When a property goes through foreclosure, there may be

excess funds

after the sale of the property, which can be returned to the previous owner or lienholders. Here's a breakdown of the key points regarding these excess funds:

What Are Excess Funds?

Excess funds refer to the money left over after a foreclosure sale, when the sale price exceeds the amount owed on the mortgage and other costs (e.g., fees, unpaid taxes).These funds are the difference between the foreclosure sale price and the total debt owed by the borrower, including the mortgage balance, legal fees, and other liens.

Who Receives the Excess Funds?

The former homeowner (borrower) is typically entitled to the excess funds, but only after all valid claims and liens have been paid.Lienholders (e.g., second mortgage holders, tax authorities) are paid before the former homeowner, in order of priority.

Process for Claiming Excess Funds

Foreclosure Sale: After the property is sold at auction, the proceeds are used to pay off the mortgage lender, attorney fees, and other applicable costs.Excess Proceeds: If the sale price exceeds the amount owed, the remaining funds are considered "excess proceeds."Notification: The court or sheriff conducting the sale will typically notify the former homeowner and other interested parties about the excess funds.Filing a Claim: The homeowner or lienholders must file a claim with the court or the relevant agency handling the foreclosure sale to recover the excess funds.Timeframe: There is usually a time limit (often 1 to 2 years) to claim excess funds. If unclaimed, the funds may be forfeited.

Common Factors Affecting Excess Funds

Priority of Liens: Lienholders (e.g., second mortgage lenders, tax authorities) have priority over the homeowner in receiving excess funds. Homeowners may only receive what remains after all claims are settled.State Laws: Rules and procedures for handling excess funds vary by state, including who can claim them and how the process works.Foreclosure Type: The type of foreclosure (judicial vs. non-judicial) may impact the process and the distribution of funds.

Legal Considerations

Judgment for Excess Funds: In some cases, the former homeowner may need to go to court to get a judgment for the excess funds.Setoffs and Claims: If the borrower has outstanding debts or judgments unrelated to the mortgage, creditors may attempt to claim some or all of the excess funds.Bankruptcy: If the homeowner has filed for bankruptcy, excess funds may be diverted to satisfy bankruptcy claims.

Risks of Not Claiming Excess Funds

Loss of Funds: If the funds are not claimed within the set period, they may be transferred to the county or state, depending on local laws.Forfeiture: In some jurisdictions, unclaimed excess funds may be kept by the government after the statute of limitations expires.

Examples of Parties Who Might Be Entitled to Excess Funds

Homeowner: Once the mortgage and liens are paid off, any remaining amount generally goes to the homeowner.Lienholders: If there are other liens (e.g., second mortgage, property tax liens), they may claim a portion of the excess funds.Government: If there are any unpaid property taxes or other debts owed to government agencies, they will be paid first.

How to Ensure You Receive Excess Funds

Track the Foreclosure Process: Stay informed throughout the foreclosure process, especially the sale, so you can act quickly if there are excess funds.Consult with a Lawyer: If you’re unsure about the process or your rights, it may be helpful to consult a foreclosure attorney to navigate the claims process.

By understanding the process and acting promptly, you may be able to recover any excess funds from a foreclosure sale.Specialties include: tax forms, tax returns, Social Security, employee status, financial software, and more...