Jan62026
Surplus Funds Q&A Series

Am I responsible for paying the other party’s attorney’s fees in a foreclosure surplus funds case? – North Carolina

Short Answer

Sometimes, but not automatically. In a North Carolina foreclosure surplus funds special proceeding, the clerk or court may award a reasonable attorney’s fee to the prevailing party and may require that fee to be paid out of the surplus funds in dispute. Costs are typically taxed against the losing party who asserted a claim by filing the petition or an answer, so the risk of paying fees and costs often depends on whether a claim is actively asserted and whether that claim loses.

Understanding the Problem

In North Carolina, after a foreclosure sale, extra money (surplus funds) may be paid into the Clerk of Superior Court when there is uncertainty about who should receive it. The question is whether a person named as a defendant in the clerk’s special proceeding to decide ownership of those surplus funds must pay the other side’s attorney’s fees. The decision point is whether attorney’s fees and costs can be shifted in this type of surplus funds proceeding when one side prevails and another side loses.

Apply the Law

North Carolina law allows a special proceeding before the Clerk of Superior Court to determine who is entitled to foreclosure surplus funds that were paid into the clerk’s office. In that proceeding, the clerk (or the Superior Court judge if the matter is transferred for trial) has discretion to allow a reasonable attorney’s fee for the attorney representing the prevailing party, and that fee can be paid out of the funds in controversy. The statute also directs that costs be taxed against the losing party or parties who asserted a claim to the fund by petition or answer. If an answer raises factual disputes about ownership, the case can be transferred to the civil issue docket of Superior Court for trial, and the clerk may require a $200 bond for costs (or compliance with the general cost-bond statute) from a party asserting a claim by petition or answer.

Key Requirements

  • A proper surplus funds proceeding: The dispute must involve surplus funds from a foreclosure sale that were paid into the Clerk of Superior Court because entitlement is uncertain or disputed.
  • Parties with potential claims must be included: People who have filed notice of a claim with the clerk, or who are known to assert a claim, should be made defendants so the clerk can determine who is entitled to the money.
  • Prevailing party and “asserted claim” matter for fees and costs: The clerk or court may award a reasonable attorney’s fee to the prevailing party (paid from the disputed funds), and will tax costs against the losing party or parties who asserted a claim by petition or answer.

What the Statutes Say

Analysis

Apply the Rule to the Facts: The facts describe a foreclosure surplus that is being held by the clerk and a special proceeding filed to determine entitlement and release an owner’s share. Under North Carolina law, attorney’s fees are not automatic, but the clerk or court may award reasonable fees to the side that prevails, paid from the surplus funds in controversy. The risk of being assessed costs (and indirectly reducing what is received from the surplus) increases if a claim is actively asserted by filing an answer and that claim loses.

Process & Timing

  1. Who files: Any person claiming some or all of the surplus funds. Where: Before the Clerk of Superior Court in the county where the surplus funds were paid into the clerk’s office. What: A special proceeding petition to determine entitlement to surplus funds, naming known claimants as defendants. When: After the surplus is paid into the clerk’s office; the summons and deadlines to respond are controlled by the papers served and North Carolina procedural rules.
  2. Response and dispute: If a defendant files an answer and it raises factual disputes about who owns the money, the matter can be transferred to the civil issue docket of Superior Court for trial. When that happens, the clerk may require a party who asserts a claim by petition or answer to post a $200 bond for costs (or otherwise comply with the general cost-bond statute).
  3. Decision and distribution: The clerk (or the Superior Court after transfer) decides who is entitled to the funds and orders distribution. At that stage, the clerk or court may award a reasonable attorney’s fee to the prevailing party to be paid out of the disputed funds, and will tax costs against the losing party or parties who asserted a claim by petition or answer.

Exceptions & Pitfalls

  • Being named does not always mean fee exposure is the same: The statute focuses cost-shifting on the losing party who asserted a claim by petition or answer. A person who does not assert a competing claim may face different risk than a person who files an answer seeking the money.
  • Attorney’s fees are discretionary and usually come from the fund: Even when a party prevails, the clerk or court decides whether to award a “reasonable” fee and how much, and the statute contemplates payment out of the funds in controversy, which can reduce the amount available for distribution.
  • Factual disputes can escalate the case: An answer that raises issues of fact can trigger transfer to Superior Court for trial, which can increase time, procedure, and cost exposure, including the possibility of a cost bond.
  • Ignoring service papers is risky: Not responding or not appearing can lead to an order distributing the funds without that party’s input, and later attempts to unwind the result can be difficult and time-sensitive.

Conclusion

In a North Carolina foreclosure surplus funds special proceeding, paying the other side’s attorney’s fees is possible but not automatic. The clerk or court may award a reasonable attorney’s fee to the prevailing party, paid out of the surplus funds in dispute, and will tax costs against the losing party or parties who asserted a claim by petition or answer. The most important next step is to review the summons and file any required response with the Clerk of Superior Court by the deadline stated in the served papers.

Talk to a Surplus Funds Attorney

If a foreclosure surplus funds case has been served by law enforcement and there is uncertainty about whether to respond, attend the hearing, or risk fees and costs, our firm has experienced attorneys who can help explain options and timelines. Call us today at (919) 341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.

Category: Surplus Funds Q&A Series

Author: Pierce Law

Pierce Law Group is a North Carolina law firm focused on probate administration, real estate partition matters, and surplus funds claims across North Carolina. We know these situations often come with stress, family dynamics, and time-sensitive decisions—so we prioritize clear communication, steady guidance, and a practical plan from day one. Our goal is to make a complicated process feel manageable, while protecting what matters most to you.