How to Determine If Other Creditors or Lienholders Could Have Claims to Surplus Funds in North Carolina
Detailed Answer
When real property is sold at a foreclosure or tax sale for more than the total debt, costs, and fees owed to the foreclosing creditor, the extra money is called surplus funds. North Carolina law gives the owner of record on the date of the notice of sale first shot at those funds, but only after all valid liens with higher priority have been paid. Before you celebrate, do a thorough check for competing claims.
1. Know the Statutory Order of Distribution
The trustee or clerk must disburse money in the order set out in N.C. Gen. Stat. § 45-21.31:
- Expenses of the sale and trustee commissions;
- The debt that triggered the foreclosure (the “foreclosing deed of trust”);
- Junior deeds of trust or mortgages recorded before the notice of sale;
- Judgments docketed before the notice of sale (§ 1-234);
- Federal and state tax liens (§ 105-357);
- All other liens according to their priority; then
- The record owner.
2. Identify Likely Claimants
- Junior mortgages and equity lines recorded after the foreclosing deed of trust.
- Civil judgments docketed in the county where the property sits (personal loans, credit-card suits, etc.).
- Homeowners’ Association (HOA) or Condominium Association liens — see § 47F-3-116.
- Federal tax liens (26 U.S.C. § 6321) and North Carolina Department of Revenue liens.
- Child-support arrears that have been reduced to judgment – often flagged by the Clerk.
- Mechanic’s and contractor’s liens under Chapter 44A.
- Municipal code-enforcement or nuisance liens.
- Bankruptcy Trustee claims if the owner filed Chapter 7 or 13 before distribution.
3. Run a Comprehensive Lien Search
A quick online peek is not enough. Use these public sources:
| Register of Deeds | Pull the chain of title, all deeds of trust, UCC fixture filings, and HOA declarations. |
| Clerk of Superior Court | Search the judgment index under each owner’s name; check special proceedings file for the foreclosure itself. |
| Federal & State Tax Records | Look for Notices of Federal Tax Lien and NC DOR liens, which are filed with the Clerk and cross-indexed in the judgment book. |
| Child Support Central Registry | Confirm whether an IV-D support order has been docketed as a judgment. |
| Municipality | Ask the city or county tax office about unpaid property taxes, special assessments, or code-enforcement liens. |
| PACER | Check for open bankruptcy cases that impose an automatic stay or create an estate that includes the surplus. |
4. Understand Deadlines and Procedure
- The trustee must deposit the surplus with the Clerk if conflicting claims appear (§ 45-21.31(b)).
- The Clerk issues a notice giving potential claimants 30 days to file written claims (§ 45-21.33).
- If multiple claims surface, the Clerk conducts a hearing and enters an order of distribution. Any party may appeal to Superior Court within ten days.
5. Hypothetical Illustration
Assume a Wake County home sells for $300,000. The foreclosing lender is owed $200,000; costs total $5,000. That leaves $95,000 in surplus. A second-position HELOC ($40,000), a docketed credit-card judgment ($10,000), and a federal tax lien ($20,000) exist. The Clerk disburses in this order: costs, first deed of trust, HELOC, federal tax lien, judgment, then the owner receives the remaining $25,000.
Helpful Hints
- Start the lien search before you file a claim; surprises delay payment.
- Search under all legal names, maiden names, and common misspellings.
- Judgments expire after ten years unless revived (§ 1-47); verify current validity.
- If you refinanced, make sure the prior deed of trust was properly cancelled; an uncancelled lien can hold up surplus funds.
- Keep copies of the trustee’s accounting, the bidding sheet, and the Clerk’s file stamp—they prove the surplus amount.
- File your claim on the Clerk’s form AOC-SP-904 and attach a current title search to show no higher-priority liens remain.
- Out-of-state judgments must be domesticated in North Carolina before they affect surplus funds.
Take the Next Step
Pinpointing every possible claim against surplus funds can feel like finding a needle in a haystack. A single missed lien may wipe out your payout or trigger costly litigation. Our North Carolina foreclosure-surplus team has years of experience navigating Clerk hearings, lien priorities, and distribution disputes. Call us today at (919) 341-7055 to protect your right to the money you deserve.
