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 would like to know where and how to apply for an intake. I have a CIC # and have contacted the Attorney Genrals office. I filled out and submitted my situationon line on this website in early May,my husband and I have not heard back from it. Can you pleae advise ? Thank you.
  • 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
  • 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?
  • I am behind $8000.00 dollars on my mortgage. I know they will send a foreclosure notice soon. I have been struggling due to having a medical issue both my wife and myself (Heart Attack). Is there away to keep my home from foreclosure with a a program available to me? I am still working and my wife cannot find employment in Kingman as it is a small town.I have had to file ch-13 and I am still making payments to the court trustee monthly.
  • A sibling had a piece of land that was sold in a trustee's sale in June 2016 . It was 2.55 acres and had no single family residence. I am clear that it doesn't fall under the deficiency exemption because of the size of the lot and no home. Since it's been over 90 days, is it safe to say there will be no legal recourse? Can they still send the debt to ordinary collections agent? Thank you
  • 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?
  • The home I'm renting (leased through August 2015) was foreclosed on and there's a new owner. Do I have to pay rent to the new owner if I'm leaving in 6 weeks? Or do they have to give me an eviction notice? The new owner is demanding rent, but she doesn't have the deed yet, just a proof of purchase receipt.
  • We currently have a mortgage on our home as well as a home equity line of credit. If the first mortgage company forecloses on our property, can the bank that we have a home equity line of credit sue us or file a judgement on us for the amount of the home equity line of credit we used?
  • There is a scam going on with my house and reference for foreclosure need legal assistance ASAP I am disabled and need help my phone number is I need immediate help. Thank you
  • I am living in a house that is in foreclosure. The trustee date is in December, how lolng do I have until I get evicted from the property? How does the whole foreclosure work in AZ?

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