What are Mortgage Surplus Funds?
If your lender has obtained a Final Judgment of Foreclosure, they will attempt to sell your home in a Sheriff Sale for an amount that will cover what you owe on the mortgage, plus any costs and fees, as long as the costs and fees were added to the Final Judgment.
Sheriff Sales take the form of an auction, where the lender can start the bidding at whatever amount they want, up to the total amount owed for the mortgage debt. If there are multiple interested buyers, they can try to outbid each other. Therefore, the winner may end up buying the house for more than the total amount the borrower owes. This will effectively satisfy the debt and release you from any obligation to your lender. The difference between the final amount the house was sold for and the borrower’s loan balance is known as the Mortgage Surplus, or Surplus Funds. Your lender should not try to take the surplus funds.
On the other hand, if the home is sold for less than the borrower owed, the remaining balance still owed is known as a deficiency. A lender can seek this amount from the borrower with a separate lawsuit, but this is not a common practice in New Jersey.
Am I Entitled to The Surplus Funds?
If the home is sold at a sheriff sale with a surplus, any other creditors with liens or judgments may apply for surplus funds. If the other lien or judgment holders do not make application, the funds can be claimed by the homeowner. If there are no other creditors with liens or judgments, the funds should belong to the homeowner.
Example: A borrower owes $200,000 to his lender, who forecloses on the home. The home sells for $250,000 at a sheriff sale. The lender takes the $200,000 to satisfy the debt, and the extra $50,000 is the surplus. There is a $10,000 mechanic’s lien against the property for unpaid construction work, so the contractor has the right to be paid first if they make the application, and the borrower can claim any remaining monies.
How Can I Claim the Mortgage Surplus Funds?
If your home has been sold at a sheriff sale and any surplus funds remain after the lender has satisfied the mortgage debt, the money will be deposited into the Superior Court Trust Fund. According to NJ Court Rules 4:64-3 and 4:57-2, any person who believe they are entitled to all or part of the surplus can file a motion with the court explaining why they are entitled to the money and asking for an order directing payment of the surplus funds.
YOUR LENDER IS NOT ENTITLED TO APPLY FOR SURPLUS FUNDS TO BE REIMBURSED ANY SUMS WHICH WERE EXPENDED AFTER FINAL JUDGMENT WAS ENTERED, SUCH AS TAXES AND INSURANCE. IF YOUR LENDER TRIES TO TAKE THE SURPLUS FUNDS YOU SHOULD CONTACT AN EXPERIENCED NEW JERSEY ATTORNEY.
The County Sheriff who conducted the sale will have information regarding the surplus, if there was any.
If your home was sold at a sheriff sale and you believe you are entitled to the surplus, contact the Law Office of Ira J. Metrick today.