Tax Foreclosures and Recouping Your Overage Funds: A Practical Guide
Foreclosures are rarely if ever a pleasant thing for homeowners.
However, they may be able to recoup the equity in the property after the foreclosure if there were surplus funds after the sale of the house.
How to Claim Surplus Funds
The primary purpose of a tax foreclosure sale is to recover any property taxes that are unpaid. Any money that is left that is above and beyond that owed amount, is considered the overage or surplus.
To claim these tax foreclosure surplus funds, a borrower will have to file a motion with the court in order to be entitled to the surplus. It’s important that you understand what the official process is in your jurisdiction, so it’s always advisable to consult with an experienced attorney.
The lawyers at Babi Legal Group, for example, have many years of experience defending the rights of homeowners who are facing foreclosure, including helping them claim surplus funds.
An important step is to track the foreclosure process so you can learn about the potential for surplus funds, including noting when the foreclosure sale will take place and the contact information of the foreclosing party.
In Michigan you are required to petition the court to seek your surplus prior to your home ever being auctioned whether or not you have a surplus. However, this law is currently being challenged and may be changed to make it more equitable towards the homeowner that was foreclosed upon.
Laws Governing Foreclosure Surplus Funds
Each state has its own laws that govern foreclosure surplus funds, and these are usually outlined specifically in state statutes. Not only will these laws determine how surplus funds are handled in tax foreclosures, they’ll also explain who’s entitled to receive them.
If your state allows for original borrowers to claim surplus funds, its laws should outline the process for claiming them, as well as the timeline for when you should expect to receive them.
Make sure that you’re aware of your state’s applicable laws so you can understand your obligations and rights. This is also why it’s important you work with a lawyer who’s experienced in real estate law in your state.
Calculating Surplus Funds
How can you calculate surplus funds in a tax foreclosure sale? It’s actually quite simple.
First, add up how much was owed in taxes, and any other fees.
Then, subtract that amount from how much the property sold for at auction.
For instance, if the total amount owed was $650,000 and the home sold for $700,000, the surplus funds in this case would be $50,000.
Again, make sure that you are factoring in any and all costs associated with the foreclosure process and the sale of the home into the calculation, as those will need to be taken out.
Who is Entitled to Surplus Funds
The primary rights to surplus funds lie with the former homeowner. That being said, if there were other liens on the property — such as judgments or a second mortgage — then those creditors might also have a claim to the surplus.
These junior lienholders, as they’re referred to, are typically paid in their order of seniority before the prior homeowner can receive any proceeds from surplus funds if they petition the court to obtain the surplus.
The Tax Sale Process
Property Tax sales are completed to recover any unpaid property taxes, with overages being any amount that results from the sale above what’s owed, including penalties, costs and other liens. In Michigan, they are held once per year and only allow a 30 day redemption period to payback the property tax balance, otherwise the homeowner will lose their interest in the property.
Avoiding Unclaimed Surplus Funds
In most states, it’s incumbent on you to claim the surplus funds. If you don’t do so within the requisite time period, those funds could be distributed to the unclaimed property division in your state and in some cases, the state simply keeps your money.
All unclaimed assets in the state of Michigan, for instance, are held by the Michigan Department of Treasury if the prior homeowner doesn’t claim them on a traditional foreclosure, but in the event of a tax foreclosure, at this time, the County keeps your money.
To claim them if this happens, you’ll need to initiate a claim on the department’s website and fill out required forms along with proof of identification.
Protecting Yourself from Surplus Funds Scams
Foreclosure records are public, which means that anyone can review these records and see whether a foreclosure sale resulted in surplus funds. This environment unfortunately creates a fertile ground for scammers who are looking to take advantage of vulnerable homeowners.
You should immediately contact an attorney after the tax foreclosure sale to assist you within the allotted time frame to reclaim your surplus funds, usually for a flat or contingent fee, as it could be a complicated process, while if you delay you may forfeit your right to any surplus.
Timeline for Receiving Surplus Funds
To claim a tax foreclosure sale surplus in Michigan, the process involves several steps as outlined in the Michigan Compiled Laws (MCL).
First, a claimant must submit a notice of intention to claim an interest in any applicable remaining proceeds from the transfer or sale of foreclosed property. This notice must be submitted using a form prescribed by the Department of Treasury and must be filed by July 1 immediately following the effective date of the foreclosure of the property Breiner v. State, 344 Mich. App. 387.
If the property was sold after July 17, 2020, the notice must be submitted pursuant to subsection (2) of § 211.78t. Notice of intention to claim interest in proceeds from sale of foreclosed property.. For properties sold before July 18, 2020, a claim may be made only if the Michigan Supreme Court orders that its decision in Rafaeli, LLC v. Oakland Cty., 505 Mich. 429 applies retroactively, and the notice must be submitted pursuant to subsection (6) Breiner v. State, 344 Mich. App. 387.
Once the notice is submitted, the foreclosing governmental unit is required to pay the amounts ordered by the court to the claimants within 21 days of the order. The claimant must file a motion with the circuit court in the same proceeding in which the judgment of foreclosure was effective to claim any remaining proceeds payable to them § 211.78t. Notice of intention to claim interest in proceeds from sale of foreclosed property.
Common Mistakes When Claiming Surplus Funds
It’s important to avoid common mistakes that often occur when claiming surplus funds. First, make sure to act quickly, not underestimate how complex the process can be and/or attempt to claim funds without seeking an attorney’s help.
If you make any of these common mistakes, you could miss the deadline to claim funds and not be prepared for the process. This is why it’s important to have an experienced and knowledgeable attorney on your side to help you navigate the process.
Additional Resources
If you are a resident of Michigan and need help retrieving surplus funds, reach out to the state Department of Treasury. They can help guide you through the process of searching for and claiming unclaimed surplus funds.
Before it gets to this point, though, consult with a foreclosure attorney to advise you on or tax collector for how you can claim the funds.
Babi Legal Group Can Help You Claim Surplus Funds
If your home was sold at a tax foreclosure auction, you might be able to claim any surplus funds. Figuring out whether there were surplus funds, whether you’re entitled to them and how to go about getting them, though, can be a complicated and complex process.
At Babi Legal Group, we specialize in real estate and foreclosure law, and have helped many people like you claim the surplus funds they’re entitled to, but do not wait as the window to claim your surplus is very short.
For more information, contact us today.