Foreclosure can be devastating, but if your home sells for more than what you owe, there may be a silver lining called “surplus funds.”
Navigating through the turbulence of a home foreclosure can be daunting for any homeowner. The period following a foreclosure can be fraught with financial and emotional difficulties, often overshadowed by uncertainty about the future.
In some cases, however, homeowners may be entitled to tens or even hundreds of thousands of dollars in excess funds from the foreclosure sale of their home. These funds are commonly known as “surplus funds” and can provide a much-needed financial cushion following a foreclosure.
Wondering if you are entitled to surplus funds or need help claiming surplus funds from foreclosure? Call (510) 982-3001 to speak with our team at Estavillo Law Group and discuss how we might be able to help you.
What Are Surplus Funds?
Surplus funds, also known as excess proceeds or “overage,” are the amount of money left over after your foreclosed home has been sold at auction and all the lenders and other lienholders have been paid off. They are essentially the remaining equity that you had in the property.
While foreclosure can feel like an absolute loss, these funds can represent a beacon of potential financial relief – it is money that rightfully belongs to the former homeowner after all debts related to the foreclosure are paid off.
How Are Surplus Funds Possible?
When a lender forecloses on a property, it’s typically sold at a public auction. In California, a lender can foreclose either by going to trial or without going to trial, according to the Judicial Branch of California.
Either way, the goal of foreclosure is to recover the amount owed by the homeowner. However, it’s not uncommon for these properties to fetch a higher price than the debt amount due to market conditions or property desirability.
The surplus is calculated by subtracting the outstanding mortgage debt, accrued interest, fees, and any other associated foreclosure costs from the final sale price. The amount of money remaining after the subtraction constitutes what is called “surplus funds.”
- Example. Your home sells at a foreclosure for $740,000, while you owe your lender $710,000, which includes accrued interest and other foreclosure costs. The remaining $30,000 is surplus funds.
Who Is Entitled to Surplus Funds?
Generally, as the former homeowner, you have primary rights to any surplus funds. However, if there were other liens on the property, such as a second mortgage or judgments, those lienholders might also have claims to the surplus.
Typically, the trustee or entity handling the foreclosure sale will notify you if there are surplus funds. If you do not receive notification and believe there may be surplus funds, you should immediately contact the trustee’s office.
- Note: Former homeowners are usually notified of surplus funds via mail. For this reason, it is critical that you report your forwarding address with the U.S. Post Office when you vacate your foreclosed home.
There’s often a deadline for claiming these funds, typically ranging from a few months to a few years. It is imperative that you understand the timeline in your area to avoid missing out on funds you are entitled to.
How to Claim Surplus Funds
To claim the surplus funds, you may need to file a motion with the court or submit a request through the trustee. The exact process can vary, so it is advisable to consult with an attorney.
Generally, the process of claiming surplus funds from foreclosure includes the following steps:
- Step 1: Contact the trustee’s office to inquire about possible surplus funds.
- Step 2: Request a claim form or the specific procedure for claiming the funds.
- Step 3: Provide necessary documentation.
- Step 4: Submit the claim.
If you would like to learn more about how to claim surplus funds from foreclosure, schedule a consultation with our foreclosure lawyers at Estavillo Law Group. Our law firm defends the rights of homeowners facing foreclosure and helps them claim surplus funds in the unfortunate circumstance of a home foreclosure.
What Are the Possible Uses of Surplus Funds from Foreclosure?
Those fortunate enough to retrieve surplus funds might consider using them for:
- Paying off remaining debts. You can settle other outstanding debts to improve your financial stability.
- Use funds towards a new place to live either by renting or buying.
- Home repairs and renovations. You could also invest back into any remaining property owned or prepare a new home.
- Investments and savings. Alternatively, you could use the funds to plan for the future, including savings and investments.
However, you should be aware of the potential tax implications of receiving surplus funds from foreclosure. Surplus funds may count as income, and thus, might be taxable.
According to the Internal Revenue Service (IRS), foreclosures are treated as sales from which the borrower may realize gain or loss, so any gains realized from foreclosure may be subject to taxation.
Consider speaking with a tax advisor to understand and prepare for any tax consequences of receiving these funds.
Ways to Protect Yourself from Surplus Funds Scams
Anyone can review public foreclosure records and see which foreclosure sales resulted in surplus funds. Unfortunately, this environment creates fertile ground for scammers looking to take advantage of former homeowners.
Here are some of the ways you can protect yourself from scams associated with surplus funds:
- Hire a qualified lawyer. It’s a good idea to consult with a lawyer who specializes in real estate or foreclosure. They can provide valuable guidance, represent your interests, and help recover any legitimate surplus funds without falling prey to scams.
- Verify legitimate claims. If someone approaches you claiming you have surplus funds waiting, proceed with caution. Ask for official documentation and research their claim.
- Do not sign anything until you consult with a lawyer. Do not let anyone pressure you into signing documents related to surplus funds without a lawyer’s review.
- Be wary of contingency agreements. A common scam tactic is to ask for 10% – 30% of surplus funds. As a rule of thumb, the recovery of surplus funds does not require any payment at all, and if you hired an attorney, their fees should be significantly less.
- Protect your personal information. Never share personal information such as social security numbers, bank details, or other sensitive data without verifying the legitimacy of the request.
Understanding how to safeguard yourself against these surplus funds scams is essential, and our lawyers at Estavillo Law Group can help you feel safe and secure.
Estavillo Law Group: Help Claiming Your Surplus Funds from Foreclosure in California
Claiming surplus funds from a foreclosure can provide unexpected financial support after the loss of a home. Unfortunately, however, many homeowners do not understand how to claim surplus funds from foreclosure and many fall prey to scams while trying to claim these funds.
At Estavillo Law Group, we understand the procedures, the paperwork, and the deadlines involved when claiming surplus funds after foreclosure. If your home was sold at a foreclosure, our lawyers can provide you the guidance you need in surplus funds recovery. Call our office at (510) 982-3001 to schedule a free phone consultation today.