What Are Surplus Funds?

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Surplus funds are the extra money left over after a foreclosed property is sold and the debt tied to that foreclosure is paid. In simple terms, if a home is sold for more than what was owed, the remaining balance may still belong to the former owner or other legally entitled parties, depending on the type of foreclosure and who has a valid claim.  

This can happen in both:

• Tax foreclosure
• Mortgage foreclosure

Even though both involve a property being sold, they do not work the same way. The deadlines, paperwork, and who gets paid first can be very different.  

Let’s say a property is sold in foreclosure for $100,000.

If the amount needed to satisfy the foreclosure debt, costs, fees, and other valid claims is $20,000, then the remaining $80,000 may be considered surplus funds or excess proceeds. Who can claim that money depends on the kind of foreclosure, the law that applies, and whether the required paperwork is filed on time.  

That is why many homeowners are shocked to learn that even after losing a property, there may still be money connected to that property sale.

In Michigan, property tax foreclosure is governed by the General Property Tax Act. When a property is foreclosed for unpaid property taxes and later sold, there may be remaining proceeds after the delinquent taxes, interest, penalties, fees, and costs are satisfied. Claims to those excess sale proceeds must be made within the required timeframes.  

This area of law became especially important after the Michigan Supreme Court’s decision in Rafaeli, LLC v Oakland County, where the Court held that a former property owner has a property right in the surplus proceeds from a tax-foreclosure sale and that the government cannot keep more than what was owed.

1. Property taxes go unpaid.
2. The government forecloses on the property.
3. The property is sold.
4. If the sale brings in more than what was owed, there may be surplus funds.
5. The former owner or another person with a legal interest may need to file forms and meet deadlines to claim that money.  

The biggest mistake is assuming the money will automatically be sent to them.

In Michigan tax foreclosure cases, that is not something you should assume. People with a claim may need to submit a notice first and then later file the required court paperwork to actually request the remaining proceeds. Michigan Legal Help explains that a person generally must first file a form showing they intend to ask for the leftover money, and later file the motion or claim required by the notice they receive.  

For tax foreclosure surplus claims, deadlines are critical. Michigan’s tax foreclosure guidance states that claims for excess sale proceeds must be filed within statutory timeframes, and Michigan Legal Help explains that there is an initial notice process followed by a later motion or claim process. Missing either step can put your claim at risk.  

Mortgage foreclosure surplus funds work differently.

When a lender forecloses because the mortgage loan was not paid, the foreclosure sale proceeds are first used to satisfy the foreclosing mortgage debt and sale-related costs. If there is money left over after the senior mortgage is paid, Michigan law provides a process for distribution of those excess proceeds to junior lienholders or others with valid claims, and any remaining balance may then go to the borrower, or the borrower’s representatives or assigns.  

1. The borrower falls behind on the mortgage.
2. The lender forecloses.
3. The property is sold at foreclosure sale.
4. The sale proceeds first pay the foreclosing lender and applicable costs.
5. If money is left over, other lienholders may have a right to claim before the former homeowner receives any remaining balance.
6. If money still remains after valid claims are addressed, the former homeowner may be entitled to that surplus.  

Many people hear “surplus funds” and assume the former owner gets the extra money right away. In mortgage foreclosure cases, it can be more complicated because there may be:

• second mortgages
• judgment liens
• tax liens
• other recorded claims

These interests may need to be addressed before any final balance is paid out to the former homeowner.  

A lot of people miss out because:

• they do not know surplus funds exist
• they assume no money is left after foreclosure
• they do not understand the paperwork
• they miss key deadlines
• they do not know whether they had a tax foreclosure or mortgage foreclosure
• they do not know who gets paid first or what proof is required

That is why education matters. A person can be legally entitled to money and still lose the opportunity to recover it if they do not act correctly and on time.  

At The Wynn Factor, we help homeowners and interested parties better understand the surplus funds process in plain language.

Our goal is to help people:

• understand whether they may have a surplus funds issue
• identify whether the situation involves tax foreclosure or mortgage foreclosure
• understand the next steps and deadlines
• gather the information needed for review
• avoid missing important filing windows

We believe too many people walk away from money simply because no one clearly explained the process.