Understanding Surplus Funds in North Carolina

Foreclosures have remained common across North Carolina, especially following the end of pandemic-era protections. Because real estate values rose sharply over the same period, many properties sold for more than what was owed on the mortgage, taxes, or other debt.

The money left over after paying the foreclosed debt and expenses are called "surplus funds" (sometimes called excess proceeds), and in most cases, legally belong to the former owner of the property. Unfortunately, the process for recovering the surplus funds is not automatic. If you don't file a timely claim, you can lose your right to that money forever.

What Are Surplus Funds?

Surplus funds are the money left over after:

• The foreclosure sale satisfies the full debt (mortgage balance, interest, fees, taxes, ect.)

• Any senior liens are paid, if applicable

• The clerk or trustee deducts allowable legal and administrative fees

If the final sale price exceeds these amounts, the remainder is deposited with the clerk of court in the county where the property is located. That surplus belongs to the property owner or owners at the time of foreclosure, unless someone with a superior claim (like a lienholder) steps forward.

How to Claim Surplus Funds

The legal procedure for claiming surplus funds in North Carolina generally follows these steps:

• Confirm the surplus funds are on deposit with the clerk's office

• Complete a comprehensive 30 year title search and identify all interested parties

• File a formal petition with the court and deliver a certified copy to all parties

• Present proper documentation proving ownership of the surplus

• Respond to any competing claims from other parties

• Attend a hearing in front of a Superior Court judge or hearing clerk

• Obtain a court order directing the release of funds

This process can become complicated if there are multiple claimants, title issues, or if you've moved and can't easily gather the required documents.

Why Many Homeowners Miss Out

Many former homeowners don't realize surplus funds exist after a foreclosure sale, believing instead the foreclosure process takes all rights to the property, including the remaining equity. After the clerk of court receives the surplus, they will attempt to contact the former owners and notify them of the surplus. Unfortunately, in many cases, the clerk does not have accurate contact information for the former owners, so the notice is not received.

If nobody comes forward to collect the surplus, then approximately one year after receiving the surplus funds, the clerk of court will send the funds to the North Carolina State Treasurer in Raleigh, North Carolina. Fortunately, with a properly filed petition, funds are regularly recovered from the State Treasurer's office, up to 15 years after the foreclosure sale.

In many cases, especially those that involve deceased owners with multiple heirs and estate administration problems, other claimants come forward and file their own petition for the funds. Regardless of who files the first petition, all persons who may have a valid claim to the surplus funds are supposed to be included in the process. Unfortunately, this doesn't always happen properly. This can result in some people getting more then they legally should, at the expense of others. Fixing these problems isn't always easy and sometimes not possible.

Why You Should Work with an Attorney

Recovering surplus funds is a legal proceeding, not just a matter of filling out a form. Courts expect proper pleadings, proof of ownership, and compliance with North Carolina civil procedure rules. An experienced attorney can:

• Research whether surplus funds are being held in your case

• File the motion or petition on your behalf

• Gather the necessary supporting documents

• Respond to objections from other claimants

• Represent you at any required hearings

• Ensure you meet all court deadlines

At Donovan Law, we handle surplus funds claims throughout North Carolina. In most cases there is no upfront cost client. We charge an hourly rate and get paid out of the surplus funds when they are released by the clerk of court.

Time May Be Critical

If you recently lost a property to foreclosure and suspect there may be surplus funds, it's important to act quickly. Claims filed within the first few months after the foreclosure sale, are resolved faster and with less expense.

Don't wait years to recover and don't leave money on the table. Contact Donovan Law today for a free consultation to discuss your situation and find out if you're entitled to surplus funds from your foreclosure.