Who gets the surplus money after a New York foreclosure sale?

This page explains New York law for mortgage foreclosure sales. Tax foreclosures by a city or county follow different procedures and are not covered here. The surplus may be the last value left in a foreclosed property, and the former owner is only one of the people who may be entitled to it. For how KOR Law LLP approaches foreclosure and real estate disputes, see our foreclosure and real estate litigation page.

How is the sale money paid out?

RPAPL 1354 sets the order. The officer conducting the sale, in the New York City courts a court-appointed referee, pays the expenses of the sale and then pays the plaintiff its debt, interest and costs as fixed by the judgment, or as much as the proceeds cover. The officer also pays taxes, assessments and water rates that are liens on the property, and in New York City, liens placed by a city agency that have priority over the foreclosed mortgage; the statute treats those payments as expenses of the sale (RPAPL 1354(2)). If the judgment directs it, the officer then pays a subordinate mortgage that is due (RPAPL 1354(3) and 1351(3)). Anything left is surplus, and it must be paid into court within five days after it is received (RPAPL 1354(4)).

The main number in that chain is the judgment amount, which comes from the referee's computation of principal, interest and charges before the sale. Every dollar of that figure comes out ahead of the surplus, which is why it pays to read how a referee's report works and how to challenge the amount owed while the case is still open. The full path from summons to sale is in what happens after you are served with a foreclosure summons in New York.

If the sale brings in less than the debt, there is no surplus and the question becomes a deficiency. A lender may move for a deficiency judgment within 90 days after the deed is delivered to the buyer, and the court then sets the property's fair market value; the deficiency is measured against the higher of that value or the sale price (RPAPL 1371). If no deficiency motion is made in time, the sale proceeds are deemed to fully satisfy the mortgage debt (RPAPL 1371(3)). The deficiency side is explained in whether a lender can get a deficiency judgment after a New York foreclosure sale.

How do you claim surplus money?

RPAPL 1361 sets out the procedure, and its timing is tied to the referee's report of sale.

The notice of claim must state the nature and extent of the claim and the claimant's address or the address of the claimant's attorney. When the report of sale shows a surplus, the party moving to confirm it must include proof that the money was paid into court and a clerk's certificate listing the notices of claim on file (RPAPL 1355(2)), which is one reason to file a notice of claim early. The motion to distribute can be made by any party to the action or by anyone who has filed a notice of claim, on notice to everyone who has appeared or filed a claim (RPAPL 1361(2)).

Who is in line for the money?

The court, either directly or through a referee it appoints, determines the amount due to each person with a lien on the surplus and the priority of those liens, and then orders distribution (RPAPL 1361(2)). In practice, the people who may have claims include:

• The holder of a subordinate mortgage that was not paid from the sale proceeds (RPAPL 1354(3) addresses these).
• Anyone else with a recorded lien against the property, who is entitled to notice of the hearing (RPAPL 1361(3)).
• The former owner, who held what the statute calls the equity of redemption, and who must receive notice of the hearing (RPAPL 1361(3)).

The court system's CourtHelp guide tells former owners that they can apply to the court to get the surplus back and suggests speaking to the clerk or a court help center. Where other liens exist, their priority can be disputed, and a lien that appears in the title records may not be valid or may be for less than claimed. A title search is the starting point. For Manhattan, Brooklyn, Queens and the Bronx, the city's ACRIS system lets anyone search property records and view recorded documents from 1966 to the present. A quiet title action may be needed to clear an invalid lien, as explained in what a quiet title action is in New York.

A common example is an old mortgage that was paid off years ago but still shows in the records because no satisfaction was ever recorded. That problem has its own fix, set out in what to do when a paid-off mortgage was never marked satisfied. Surplus disputes often sit where foreclosure meets the rights of creditors and debtors generally, which our debtor and creditor practice page describes.

How do the New York City courts handle surplus?

• Kings County. A court clerk attends every court-ordered auction and, where a surplus is possible, records the sale price, the judgment amount and the upset price. When the price exceeds the greater of the judgment amount or the upset price, the referee completes a Surplus Monies Form at the auction. Cases with a possible surplus are given a control date in the Surplus Funds Part no later than six months after the auction; if no report of sale has been filed and no motions are pending by then, the case goes back to the assigned judge and the referee is notified. The court's rules require form orders for surplus money proceedings, publish a sample Surplus Money Order and Distribution of Surplus Monies Order, and allow the clerk to reject a surplus application that does not attach a recognized title search or its equivalent. More on the Brooklyn courthouse is in what to expect at Kings County Supreme Court in a foreclosure case.
• Queens County. A Surplus Monies Form must be completed for every foreclosure auction, whatever the surplus status. If the report of sale is not filed with the County Clerk within 90 days of the sale, the referee must explain the delay to the court in writing.
• Bronx County. Within 30 days of the sale, a Surplus Monies Form must be filed for every foreclosure auction, and the referee must file the report of sale with vouchers.

The Kings County Clerk's Office issues two papers that matter in a surplus proceeding; mail requests go to Room 189, Window 9, at 360 Adams Street. A Certificate of No Exceptions is available once the referee's report is entered with the County Clerk. A Notice of Appearance/Notice of Claim List is available once the referee's report is entered and the surplus has been deposited into court. For where and when each borough holds its auctions, see where and when foreclosure auctions are held in New York City.

What changes the answer for a surplus claim?

• What comes off the top. Sale expenses, the plaintiff's judgment amount, and property taxes, water rates and certain New York City agency liens are paid before any surplus exists (RPAPL 1354(1), (2)).
• Whether the judgment pays a second mortgage directly. If the judgment so directs, a due subordinate mortgage is paid from the proceeds before the surplus is set aside (RPAPL 1351(3), 1354(3)); otherwise its holder claims against the surplus like anyone else.
• Whether the report of sale has been confirmed. A notice of claim must be filed before confirmation (RPAPL 1361(1)), and the motion to distribute must come on the confirmation motion or within three months after it (RPAPL 1361(2)).
• The county's rules. In Kings County, a surplus application without a recognized title search or its equivalent can be rejected by the clerk, and form orders must be used (Kings County Supreme Court General Foreclosure Rules 2 and 3). For the rest of the Brooklyn picture, see foreclosure and judgment defense for Brooklyn (Kings County) cases.
• Whether the sale fell short instead. With no surplus, the question flips to whether the lender moved for a deficiency judgment within 90 days of the deed (RPAPL 1371(2), (3)).

For example: a surplus after a Queens auction

Common mistakes with surplus money

• Waiting for a check. Surplus is paid into court, not to the former owner, and stays there until someone with a claim asks the court for it.
• Filing after confirmation. RPAPL 1361(1) allows a notice of claim only before the report of sale is confirmed, and the motion to distribute must come on the confirmation motion or within three months after it.
• Letting a stale lien stand. A paid-off mortgage or an inflated lien that stays in the records can take money that should go to the owner unless it is challenged with proof.
• Skipping the title search. The court needs to know every lien, and in Kings County an application without a recognized title search can be rejected.
• Moving without leaving an address. Notice of the distribution hearing goes by mail or as the court directs (RPAPL 1361(3)); a stale address can mean a missed hearing.
• Ignoring the judgment amount before the sale. Overstated interest or charges in the referee's computation come out of the surplus dollar for dollar.

What to do this week

1. Write down the auction date, the index number and the referee's name, and watch for the report of sale, which must be filed within 30 days after the deed is delivered.
2. File a written notice of claim with the clerk where the report of sale is filed, stating the nature and extent of your claim and your address.
3. Order or gather a title search, and pull recorded documents from ACRIS if the property is in New York City.
4. Collect payoff letters for any other liens and proof that any old lien has already been paid.
5. Give the court and the referee a current mailing address, since notice of the distribution hearing goes by mail.
6. Check our foreclosure defense consultation checklist and bring those papers, with the judgment and report of sale, to a lawyer before the confirmation motion is made.

Frequently asked questions

Is the surplus paid to the former owner automatically?

No. The officer who ran the sale pays it into court (RPAPL 1354(4)), and CourtHelp tells former owners to apply to the court to get it back. The court then decides who has a lien on the money and in what order (RPAPL 1361(2)).

How long do I have to file a claim?

A written notice of claim can be filed any time before the report of sale is confirmed (RPAPL 1361(1)). The motion to determine and distribute the surplus is made on the confirmation motion or within three months after it (RPAPL 1361(2)). Because the confirmation motion with a surplus can be made from three to four months after the report is filed, the practical window is short.

How can I find out who else has claimed the surplus?

The party moving to confirm the report of sale must include a clerk's certificate listing the notices of claim on file (RPAPL 1355(2)). In Brooklyn, the Kings County Clerk issues a Notice of Appearance/Notice of Claim List once the referee's report is entered and the surplus has been deposited.

Do property taxes and city liens come out before the surplus?

Yes. The officer pays taxes, assessments and water rates that are liens on the property, and in New York City, city agency liens that have priority over the foreclosed mortgage, and the statute treats them as expenses of the sale (RPAPL 1354(2)). What is left after those payments and the judgment is the surplus.

What if the referee never files the report of sale?

The statute gives the referee 30 days after the sale and deed, unless the court extends it (RPAPL 1355(1)). Queens requires a referee who has not filed within 90 days to explain why in writing, and in Kings County a case with a possible surplus that reaches its Surplus Funds Part control date with no report of sale and no pending motions goes back to the assigned judge.

Does this apply to a tax foreclosure?

No. This page covers mortgage foreclosure sales. In rem tax foreclosures have their own surplus process, and the Kings County Foreclosure Office page posts a separate set of statewide surplus forms for them.