When a California foreclosure sale, known as a trustee's sale, brings in more than the lender is owed, the extra money is called excess proceeds or surplus funds. After the costs of the sale and the foreclosed loan are paid, the trustee pays junior lienholders in order of priority, and whatever remains belongs to the former owner, who must submit a written claim to receive it.
Former owners may hear from companies offering to "recover" this money soon after the auction. If you have one in hand, call (415) 754-0115 to schedule a free consultation, or reach out through our contact page so an attorney can look at it with you.
Who is paid from excess proceeds after a foreclosure sale in California
California Civil Code section 2924k sets the order in which a trustee distributes sale proceeds:
- The costs and expenses of the sale, including the trustee's and attorney's fees the law permits.
- The debt secured by the deed of trust that was foreclosed.
- Junior liens and encumbrances, in order of priority, such as a second mortgage or HELOC, a recorded judgment, a tax lien or an HOA lien.
- The former owner (the trustor) or their successor in interest.
Because the former owner is last in line, the surplus announced after the auction may shrink considerably once junior claims are paid. Even so, a home that goes to sale with substantial equity, as can happen where values have climbed, can leave a meaningful balance.
How the surplus claim process works
The trustee's notice
Under Civil Code section 2924j, when money remains after the sale costs and the foreclosed loan are paid, the trustee must send written notice to everyone who held a recorded interest in the property just before the sale and may be entitled to a share. That notice goes out within 30 days after the trustee's deed is executed. It goes by first-class mail to the addresses on record, so a former owner who has already moved can miss it entirely, which matters because the claim period that follows is short.
The written claim
To be paid, a claimant submits a written claim signed under penalty of perjury, stating the amount claimed and supported by documents. Under section 2924j, the claim must reach the trustee no later than 30 days after the trustee sends its notice.
What a former owner's claim usually includes
- The trustee sale number and the property address.
- Proof of identity and of ownership at the time of sale, such as the recorded deed.
- A current mailing address, plus information about any liens that were already paid off or are disputed.
- If the owner has died, documents showing who succeeds to the claim, such as letters of administration or trust paperwork.
When claims compete
The trustee must use due diligence to sort out who has priority. If it cannot determine priority, or receives conflicting claims, it may deposit the funds with the clerk of the superior court in the county where the sale took place, after mailing notice that claims must be filed with the court within 30 days. The court then decides who is paid, and legal representation tends to matter most at that stage.
Recovery companies and the share they ask for
Surplus funds can be traced through public records, so former owners may be contacted by "asset recovery" or "surplus funds" companies. The typical pitch is to file the claim in exchange for a share of whatever is recovered, sometimes combined with a power of attorney or an assignment of the claim itself.
The claim is a written statement with supporting documents that the former owner, or the owner's own attorney, can submit directly to the trustee. California's foreclosure consultant law, Civil Code sections 2945 and following, treats helping an owner obtain surplus proceeds for compensation as a regulated service and bars covered consultants from agreements to arrange the release of surplus funds after a trustee's sale, whether paid by fee, assignment, deed or power of attorney. Having an attorney review any recovery agreement before signing is a practical way to avoid handing away part of the equity.
What can shrink or complicate the surplus
- Junior liens. Second mortgages, HELOCs, judgment liens recorded as abstracts of judgment, HOA assessment liens, and IRS or FTB tax liens all stand ahead of the former owner.
- Co-owners and divorce. When title was shared, each owner's portion may be disputed, and a divorce judgment can change who is entitled.
- Death of the owner. Heirs or a trust may need probate or trust documents before the trustee will release funds.
- Bankruptcy. If the former owner is in an open bankruptcy case, the surplus may be property of the bankruptcy estate, and exemptions can determine how much the owner keeps.
Surplus questions often overlap with the foreclosure defense and mortgage dispute work described on our practice areas page, which The Somal Law Firm handles for homeowners across Pleasanton, Alameda County and Contra Costa County.
If the sale has not happened yet
For owners reading this before an auction, surplus is usually the least favorable way to recover equity. The price at a trustee's sale is set by whoever bids that day, not by a marketed sale, and California law gives the former owner no right to redeem the home after a completed trustee's sale. Reinstating the loan, selling on the open market or using bankruptcy to stop the sale may preserve more of the value. Our articles on stopping a foreclosure sale date and the notice of trustee sale explain the timeline.
Frequently asked questions
How long do I have to claim excess proceeds after a foreclosure sale?
The trustee's notice goes out within 30 days of the trustee's deed, and written claims must reach the trustee within 30 days after that notice is sent. If priority is still unresolved, the trustee can deposit the funds with the superior court after notifying claimants that they have 30 days to file their claims there. Because the notice may go to an old address, the clock can start before a former owner sees it.
Do I need a lawyer to claim surplus funds?
Not necessarily. A former owner can submit the written claim directly. Legal help tends to matter more when lienholders dispute priority, when the funds have been deposited with the court, or when an heir, co-owner or former spouse is also claiming.
Will the IRS or FTB take part of the surplus?
If a federal or state tax lien was recorded against the owner, it attaches to the surplus and is generally paid in its order of priority before the former owner receives anything.
Is there a surplus if the lender bought the home at the sale?
Usually not. A foreclosing lender typically credit bids up to the amount it is owed, which leaves nothing beyond its own debt. Surplus generally arises when an outside bidder pays more than the debt and costs.
If your home was sold at a trustee's sale and you believe money was left over, call (415) 754-0115 to schedule a free consultation with The Somal Law Firm, or contact us through our contact page. Have the trustee sale number or any notice you received, and we will explain where the funds stand and how a claim can be made.
Attorney Advertising. This article is general legal information for Bay Area residents, not legal advice, and does not create an attorney–client relationship. Every situation is different — please consult a licensed attorney about your specific circumstances.