Sunday, September 09, 2007

Disposition of Excess Foreclosure Proceeds

Question: I lost my home to foreclosure and they sold my house for more than I owe. Do I get any of the excess money? The bank sold my house for $50k more than I owed, even with the finance charges.

Answer: The bank is only entitled to retain the amount owed on the loans plus any legally authorized costs of the foreclosure sale. Any exceed proceeds could go to you or to creditors that have priority over you.

Suppose you had a second mortgage for $75,000. California Civil Code § 2924k(a)(3) requires that surplus funds be paid to "to satisfy the outstanding balance of obligations secured by any junior liens or encumbrances in the order of their priority." The second mortgage holder would make a claim to the $50,000 above what was necessary to satisfy your obligation under the first mortgage. You might also have judgment creditors who have put a lien on your home that would have priority over you.

If there are no other creditors with a legal entitlement to the money, you can retrieve the excess proceeds from the foreclosure trustee. Feel free to contact us if you need further assistance.

About the Author
Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.


scott said...

Not a professional blogger. I could only add to this for my question. My location is California.

I am currently in a rental through a property management agency. I have been in the property for 9 months and now the property is up for foreclosure auction next week. I have contacted the senior lender and they will rent to me if the property reverts back to them.

If the property is bought at auction. Does the Servicemembers civil relief act provide any protections? I am active duty military.

My rent is under $2400, but I have paid my rent on time every month. Can the SCRA still protect me under 301 or another article? I have nine months remaining here.


Carl Starrett said...

The law is now called the Servicesmembers Civil Relief Act of 2003. Your situation is a little unique. One of the biggest protections for service members is the stay of any lawsuit while you are on deployment and against default judgments. You didn't specify if you were on deployment or not.

The lease you have will be terminated by the foreclosure. You'll need a new lease with the new owner to protect yourself. The prohibition against lease termination only applies if you receive a permanent change of station or a deployment of 90 days or more.

Robert Encinitas said...

In the "Suppose you had a second mortgage" example How does the CA Homestead Exemption protect one?
Is the homeowner 2nd in line or third behind the 2nd mortgage lender (and before other creditors)?


Anonymous said...

Question from the other side. If I'm the lien holder and supplied the 2nd mortgage, is there a way that I can find out, preferably electronically, if any homes sold have excess funds available. For instance, say I have a list of 100,000 homes that I have interest in as the 2nd mortgage company. Is there a place to scrub this information to find out where excess funds exist so that I can make a claim on these without visiting each county courthouse in every state?

Carl Starrett said...

I'm not aware of any electronic databases for excess proceeds, though it is possible they one exists somewhere. If the foreclosing lender is doing its job, the junior lien holders should know of the foreclosure and have contact information for the foreclosure trustee to make this type of inquiry.