process for property owners. Losing your home or business location does not come with many benefits. However, knowing that you may have surplus funds from the foreclosure is something you should fight for in order to assist you to move forward and beyond the foreclosure.
Make sure you thoroughly check and understand your documentation as you go through the foreclosure process so you’ll know if you qualify for surplus funds.
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