Foreclosure Article


Recovering Excess Proceeds After Foreclosure of Your Home

In Arizona, a home is typically foreclosed through a process known as a Trustee Sale. A Trustee’s Sale is when an individual or firm (the Trustee) holds an auction to sell the home in an attempt to recover the balance owed to the foreclosing lender.

During the downturn in the real estate market, the purchase price at auction was typically at or less than the loan balance owed to the lender.  However, with the recent upturn in the real estate market, we are now seeing purchase prices that are over the amount owed to the foreclosing lender.  The amount by which the purchase price at auction exceeds the balance owed the foreclosing lender is known as Excess Proceeds.

EXAMPLE:

$ 135,000   Price the property sold for at Trustee Sale auction

-  100,000   Loan balance amount owed to foreclosing lender at time of auction

$    35,000  Excess Proceeds

 

In the above example, $100,000 from the sale proceeds goes to pay the amount owed to the foreclosing lender.  The question is who is entitled to the remaining $35,000 in Excess Proceeds?  Generally, the Excess Proceeds first go to junior voluntary lienholders and then to the homeowner whose home was foreclosed.

Voluntary lienholders are lenders to whom the homeowner voluntarily gives an interest in the home.  Two common examples are your mortgage company (both your primary home loan and your secondary home equity loan) and a homeowner’s association (a junior voluntary lienholder).  By signing the mortgage, you voluntarily give the lender an interest in your home; and by purchasing a home within a community development you voluntarily give the homeowner’s association an interest in your home.

Involuntary lienholders are creditors who sue to get a judgment against you.  A common example is a credit card company that sues, gets a judgment against you for the amount owed on the credit card, and then records that judgment as a lien against your home.

Let’s add a few facts to the example above.  In addition to the $100,000 loan being foreclosed, there is a 2nd mortgage for $20,000 and a credit card judgment lien of $20,000.  Under this scenario, $100,000 goes to pay the amount owed to the foreclosing lender, with the $35,000 in Excess Proceeds being distributed as follows:  $20,000 to the 2nd mortgage (junior voluntary lienholder) and $15,000 to the homeowner. The credit card company (involuntary lienholder) gets nothing.

So how does the foreclosed homeowner know if there are Excess Proceeds available?  The Trustee is required to mail a notice to the homeowner’s last known address.  The problem is the last known address is usually the foreclosed property, which the homeowner has vacated without providing a forwarding address.

The homeowner, armed with the knowledge that a Trustee Sale can generate Excess Proceeds, should track the Trustee Sale process.  Call the Trustee’s office the day after the sale is scheduled to take place.  Ask the Trustee’s office if the sale was postponed (note: the Trustee is not required to provide you written notice of the postponement) or completed?  If the Trustee’s sale was postponed, ask the Trustee’s office for the new sale date. If the Trustee’s sale was completed, ask: Are there Excess Proceeds from the sale?  When will the Trustee be depositing the proceeds with the county treasurer and filing the required lawsuit?  Inform the Trustee that you are the foreclosed homeowner and want to make a claim for the Excess Proceeds.  Provide the Trustee with your new address and send a confirming letter (by both certified mail/return receipt requested and regular mail) to the Trustee with your new address and contact information.  

Excess proceeds can remain on deposit with the county treasurer for up to 2 years. Certain deadlines begin to run when the Trustee deposits the Excess Proceeds and files the lawsuit. Upon receiving notice that the lawsuit has been filed, you should immediately contact one of the legal aid offices listed below for free legal help in recovering Excess Proceeds.

You can apply online for free legal help here or click here for a directory of legal assistance in Arizona.

This article provides general information about Excess Proceeds.  It does not address your specific factual circumstances and should not be relied on as legal advice.  Please contact an attorney for legal advice specific to your situation.


Comments:

QUESTIONS

  • I am curious about the 90 day requirement to file a lawsuit for a deficiency on a foreclosed home. In my case, I had a purchase money loan and a second mortgage from the same lender. After the foreclosure, the lender has continued to keep the second mortgage in an "open" status. Is the lender barred from suing on the second mortgage past 90 days of foreclosure or do they have up to the 6 year AZ statute of limitations to sue?
  • my house was sold at auction today, I was not notified prior to the sale from my mortgage company. I chatted with another lawyer and he said that they should have posted something at my house 20 days prior to the auction, nothing was posted. is this legal?
  • Is the law the same re foreclosure the same for a mobile home? I have vacated the property. Can my wages be garnished?
  • What is the actual process for evicting a homeowner after the property has been foreclosed, including timeframes?
  • I am leasing a house threw a management company and found out that the house is in foreclosure and an auction date has already been set. The way I found out is the attorney for the lender posted the notice on our door not by the management company. I had to let them know. Am I still suppose to pay them the lease payment?
  • I have a balloon payment due this November. And I believe my house isn't even worth what I owe at this point. Is someone willing to lend in these cases? Should I be shopping for a fefinance this early? I know we are negative, but we love our house and know it will rebound one day, just need to get through this hard time. Any idea's? Thanks, Tomm
  • I need advise and assistance. Have been working with ***Mortgage Servicer*** since 10/2011 to obtain a HAMP 1.0 Tier modification. I have filed for Chapter 11 protection in 4/12 to stop the foreclosure process and continue to work unsuccessfully with Mortgage Servicer. They have made my life so unbelievably stressful with their constant requests for duplicate information provided and 2 denials of the request based on incorrect information that I am spending hours proving their errors. Need assistance to further clarify the settlement terms of the AZ AG's office case and what can be done to help me obtain the HAMP

    (This question was edited by the site administrator to redact the proper name of an individual or business)

     

  • I'm a female, single,on disability,recovering from liver transplant and chemo treatments for a rare lymphoma. My HOA initated fore closure for non payment of Assn fees. Im trying to resolve this with hardship modification loan.My mortgage co is working with me. I'm on a fixed income and can't hire an attorney. Can the foreclosure process be stalled until I get this done? thanks
  • The house we rent is in foreclosure. Are we obligated to stay in the house for the 90 days allowed or can we move as soon as we find a new place to live? Can the landlord hold us to the terms of the lease even though the house is in foreclosure now? Can he take us to court if we move out prior to the end of the lease?
  • How can I legally kick out family members? I own home they have been staying with more for over a year. Some occasionally contribute to rent but mostly don't. I have asked severe times in past 6 months to love out now I have given a 2 month telling them by September 1st but doesn't look like ahyones making plans and just freeloading and being lazy and I can't take it anymore Mom brother, sister . How do I legally get them to leave ?

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