I have a weird one for you. What happens if the Sheriff sale nets more than you owe? Our house was auctioned on Tuesday. We owe $360,000 and it sold for $403,000.Given the current housing environment in Minnesota… this situation doesn’t happen very often… so we had to run the question by one of the Center’s partners, the Housing Preservation Project. Attorney Jane Bowman of the Foreclosure Relief Law project helped us with the following information. (Thanks, Jane!)
The vast majority of residential mortgages in Minnesota are foreclosed through a process known as Foreclosure by Advertisement (for more information on this process, the Center has a fact-sheet/process chart, here).
In a foreclosure by advertisement, if there is a surplus after a sheriff’s sale, the borrower receives the surplus. However, as often is the case, the devil is in the details. In this case, the important detail is how the word “surplus” is defined.
Before a surplus is established, there is a list of entities that take their cut BEFORE the homeowner:
- The cost of the foreclosure sale is covered,
- All late payments are paid (with interest),
- Any outstanding taxes and insurance are paid,
- The remaining amount of the first mortgage is satisfied,
- Then any junior lienors get paid (HELOCs, lines of credit, second mortgages, etc.)
For those of you that would like to dig into the statutes, the relevant statutes are available on-line here: 580.09, 580.10 (581.06 covers surplus amounts in a judicial foreclosure).
The statute is silent as to how the borrower would actually get paid… and how to request an surplus funds. After discussing this with Jane and other specialists, we’ve concluded that the local Sheriff’s office more than likely oversees the payment distribution, and if you believe you have a surplus due, you should contact the Sheriff’s office on how to proceed.
There is also another ‘wrinkle’ in this situation… as there may be tax implications of any surplus as well! As it doesn’t happen often… we are unclear on how Uncle Sam would treat the gross surplus amount (in our commenter’s case, would the full $43,000, not the surplus amount after all payments have been made, be considered income?). Any tax specialists like to share their knowledge with us in the comments?
All-in-all… it is most likely that our commenter will see very little, if any, of the ‘surplus’ amount from the Sheriff’s sale, but still may have tax issues on those funds.