In determining whether you are to receive Surplus Funds after your property has sold in a Foreclosure or Tax Deed Sale, we must look to any outstanding liens on the property. First and foremost, there is the mortgage lien on the property. This is the loan that was used to initially purchase the property. Any other lienholders are considered Subordinate Lienholders (also called Junior Lienholders) because the purchase money lien will take precedence. There are always exceptions though. For instance, if a subordinate lienholder does not make a claim for the funds within a certain amount of time, they will not be eligible to receive any of the funds.
Let’s break this down a little. According to Florida Statute 45.032(1)(b), “A subordinate lienholder includes, but is not limited to, a subordinate mortgage, judgment, tax warrant, assessment lien, or construction lien.” This could be a second mortgage or a company that did work on your property that wasn’t paid timely, or your homeowner’s association if you didn’t pay your dues. But, in order for them to claim any of the surplus funds from the sale of the property, they must have made a timely claim on the funds.
What happens if there are multiple subordinate lienholders that have made a timely claim? Who gets paid first after the mortgage lienholder received its funds from the sale of the property? This is called “priority”. If there are multiple subordinate lienholders, the court must have an evidentiary hearing in order to determine the priority of these junior lienholders. Sometimes a subordinate lienholder misses this evidentiary hearing, but that does not automatically mean they are out of luck. According to a Second District Court of Appeals case from 1998 (Citibank, FSB v. PNC Mortgage Corp. of America), the lower court divided up the surplus funds without taking into account Citibank’s superior lien and distributed the surplus funds to the other subordinate lienholders. Citibank requested a rehearing but was denied by the lower court.
Citibank then appealed and the Appeals Court found in Citibank’s favor stating that “A claim is not lost by the mere failure to attend a disbursement hearing. Inferior junior lienholders have no equitable claim to the surplus proceeds until superior junior lienholders have had their claims satisfied.” This means that the lower court should have taken Citibank’s claim into account even without them attending the hearing. The judge is required to determine the order in which each subordinate lienholder is to receive its funds even if all claimants are not present.
Once the priority has been determined in an evidentiary hearing, the funds will be distributed upon motion to each subordinate lienholder based on priority and whatever surplus funds are remaining, if anything, will go to the original owner. The original owner (the person who owned the property at the time of the filing of the lis pendens) can then make a claim through a motion for disbursement of any remaining surplus funds with the court.
Please keep in mind that this is not something to take lightly and I always recommend that people hire an attorney for Surplus Funds from either Foreclosure or Tax Deed sales because this process can be lengthy and difficult. If you think you may be entitled to Foreclosure Surplus Funds or Tax Deed Surplus Funds anywhere in the State of Florida, please call my firm and I will personally give you a free consultation. I handle foreclosure surplus cases in every county in Florida. And I don’t get paid unless you do.