Surplus funds is money left over after a foreclosure sale. A trustee, a neutral party unassociated with either the homeowner or the lender, carries out the foreclosure sale. The trustee should pay off the costs and the foreclosing lender, and determine whether there are any surplus funds.
If the sale price at a foreclosure sale is more than what was owed, the remaining amount is surplus funds. Surplus funds are also known as overage or excess funds. For example, if the sale price was $750,000 and only $500,000 was owed, then there are $250,000 in surplus funds.
You may have the right to surplus funds.
Who has the right to surplus funds in California?
It generally depends on priority. A second mortgage on the home or any tax liens should take priority. After that, the former homeowner should be first in line to claim a right to any surplus funds.
How to claim surplus funds in California
First, the trustee must sent written notice to all interested parties.
After the foreclosure sale, within 30 days the trustee must notify all interested parties. See Civil Code § 2924j(a).
Interested parties should be “all persons with recorded interests in the real property.” See Civil Code § 2924j(a).That should include the former homeowner.
The written notice should tell the interested parties that 1) there’s been a sale 2) you may have a right to sale proceeds 3) you may contact the trustee to pursue any claim 4) you may have to provide proof of ownership.
Second, submit a written claim within 30 days from the date of the notification. See Civil Code § 2924j(a)(4)(C). Your claim should be made under penalty of perjury, and include 1) state the amount you’re claiming 2) provide an itemized breakdown of that amount 3) affirm you claim is timely. See Civil Code § 2924j(a)(4). A timely claim is no later than 30 days after the date the trustee sends the notice. See Civil Code § 2924j(a)(4(C)).
Third, the trustee reviews the claims. The trustee needs to 1) determine who has a right to the surplus funds 2) in what priority should those funds be paid. See Civil Code § 2924j(b). Priority should be based on recorded interests. For example, a second mortgage has priority over a judgment lien, who was priority over a claim by the former homeowner.
If there is no dispute amount what is owed and who it is owed to, the trustee must pay out the surplus funds within 30 days after the end of the claim period (which itself is 30 days from when notice was sent). See Civil Code § 2924j(b).
Fourth, if there is a dispute or the trustee cannot determine who gets what within 90 days, the trustee must either 1) deposit the funds with the court or 2) file an interpleader lawsuit. See Civil Code § 2924j(b).
If the trustee deposits the funds with the court, then the trustee must sent written notice to all interested parties. See Civil Code § 2924j(d). The written notice should state that any claim for the funds must be filed with the court within 30 days from the date of the notice.
Fifth, you now have to pursue the surplus funds in court.
Surplus funds do not automatically go to the former homeowner. There is a process. And sometimes there are competing claims to the surplus funds. It can get complicated. And deadlines are easy to miss.
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