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Recovery of Surplus Money after Foreclosure

For property owners in Michigan facing foreclosure, the prospect of being entitled to money can seem like a hard-to-believe reality. But the truth is, many property owners are not aware of a clear, yet under-utilized, statutory provision that could help some redeem their homes.

As a general mater, Michigan law allows for two types of foreclosures: (1) foreclosure by advertisement and (2) judicial foreclosure. Foreclosure by advertisement likely accounts for most foreclosures, which involves foreclosure through publication and sheriffs’ sales outside the context of formal court proceedings.

Once a foreclosure sale (sometimes referred to as a sheriff’s sale) takes place, a property owner has a statutory right to redeem the property. In other words, there is a period of time (usually 6 months to one year) during which the owner of the property will be have the right to pay the purchaser from the foreclosure an amount necessary to recover title to the property. The amount necessary to redeem is subject to several factors, including the amount the purchaser paid at the foreclosure sale for the property.

However, where the amount paid by the purchaser at the foreclosure exceeds the amount necessary to satisfy the debt (i.e., the balance of the mortgage) the result is something referred to as “surplus money.” In particular, under MCL 600.3252, “[i]f after any sale of real estate…there shall remain in the hands of the officer or other person making the sale, any surplus money after satisfying the mortgage on which the real estate was sold, and payment of the costs and expenses of the foreclosure and sale, the surplus [money] shall be paid over by the officer or other person on demand, to the mortgagor, his legal representatives or assigns,” unless a claimant makes a claim for the money under a subsequent mortgage or lien. In other words, the property owner (the mortgagor) is entitled to make a demand for the surplus money if there is no subsequent (second, or junior) mortgagee that has made a claim for the surplus money.

To actually recover the surplus money, some jurisdictions require the property owner to file a petition in the local circuit court, while others may simply allow the property to make a written demand to the entity performing the sheriff’s sale. Once recovered by the property owner, this surplus money (the difference between the amount paid by the purchaser at the sheriff’s sale and the amount due under the mortgage) can then be used to help the property redeem the property.

The attorneys at Dalton & Tomich have assisted several property owners in the recovery of such surplus funds. If you or someone you know is facing a foreclosure, we can assist you in determining and recovering the surplus money that you may be entitled to.

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