19 Oct The Ins and Outs of Surplus Litigation
Foreclosure is disastrous. It takes a toll on its victims, both physically and psychologically. During the housing bust and ensuing foreclosure panic, one in every 88 homes in California was in some form of foreclosure. People were out on the streets with nowhere to go; blight and devastation abounded. Plummeting income combined with dropping housing prices made foreclosure bidding a buyer’s market, wherein bidders were able to purchase a house on the cheap.
The current foreclosure market is not as brutal. Although anyone experiencing a foreclosure must deal with the pain involved, a former homeowner may be able to collect excess proceeds from any surplus resulting from the foreclosure. This occurs when the sale price of the foreclosed home exceeds the amount owed to the lender. However, accessing those funds is not easy. To access those funds that rightfully belong to you, you need to contact an attorney experienced and knowledgeable in California real estate and foreclosure law.
Foreclosure Sale Process
In a foreclosure sale, the mortgaged property is sold to the highest bidder in a public auction. Who conducts the sale depends on whether the foreclosure was judicial or nonjudicial. Nonjudicial foreclosure is the most common type in California. It is used when there is a power-of-sale clause in the deed of trust that secures the mortgage loan by giving the foreclosure trustee, usually the title insurance company, the authority to sell the home to pay off the loan balance if the borrower defaults. Judicial foreclosure involves filing a lawsuit to get a court order to sell the home. It is used when there is no power-of-sale clause in the mortgage or deed of trust. If the property is foreclosed in a judicial action, a sheriff or other public official may conduct the sale; if it’s foreclosed in a nonjudicial action, the trustee conducts the sale.
If there are surplus funds, the trustee or whomever conducts the foreclosure sale will notify all relevant parties within thirty days that such funds exist. The parties have thirty days to respond to the trustee with a claim. If there are disputes regarding the claim, the trustee will likely file an interpleader suit.
When excess funds exist, the party conducting the foreclosure sale does not want to disburse the excess funds for fear of wrongfully distributing them. When a third party holds money that belongs to one of two parties disputing the money, the money is called a “stake” and the third party is called a “stakeholder.” To protect itself, the stakeholder will file an interpleader suit with the relevant court and pay that money into the court. Then the court, after a hearing, will decide the proper owner of the stake. This way, the stakeholder has no liability.
In cases where excess funds exist after foreclosure, the sheriff, public official or trustee conducting the foreclosure sale will likely file an interpleader suit with a court to remove himself or herself from the dispute.
Within 90 days of the stakeholder depositing the stake with a court per its interpleader suit, the court will consider a hearing for the relevant parties. The court clerk notifies all relevant parties of the hearing. After the hearing, the court distributes the funds.
During the hearing, a party seeking surplus funds must demonstrate that they are who they say they are. That party should bring all relevant evidence demonstrating their valid claim. If a motion is properly filed and the party claiming a right to the surplus funds satisfactorily identifies itself, a court should direct that the surplus funds go to that party. It should not be a complicated process.
If surplus funds exist after a foreclosure sale, those funds rightfully belong to the defaulting party. However, do not expect the foreclosure trustee to just mail those funds to their rightful owner. There is a process before receiving those funds.
If your home has been sold in a foreclosure sale and you believe that surplus funds exist, contact RA & Associates at 1-888-504-1551 or [email protected] for guidance through the process of securing those excess funds.
RA & Associates
505 N. Brand Blvd.
Glendale, CA 91203
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