If you lose your home to foreclosure and the sale results are over and above what’s needed to be paid off, you can keep the money. In other words, when there is a foreclosure and the sale results in more proceeds than the amount owed, this surplus money belongs to the homeowner, not the lender.
“Excess proceeds” are the surplus funds that exceed the borrower’s loan balance.
For example, let’s say your home sells at a foreclosure sale for $450,000. You owe the foreclosing lender $300,000. The additional $150,000 is surplus funds.
How To Recover Excess Proceeds After A Foreclosure Sale
What Is a Foreclosure?
Foreclosure is a legal process that allows lenders to recover the amount owed on a defaulted loan. The lender recovers the money by selling or taking ownership of the property, often at an auction. The foreclosure process differs by state.
How Does A Foreclosure Sale Work?
Depending on state law and the circumstances, there are two types of foreclosures; judicial and non-judicial. Judicial foreclosures have to go through the state court, whereas nonjudicial foreclosures happen without court supervision.
A property may sell at a higher price than what the borrower owes on the mortgage loan, and in some cases, the property may even sell for a lower price than the borrower’s total debt amount.
How to Claim Excess Foreclosure Proceeds?
Most of the time, it has been seen that the average homeowner knows nothing about surplus funds, and when their home goes into foreclosure, they remove their belongings and move away. Though the sheriff or officer of the court usually notifies the borrower of excess proceeds, this notification goes to the homeowner’s last address, which is the foreclosed property. And therefore, most of the time, the proceeds go unclaimed because the officer cannot locate the borrower.
It’s, therefore, necessary to leave a forwarding address and track the process as well, whenever a home goes through a foreclosure.
- As mentioned, excess proceeds from a mortgage foreclosure sale, are held by a trustee or officer of the court and it’s his duty to notify the homeowner regarding the surplus proceeds. When the homeowner receives the notification, he can make a legal claim for the funds.
- If you are the homeowner, it is crucial that you leave a forwarding address, and keep track of the proceedings. If, after the foreclosure, you do not receive this notice promptly, you need to call the number mentioned on your prior notices.
- Foreclosure surplus fund scams also exist, so be sure to examine your emails regularly and contact the trustee or officer if something doesn’t seem legitimate.
- There may be a limited window for you to recover the funds and therefore you must act quickly.
- Apart from this, you’ll also need to provide proof of prior ownership to the trustee or the court. Submitting a claim form and/or attending a court hearing is required.
Following all the above-mentioned rules is necessary because if the surplus funds are not properly claimed, they will be treated by the court as unclaimed property.
Beware of False Claims for Getting Foreclosure Surpluses:
Beware of fraud companies who may claim that they can help you in getting the surplus funds. These letters are typically from companies or individuals with no legal training at all who may just try to convince you that they will help you claim any surplus funds after you go through a foreclosure. And they will also charge you a fee. Such companies or individuals are greedy and aren’t affiliated with the court, trustee, or your lender.
It’s best to consult with a foreclosure lawyer if you need help recovering surplus funds after a foreclosure. You can also try for free assistance from a local legal aid office.
Although the foreclosure process varies by state, there are six common phases of a foreclosure procedure.
The 6 Phases of Foreclosure:
Phase 1: First Defaulter in Payment:
A default in payment occurs when a borrower has missed at least one mortgage payment.
Phase 2: Notice of Default:
A notice of default (NOD) is sent after the fourth month of missed payments (90 days past due). This is a public notice that gives the borrower 30 days to rectify past dues before formally starting the foreclosure process
Phase 3: Notice from the Trustee for Sale:
The process for initiating foreclosure is different depending on the different states. In some states, nonjudicial foreclosures can be done, which only requires filing paperwork with the necessary court to start the process. Other states have judicial foreclosures, which require court approval for each step.
Phase 4: Trustee’s Sale:
During this process, the property is placed up for public auction and the highest bidder is awarded the property that meets all of the requirements.
Phase 5: Real Estate Owned (REO):
The lender sets a minimum bid that includes the appraised value of the property, the remaining amount due on the mortgage, any other liens, and attorney fees. If the property is not sold during the public auction, the lender becomes the owner and attempts to sell the property through a broker or with the assistance of a real estate-owned (REO) asset manager.
Phase 6: Eviction:
As soon as the auction ends, the old owners are issued an order to evacuate if they are still living on the property. It is an eviction notice, which states that the premises must be evacuated immediately. The auction winner or the bank (if the property is not sold) is named as the new owner.
Foreclosure can be a long and painful process, and acquiring knowledge about the process can help you come out of it with your sanity and dignity intact. The experienced and professional team of Vilt Law, P.C. can help you fight this long battle if your lender has treated you unjustly or you did not get the money you deserve from excess proceeds. Get trusted legal advice that is affordable. Whatever your needs, our attorneys are skilled at handling all complex legal procedures, filing the proper documentation in the case, and presenting your legal argument before the court. Contact us today for a free consultation.