Whether you are assisting a client with finalizing an estate, a foreclosure, or with collecting a judgment, you may encounter surplus funds. Understanding when surplus funds are deposited and the legal process by which your client can secure those funds is beneficial.
What are surplus funds?
Surplus funds occur when a foreclosure recovers more money than is owed to the entity and after paying all debts associated with the foreclosure. When this happens, this money generally goes to the rightful owners of the property. Although this sounds straightforward, identifying the “rightful owners” of the property can be fairly complex and is generally not a high priority for the attorney assisting with the foreclosure. As such, any extra money is deposited with the local Clerk of Court and is identified as “Surplus Funds.”
What is the legal authority under which I would pursue a claim?
At this point, the “rightful owners” can step forward to claim the money under § 45-21.32. A rightful owner may be an heir or a creditor who believes that he or she is entitled to the money. Some people discover they may be a rightful owner because they receive a letter from the Clerk of Court, informing them that this money may be available.
What is the legal process I can follow to assist my clients?
The person or entity that claims to be a rightful owner will need to file a Petition to Determine Ownership of Surplus Funds as a special proceeding. The Petition should outline the history of the funds, the original owners of the property, and who the Petitioner believes are the rightful owners based on inheritance, creditor claims, or prior ownership of the real property. Completing a title search helps the court identify the rightful owners and some potential creditors, and generally a completed title opinion should be attached to the Petition as it is being filed. All creditors and heirs who are not Petitioners must be listed as Respondents and properly served in accordance with Rule 4. The Respondents have ten (10) days to file a written response to contest the claim of the Petitioners or to assert a claim for the money.
Finally, once everyone has been notified of the initial action and given time to respond, a hearing is set. This hearing is the opportunity for any heirs and creditors to appear before the court to make a claim for the surplus funds or dispute the distribution. The Clerk of Court or Judge conducting the hearing will make an order for the distribution of funds, and the money can be disbursed.
For sample documents submitted to court, please contact us to speak with one of the attorneys directly.