Sometimes when a foreclosed property is sold at a public auction, the winning bid may exceed the amount that is owed to the foreclosing bank. This excess amount over the amount owed the bank is deemed surplus money. The court appointed referee handling the foreclosure is required to deposit the surplus money with the county treasurer in the county the foreclosed property is located in. After this deposit is made, anyone with an interest or claim (a lienor and/or owner) to the money must bring a "surplus money proceeding". This is a legal action whereby the claimant is requesting some or all the surplus funds. Typically, the claimant will have a lien against the foreclosed property or an ownership interest, like the foreclosed owner. A lienor is usually a second mortgage company or a judgment creditor or another creditor like the IRS. A lienor or owner who appeared in the foreclosure action will likely be notified of the foreclosure sale and can attend the sale to see what the property sells for. Once the lienor or foreclosed owner learns that there is a surplus, either one can make claim to the funds. In a surplus money proceeding, the court requires that a title report be submitted for purposes of disclosing what liens are against the foreclosed property. The lienor making claim for the proceeds does not have to be in any particular lien position (can be the holder of a lien that is inferior to other liens). This lienor, however, is required to notify all other lienors, which lienors can then assert their own claims or assert priority if their liens are prior to the lien held by the lienor bringing the action. If, however, the other lienors fail to appear and/or fail to assert claims of priority then they may be barred from receiving any of the funds. Similarly, if the foreclosed owner is noticed in the surplus money proceeding then he/she can make claim for any remaining funds or can contest any of the lienors' claims. Moreover, if the foreclosed owner brings the action, he/she must notify all lienors. The bottom line is, if you snooze, you lose; hence, it's always advisable to retain an experienced foreclosure attorney to help ensure your rights are protected.
Unfortunately New York State does NOT have a right of redemption period post foreclosure sale. Once the property is sold at the public auction to the highest bidder, the original foreclosed owner has no right to satisfy the entire amount owed the lender. Unless the prior foreclosed owner has legal and/or equitable defenses to the foreclosure action, once the sale has occurred, the owner will be without a remedy. The only thing the prior owner can do in such case is to retain an attorney to determine if the sale was properly held and conformed to statutory law. If the sale was not proper then there could be grounds to move to set aside the sale. If the sale is set aside, then the prior owner would have the chance to satisfy the loan. If, however, the sale was proper, then the prior owner would need to show a defense to the foreclosure action, and if such defense is meritorious, it may result in the foreclosure sale being vacated and maybe the action being dismissed.
Arnold M. Bottalico is an experienced Long Island, NY foreclosure attorney with over 25 years of experience, and he welcomes your questions and comments.