Surplus Funds

In a regular real property sale, the difference between the amount you owe on the mortgage and the amount you receive in the sale is the profit. In a foreclosure sale, the difference between the amount you owe on the mortgage and the purchase amount at the foreclosure sale is called a surplus. The borrower is entitled to recover this surplus.

Foreclosure Sales in California are conducted by a trustee. The amount that is paid at the foreclosure sale, as well as the identity of the purchaser, is documented in the trustee’s Deed upon Sale which is recorded with the County Recorder. After the Trustee’s Deed Upon Sale is recorded, the trustee then disburses the funds from the purchase to pay off all the existing mortgages or liens and disburses the remainder (the surplus) to you.

Problems can arise with surplus funds; beginning with the fact that many people don’t realize they are entitled to collect them. Trustees may also be unscrupulous and claim that they have to hold onto the funds to pay off non-existent liens, thereby delaying you. The trustee may bargain that a borrower is too cash-strapped to afford litigation to fight them.

Other unscrupulous entities will take advantage of vulnerable borrowers by convincing you that you need to hire someone to get these funds. Like anything else, you can hire someone to do this for you, but it is a clerical process and nobody should be charging exorbitantly for this work.

In some situations, the trustee might also send a check that does not clear and is returned for insufficient funds. This happened to a client of mine that was ill with HIV. This situation required litigation in federal court where my client was successful in getting his surplus, his attorney fees, and a settlement.