Foreclosure Surplus Funds 101

When a property is foreclosed upon, generally because of a defaulted mortgage, it is sold at a public auction. The proceeds of the sale are used to pay the outstanding mortgage of the lender. If the price paid is more than the amount owed to the lender, the remaining funds are referred to as “Surplus Monies”. 

For example, an individual defaults on their mortgage, and the Court Appointed Referee determines that the amount due to the lender is $300,000.00.  The property is sold at a foreclosure sale, and a third party bids and pays $350,000.00 for the property. In that situation, the lender would be paid the first $300,000.00.  But what happens with the remaining $50,000.00?

In such a case, the Court Appointed Referee will then deposit that amount with the New York State Department of Finance, which has the authority to disburse the funds to the proper party upon receipt of an order from the Court that handled the original foreclosure case. 

Who is entitled to Surplus Foreclosure Funds?

In general, if no other liens or claims exist, the owner of the property which is sold at auction has the right to collect any surplus funds after foreclosure. However, if any liens or claims exist, they would have priority over the owner of the property to the surplus foreclosure funds. The lienor that would have priority over the owner are usually the second mortgage, judgment creditor, or another creditor like the IRS. For a lienor to have such a claim, that party must have been named as a defendant in the original foreclosure lawsuit and is required to have filed a Notice of Claim to Surplus Funds with the Court. Moreover, anyone with an interest or claim to the Surplus Monies, including the owner, must bring a “surplus monies proceeding” to have the funds disbursed to them.   

How to Claim Surplus Funds from Foreclosure? 

In a surplus monies proceeding, the Court requires that a title report be submitted for purposes of disclosing what liens are against the foreclosed property, as they must be paid in the order in which the liens were entered. The lienor making claim for the proceeds does not have to be in a specific priority position and can be the holder of a lien that is inferior to other liens. This lienor, however, is required to notify all others that possess a lien on the property so they then could assert their claims or assert priority. If, however, the other lienors fail to appear and/or fail to assert claims of a priority, then they may be barred from receiving any of the funds. Similarly, if the owner is noticed in the surplus money proceeding, then he/she can claim any remaining funds or can contest any of the lienors’ claims. After these liens on the property are paid in full, and if there are any funds remaining, then the property owner would be entitled to receive these monies.

What if no one claims the Surplus Funds after Foreclosure?

Once the Surplus Monies are deposited with the Court, the monies remain there until someone claims them. If, after five years, no one has claimed the Surplus Monies, then the clerk of the Court turns it over to the NYS Office of the Comptroller as abandoned property.

Have questions about Surplus Funds from Foreclosure? 

Enduring your home being foreclosed on is a difficult process, but potentially obtaining surplus funds from foreclosure may help soften the blow. Clair Gjertsen & Weathers PLLC has been helping people through this complex process for the last 40-years.  We offer free initial consultations to see if obtaining Surplus Monies is feasible.  Please give us a call at 914.472.6202.

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