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

  • WHAT IS THE LAW THAT STOPS EVICTION BY BOTH THE NEW OWNER OF THE FORECLOSED EQUITABLE TITLE AND THE SERVICING BANK?
  • 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.
  • We are currently renting a home that is being foreclosed on. A realtor is telling me to allow him to put a safe lock on the door and show the home. What are my rights? He claims to work for the trustee.
  • what if i cant make the full payment amount of the reinstatement on time what will happen
  • Is the law the same re foreclosure the same for a mobile home? I have vacated the property. Can my wages be garnished?
  • What are home owners liabilities during foreclosure
  • After foreclosure involving a single family residence the new owner filed an unlawful detainer action against the tenants who had no rental agreement after serving them with a 90 day notice to quit. The tenants refuse to move and have not paid rent.They only had a month to month oral agreement with the former owner. One of the tenants claims that he is on parole and cannot be evicted. Is this a valid defense to the UD action?
  • I came across an abandon/foreclosed home and I would like to find out more about taking adverse possession of the property. What do I need to know about doing this? I need the pro's and con's, please! M
  • My family and I had moved into our new home after paying six months in advance and signing our lease . One and half months into being our home , the sheriffs arrived at our door saying that they had put warning's on our house, though we never saw any . Conveniently, our landlord was nowhere to be found . What agency will help us get into A home and help with a couple month's rent?
  • Due to piling credit card debt and a recent diagnosis of cancer I may be headed towards foreclosure on my condominium. My question is if I cannot save my home will I be subject to any deficiency judgments against me because my residence is a condominium? I've read about if the property being less than 2.5 acres and a single family dwelling is safe from deficiency judgments. Do condos fall under the same protection? Is there anymore light you can shed on this situation for me?

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