Foreclosures: What Happens to the Surplus Funds?

Foreclosures are usually difficult times for property owners. The bank or local government is taking their property, and they often feel powerless. There is a light, albeit dim, at the end of the foreclosure process, however. If there are funds leftover after the property has been sold, the owner may recover the leftover proceeds through the court system. When the bank forecloses for failure to make mortgage payments or the local government forecloses for failure to pay property taxes, a lengthy legal process ensues that typically concludes with the sale of the property in question. The proceeds from the sale are disbursed to the parties that are owed money: the bank; the city, town, or county; the attorneys involved; and anyone else with a valid claim. But what happens to any monies that are leftover?

The leftover monies are called surplus funds, and they are paid to the local clerk of court to be held for any person who is entitled to them. The statute governing this procedure is N.C.G.S. 1-339.71, which states:

  • A special proceeding may be instituted before the clerk of the superior court by any person claiming any money, or part thereof, paid into the clerk’s office under G.S. 1-339.70 or G.S. 105-374(q)(6), to determine who is entitled thereto.

In English, that means the clerk holds a hearing to determine if a person claiming leftover money from the forced sale of property is entitled to it. From a fairness standpoint, having a provision like this in the law makes sense. If the bank took your property because you couldn’t pay your mortgage, you should at least get any proceeds that remain after it’s sold.

How do you recover the money that is legitimately yours? You initiate a process to recover the monies by filing a Petition for Surplus Funds. A Petition for Surplus Funds is a court filing that explains what money belongs to you and why. Filing a petition typically requires the assistance of an attorney to ensure your position is clearly stated and provides the legal rationale that entitles you to the funds in question. In addition, if the matter is contested by another party that claims ownership of the funds, the proceeding is transferred to superior court for trial pursuant to N.C.G.S. 1-339.71(c). At this point, having an attorney representing you becomes a near necessity.

If you owned property that has been foreclosed on for failure to pay your mortgage or taxes, and there was equity in the property, you may be entitled to recover the leftover proceeds. While most people would prefer to have their property back, claiming what’s yours can at least help you turn the page on a new chapter in your life.

Contact Matt Rupp at (828) 265-0016 or, and I’ll be happy to help you through the process.