Who gets the surplus funds (if there are any) following a California Foreclosure Sale under the Power of Sale?

Show me the money following the private non-judicial foreclosure sale – California Civil Code Section 2924j

The Trustee is the entity that conducts the private trustee sale under the power of sale contained in the Deed of Trust (if you default on your loan payment, you agree to allow the lender or their successors and assigns to conduct a private trustee sale without need to file a judicial foreclosure).  But if you owe, let’s say $500,000 on your first mortgage, and do not have a second mortgage, and let’s say the house sells for one million dollars, who gets that extra $500,000?  Well naturally it should be the borrower, as this was their equity in the property.  That being said, there is a statutory scheme in California which discusses what the trustee must do in such a situation to make sure the surplus funds are handled correctly.

Specifically, California Civil Code Section 2924j addresses the surplus funds issue:

(a) Unless an interpleader action has been filed, within 30
days of the execution of the trustee's deed resulting from a sale in
which there are proceeds remaining after payment of the amounts
required by paragraphs (1) and (2) of subdivision (a) of Section
2924k, the trustee shall send written notice to all persons with
recorded interests in the real property as of the date immediately
prior to the trustee's sale who would be entitled to notice pursuant
to subdivisions (b) and (c) of Section 2924b. The notice shall be
sent by first-class mail in the manner provided in paragraph (1) of
subdivision (c) of Section 2924b and inform each entitled person of
each of the following:
   (1) That there has been a trustee's sale of the described real
property.
   (2) That the noticed person may have a claim to all or a portion
of the sale proceeds remaining after payment of the amounts required
by paragraphs (1) and (2) of subdivision (a) of Section 2924k.
   (3) The noticed person may contact the trustee at the address
provided in the notice to pursue any potential claim.
   (4) That before the trustee can act, the noticed person may be
required to present proof that the person holds the beneficial
interest in the obligation and the security interest therefor. In the
case of a promissory note secured by a deed of trust, proof that the
person holds the beneficial interest may include the original
promissory note and assignment of beneficial interests related
thereto. The noticed person shall also submit a written claim to the
trustee, executed under penalty of perjury, stating the following:
   (A) The amount of the claim to the date of trustee's sale.
   (B) An itemized statement of the principal, interest, and other
charges.
   (C) That claims must be received by the trustee at the address
stated in the notice no later than 30 days after the date the trustee
sends notice to the potential claimant.
   (b) The trustee shall exercise due diligence to determine the
priority of the written claims received by the trustee to the trustee'
s sale surplus proceeds from those persons to whom notice was sent
pursuant to subdivision (a). In the event there is no dispute as to
the priority of the written claims submitted to the trustee, proceeds
shall be paid within 30 days after the conclusion of the notice
period. If the trustee has failed to determine the priority of
written claims within 90 days following the 30-day notice period,
then within 10 days thereafter the trustee shall deposit the funds
with the clerk of the court pursuant to subdivision (c) or file an
interpleader action pursuant to subdivision (e). Nothing in this
section shall preclude any person from pursuing other remedies or
claims as to surplus proceeds.
   (c) If, after due diligence, the trustee is unable to determine
the priority of the written claims received by the trustee to the
trustee's sale surplus of multiple persons or if the trustee
determines there is a conflict between potential claimants, the
trustee may file a declaration of the unresolved claims and deposit
with the clerk of the superior court of the county in which the sale
occurred, that portion of the sales proceeds that cannot be
distributed, less any fees charged by the clerk pursuant to this
subdivision. The declaration shall specify the date of the trustee's
sale, a description of the property, the names and addresses of all
persons sent notice pursuant to subdivision (a), a statement that the
trustee exercised due diligence pursuant to subdivision (b), that
the trustee provided written notice as required by subdivisions (a)
and (d) and the amount of the sales proceeds deposited by the trustee
with the court. Further, the trustee shall submit a copy of the
trustee's sales guarantee and any information relevant to the
identity, location, and priority of the potential claimants with the
court and shall file proof of service of the notice required by
subdivision (d) on all persons described in subdivision (a).
   The clerk shall deposit the amount with the county treasurer or,
if a bank account has been established for moneys held in trust under
paragraph (2) of subdivision (a) of Section 77009 of the Government
Code, in that account, subject to order of the court upon the
application of any interested party. The clerk may charge a
reasonable fee for the performance of activities pursuant to this
subdivision equal to the fee for filing an interpleader action
pursuant to Chapter 5.8 (commencing with Section 70600) of Title 8 of
the Government Code. Upon deposit of that portion of the sale
proceeds that cannot be distributed by due diligence, the trustee
shall be discharged of further responsibility for the disbursement of
sale proceeds. A deposit with the clerk of the court pursuant to
this subdivision may be either for the total proceeds of the trustee'
s sale, less any fees charged by the clerk, if a conflict or
conflicts exist with respect to the total proceeds, or that portion
that cannot be distributed after due diligence, less any fees charged
by the clerk.
   (d) Before the trustee deposits the funds with the clerk of the
court pursuant to subdivision (c), the trustee shall send written
notice by first-class mail, postage prepaid, to all persons described
in subdivision (a) informing them that the trustee intends to
deposit the funds with the clerk of the court and that a claim for
the funds must be filed with the court within 30 days from the date
of the notice, providing the address of the court in which the funds
were deposited, and a telephone number for obtaining further
information.
   Within 90 days after deposit with the clerk, the court shall
consider all claims filed at least 15 days before the date on which
the hearing is scheduled by the court, the clerk shall serve written
notice of the hearing by first-class mail on all claimants identified
in the trustee's declaration at the addresses specified therein.
Where the amount of the deposit is twenty-five thousand dollars
($25,000) or less, a proceeding pursuant to this section is a limited
civil case. The court shall distribute the deposited funds to any
and all claimants entitled thereto.
   (e) Nothing in this section restricts the ability of a trustee to
file an interpleader action in order to resolve a dispute about the
proceeds of a trustee's sale. Once an interpleader action has been
filed, thereafter the provisions of this section do not apply.
   (f) "Due diligence," for the purposes of this section means that
the trustee researched the written claims submitted or other evidence
of conflicts and determined that a conflict of priorities exists
between two or more claimants which the trustee is unable to resolve.
   (g) To the extent required by the Unclaimed Property Law, a
trustee in possession of surplus proceeds not required to be
deposited with the court pursuant to subdivision (b) shall comply
with the Unclaimed Property Law (Chapter 7 (commencing with Section
1500) of Title 10 of Part 3 of the Code of Civil Procedure).
   (h) The trustee, beneficiary, or counsel to the trustee or
beneficiary, is not liable for providing to any person who is
entitled to notice pursuant to this section, information set forth
in, or a copy of, subdivision (h) of Section 2945.3.

WHAT IS THE ORDER OF PRIORITY FOR PAYING OUR SURPLUS FUNDS FOLLOWING A FORECLOSURE SALE?

California Civil Code Section 2924k answers this question:

(a) The trustee, or the clerk of the court upon order to the
clerk pursuant to subdivision (d) of Section 2924j, shall distribute
the proceeds, or a portion of the proceeds, as the case may be, of
the trustee's sale conducted pursuant to Section 2924h in the
following order of priority:
   (1) To the costs and expenses of exercising the power of sale and
of sale, including the payment of the trustee's fees and attorney's
fees permitted pursuant to subdivision (b) of Section 2924d and
subdivision (b) of this section.
   (2) To the payment of the obligations secured by the deed of trust
or mortgage which is the subject of the trustee's sale.
   (3) To satisfy the outstanding balance of obligations secured by
any junior liens or encumbrances in the order of their priority.
   (4) To the trustor or the trustor's successor in interest. In the
event the property is sold or transferred to another, to the vested
owner of record at the time of the trustee's sale.
   (b) A trustee may charge costs and expenses incurred for such
items as mailing and a reasonable fee for services rendered in
connection with the distribution of the proceeds from a trustee's
sale, including, but not limited to, the investigation of priority
and validity of claims and the disbursement of funds. If the fee
charged for services rendered pursuant to this subdivision does not
exceed one hundred dollars ($100), or one hundred twenty-five dollars
($125) where there are obligations specified in paragraph (3) of
subdivision (a), the fee is conclusively presumed to be reasonable.

AS YOU CAN SEE, THE TRUSTOR ONLY GETS WHAT IS LEFT AFTER OTHER PEOPLE ARE PAID.  THE TRUSTOR IS NUMBER 4 IN LINE OF PRIORITY.

Here is a link to a case in California (California Appellate Court) which discusses the surplus funds following a private non-judicial foreclosure sale and the duties of the trustee.

NOTE HOW THIS CASE POINTS OUT YOU MAY NEED TO ACT FAST TO GET YOUR SURPLUS MONEY.  BUT THE CASE DOES MENTION YOU MAY HAVE A RIGHT TO PURSUE YOUR SURPLUS FUNDS IN ANOTHER VENUE USING OTHER LEGAL THEORIES (such as tort and contract).  To this point the Court stated:

“BofA‟s reliance on section 2924j, subdivision (b), is also misplaced. This subdivision clearly provides the statutory remedies to recover surplus funds are not exclusive, and it authorizes common law tort and contract actions when appropriate. BofA sued for breach of the trustee‟s statutory duties”

FINALLY, HERE IS A JUDICIAL COUNSEL COURT FORM (MC-095 – PETITION AND DECLARATION REGARDING UNRESOLVED CLAIMS AND DEPOSIT OF UNDISTRIBUTED SURPLUS PROCEEDS OF TRUSTEES SALE)

_________________________________________

The preceding is for the exclusive use of attorneys only.  Our firm does not make any representations as to the accuracy of the legal analysis, opinions contained herein, or as to the current state/status of any case cited herein.  This is general legal information only.  Copyright 2011 The Law Offices of Steven C. Vondran, P.C. – All Rights Reserved.  Steve Vondran practices law in California and Arizona where he is licensed to practice.  He is a former real estate broker in both states, and has previous experience in originating loans.  He currently represents commercial and residential property owners in Foreclosure and Bankruptcy Litigation.  He can be heard on BlogTalkRadio (Foreclosure Meltdown Radio Show), and on his two main websites http://www.ForeclosureDefenseResourceCenter.com and http://www.UltimateBK.com.  The Law Offices of Steven C. Vondran, P.C., has offices in Newport Beach, Beverly Hills, Fresno, San Francisco, and Phoenix, Arizona.  Phone (877) 276-5084. We still handle Wachovia and World Savings Pick-a-pay loans on a contingency fee basis.  Certain conditions apply

 

 

Steve Vondran is a real estate lawyer who can represent you in financial elder abuse, distressed real estate issues, short sale, predatory lending, state and federal real estate litigation, arbitration, broker compliance, accusations, real estate zoning & land use, eminent domain, trademarks, and general foreclosure defense. Call (877) 276-5084

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About Real Estate Law Firm
Steve Vondran is a real estate lawyer who can represent you in financial elder abuse, distressed real estate issues, short sale, predatory lending, state and federal real estate litigation, arbitration, broker compliance, accusations, real estate zoning & land use, eminent domain, trademarks, and general foreclosure defense. Call (877) 276-5084 https://plus.google.com/u/0/10070596809310853739. Don't forget to circle me on Google+

Comments

4 Responses to “Who gets the surplus funds (if there are any) following a California Foreclosure Sale under the Power of Sale?”
  1. reyna says:

    My property was sold and there was a surplus which went unclaimed to court, I moved out of state and never receive any info. how do claim that money from court?

  2. Foreclosure Defense Attorney Steve Vondran says:

    Reyna,

    Contact us to discuss. We may be able to recover your surplus on a contingency fee basis.

    Thank you

    Steve Vondran, Esq.

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