Can a recovery company take a fee if I already hired a law firm, and should I avoid signing with them? – North Carolina

Short Answer

In North Carolina, a recovery company generally can only take a fee if there is a signed contract giving it that right. If a law firm is already handling the surplus-funds claim, signing a second agreement can create competing fee claims against the same pool of money and slow down release of the funds. In most cases, it is safer to pause, have counsel review the recovery company’s paperwork, and avoid signing anything that assigns rights to the surplus or authorizes payment directly to the company.

Understanding the Problem

In North Carolina surplus-funds matters after a foreclosure, the key question is whether a third-party recovery company can charge a fee (and get paid from the surplus) when a homeowner has already hired a law firm to pursue release of the money held by the Clerk of Superior Court. The decision point is whether signing the recovery company’s agreement creates a separate right for the company to be paid, even if the law firm is already working on the claim. The practical concern is that multiple “claimants” to the same surplus can complicate the Clerk’s decision about who is entitled to receive the money and on what terms.

Apply the Law

When a foreclosure produces “surplus” money, North Carolina law requires the person conducting the sale to apply sale proceeds in a statutory order and then pay any remaining surplus to the person entitled to it or, in certain situations, pay it into the clerk’s office for safekeeping. If the surplus is held by the Clerk of Superior Court and there is any doubt or competing claim, the claimant typically must use a special proceeding before the clerk to establish entitlement. In that special proceeding, the court can (in its discretion) allow a reasonable attorney’s fee to be paid out of the funds for the party who prevails.

Key Requirements

A surplus fund exists and is held by the clerk (or is otherwise identifiable): There must be money left over after the sale proceeds are applied in the required order, and it must be traceable to the foreclosure sale proceeds.
The claimant proves entitlement to the surplus: The petitioner must show why the petitioner (rather than another person or entity) has the right to the money. If another party claims some or all of it, that party must be included.
Competing claims can change the process and fees: If there are adverse claims, the matter can become contested, and a judge (not just the clerk) may decide factual disputes. Attorney’s fees are not automatic, but the court may allow a reasonable fee for the prevailing party’s attorney to be paid from the fund.

What the Statutes Say

N.C. Gen. Stat. § 45-21.31 (Disposition of proceeds of sale; payment of surplus to clerk) – Sets the order for applying foreclosure sale proceeds and directs how surplus is paid, including when it is paid into the clerk’s office.
N.C. Gen. Stat. § 45-21.32 (Special proceeding to determine ownership of surplus) – Allows a claimant to file a special proceeding before the Clerk of Superior Court to determine who is entitled to surplus and permits the court, in its discretion, to award a reasonable attorney’s fee to the prevailing party’s attorney from the fund.

Analysis

Apply the Rule to the Facts: The facts indicate a foreclosure sale occurred and the homeowner believes surplus funds are held by the Clerk of Superior Court. Because the homeowner is the sole owner and believes there are no other interested parties, the main legal task is proving entitlement and completing the clerk process to release the funds. If a recovery company obtains a signed agreement (often containing an assignment, a power of attorney, or directions to pay the company), that agreement can create a competing claim or pay-direction that the clerk may need to account for, which can complicate an otherwise straightforward release.

Process & Timing

Who files: The person claiming the surplus (often the former owner) or that person’s attorney. Where: The Clerk of Superior Court in the North Carolina county where the foreclosure sale was held. What: A petition or special proceeding seeking determination and disbursement of the surplus; supporting documents typically include the foreclosure file information and proof of identity/ownership. When: As soon as the surplus is confirmed to be on deposit and before any avoidable dispute develops; timing can vary by county and by whether another party appears to contest the claim.
Notice to other potential claimants: If anyone else claims an interest (or is reasonably believed to claim an interest), they must be included and served. If a recovery company has paperwork claiming a share, it may need to be addressed directly to prevent delays.
Decision and payment: If the clerk can decide the entitlement without factual disputes, the clerk may resolve it in the special proceeding. If an answer raises factual issues, the matter can be transferred to superior court for trial, which increases time and cost. Once entitlement is determined, the clerk releases funds according to the order.

Exceptions & Pitfalls

Signing an “assignment” or “direction to pay” without realizing it: Many recovery contracts do more than authorize help; they may transfer part of the claim or instruct the clerk (or attorney) to pay the company first.
Double-fee risk: If a law firm is already retained on a fee arrangement and a recovery company contract also demands a percentage, the homeowner may face overlapping fee demands that reduce the net recovery and create disputes over who gets paid from the same funds.
Unclear scope and cancellation terms: Some agreements charge a fee even if the company did little or nothing (for example, if counsel or the homeowner already located the funds). Cancellation, termination, and “earned fee” clauses can matter.
Contested proceeding risk: If the recovery company files a claim or appears in the special proceeding asserting an interest, the clerk may require formal resolution, and the matter may become contested and slower.

Conclusion

In North Carolina, foreclosure surplus funds are typically released through the Clerk of Superior Court, and disputes about who is entitled can be resolved in a special proceeding under the surplus statutes. A recovery company usually cannot take a fee unless a contract gives it that right, but signing after already retaining a law firm can create competing claims and delay payment. The best next step is to have counsel review the recovery company’s agreement before signing and, if necessary, file the surplus petition with the clerk promptly.

Talk to a Surplus Funds Attorney

If a third-party recovery company is asking for a percentage of foreclosure surplus funds after a law firm has already been hired, an attorney can review the contract language and help move the clerk process forward with fewer surprises. 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.