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 have a 3plex in AZ that is about to go into foreclosure. I was told by an Attorney that if the lender does not come after us with in 90 days of the foreclosure date by law they cannot come after us in other words sue us. Is this true?
  • Short Sale question - What do I do if there was not full disclosure at the short sale by the lender that a heloc would still have a balance & they would come after me 4 years later?
  • As a renter in a property that is going up for sale on 4-22-08, how long do I have to move and find a place to live? The owner will not return my phone calls or my money?
  • I've been renting from the same landlord for three years and suddenly he foreclosed. Is it possible for his name not to show anywhere on the foreclosure papers?
  • Does the Superior Court have a procedure for expedited processing of time sensitive cases? If so, would that procedure be applicable to a foreclosure of the right to redeem a tax lien?
  • while working on a modification, my home of 17 yrs was sold at auction. Pls help me understand what my rights are. Note taped to my DOOR saying who the "new" owner is and I have to be "out in 3 days" please give me a direction, my son is disabled and lives w/me (25) I truly have no where to go and am in such an emotional wreck I cannot stand it. How can this be legal? How can a home be "sold" while they are "working on modification"? Pls assist me in whatever way you can. thank you.
  • Is a single unit in a large condominium complex treated the same as a single family residence under the AZ anti-deficiency statutes?
  • I was in the midst of a loan modification review and was told they granted me a 30 day extension on my foreclosure. I have now come to find out they never did the 30day extension and my house was sold. Do I have any legal recourse?
  • Are the lenders able to work with you even if your only 1 month behind. they sent us a letter giving us a certain date to catch up and what would happen if this didn't occur.
  • The house is currently in foreclosure.It is being sold at an auction in January.Will they give me a notice telling me I have to get out? Or can they by law,put my stuff on the curb?

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