Losing your home to a foreclosure can be a very difficult and upsetting process. This process can seem overwhelming and daunting, and it often leaves homeowners worried about their rights and potential financial outcomes moving forward. A homeowner’s property acts as a form of collateral to a mortgage lender. If a homeowner falls behind on their mortgage payments, it may only be a matter of time until they take possession of their home. Once a mortgage lender obtains a Final Judgment over the home, their next step will be to sell it at a Sheriff’s Sale and utilize those proceeds to recoup the outstanding debt owed to the lender. As a foreclosed upon homeowner, understanding your rights once a lender has obtained a Final Judgment of Foreclosure over your home can be crucial, particularly when it comes to your rights towards any Surplus Funds made in the Sheriff’s Sale.
What are Surplus Funds?
When the winning bid over a property sold at a Sheriff’s Sale exceeds the outstanding debt owed to the lender, which most often happens when a property attracts multiple bidders, the outstanding debt will become satisfied and the homeowner will be relieved of further obligations.
Conversely, it should be noted that if the sale falls short of covering the borrower's debt, the
remaining balance, known as a deficiency, can potentially be pursued by the lender through a
separate legal action.
Any funds remaining after the lender's satisfaction are referred to as Mortgage Surplus or Surplus Funds. For example, if a homeowner owed their lender $300,000 at the time of foreclosure, only for the house to later sell for $400,000 at a Sheriff’s Sale, the lender is only entitled to the $300,000 that they were owed. The remaining $100,000 would be Surplus Funds. As a homeowner, you may be entitled to these funds, and they can be critical for your financial outlook moving forward after a foreclosure.
Am I Entitled to Surplus Funds?
In situations where Surplus Funds remain following a Sheriff Sale, other creditors holding liens or judgments over the homeowner may also seek a claim on these funds. For example, if a foreclosed upon homeowner owes child support payments, that third-party judgment holder will likely be entitled to the Surplus Funds before the homeowner. Using the above example, the third-party child support judgment holder would likely be entitled to satisfy their own judgment over the homeowner from the $100,000 surplus.
However, in the absence of competing liens or judgments, or if there are still Surplus Funds remaining after all other competing liens have been satisfied, the remaining funds would rightfully belong to the homeowner or their heirs.
How Can I Secure the Mortgage Surplus Funds Under the NJ Court Rules?
Following the sale of the home at a Sheriff’s Sale, any Surplus Funds remaining after the lender's debt settlement are deposited into the Superior Court Trust Fund. A Court Order is required in order to obtain a release of funds. Pursuant to NJ Court Rules 4:64-3 and 4:57-2, individuals believing they are entitled to a portion or all of the surplus may file a motion with the Court, providing justification for their entitlement and requesting an order for the distribution of Surplus Funds.
This justification will generally require that the homeowner shows the Court, step-by-step, that 1) they were the owner of the property in question; 2) that they were then foreclosed upon by way of being named on a foreclosure complaint; and then 3) that the property was sold at a Sheriff’s Sale for more than the outstanding debt, accounting for all other competing liens and judgments.
However, before a homeowner can file their motion with the Court, they must first submit the motion to the Trust Fund Unit of the Superior Court. The Trust Fund Unit will then verify that the funds deposited in the Superior Court Trust Fund matches the amount that the homeowner is claiming. This process will generally take up to 30 days. Once the Trust Fund Unit signs an order verifying the funds, the homeowner may then re-file their motion with the Superior Court, including the verified order, to secure the Surplus Funds.
Help From a New Jersey Foreclosure Attorney
If you are seeking representation to help you through the foreclosure process, including attaining the Surplus Funds that you may be entitled to following a foreclosure, retaining a competent New Jersey foreclosure attorney is crucial. The foreclosure process can be complicated and hiring an attorney who specializes in this area is important. If you are unsure of your rights, please give us a call for a free consultation. We have office locations in Wayne, Secaucus, Hoboken, Newark, and Hackensack.
