How do two co-owners claim surplus funds when one owner is incapacitated and an adult child has power of attorney for that owner? – North Carolina

Short Answer

In North Carolina, foreclosure surplus funds are paid to the people legally entitled to them, and when there is any doubt, the surplus is typically paid into the Clerk of Superior Court for the county where the sale occurred. When there are two co-owners, each generally claims only that owner’s share, and an owner who cannot act can usually claim through a valid agent under a financial power of attorney (POA). If the co-owners disagree, or the clerk needs proof of authority, the claim may need to be resolved through a clerk-filed proceeding to determine who is entitled to the funds.

Understanding the Problem

In North Carolina, after a foreclosure sale closes and the mortgage payoff and sale costs are paid, a remaining balance may exist as “surplus” proceeds. The decision point is how the two record co-owners can receive that surplus when one co-owner cannot personally sign claim paperwork because of incarceration and an adult child is acting under a financial power of attorney, while the other co-owner has moved out. The practical issue is proving (1) who is entitled to the surplus and (2) who has legal authority to sign and receive funds for the incapacitated co-owner through the Clerk of Superior Court in the county where the sale occurred.

Apply the Law

North Carolina law requires the foreclosure sale proceeds to be applied in a set order (sale costs, certain taxes/assessments if applicable, then the secured debt). Any remaining surplus must be paid to the person or persons entitled to it. If the trustee or other person handling the sale does not know who is entitled to the surplus, cannot locate them, faces competing claims, or has doubt about entitlement, the surplus is paid to the Clerk of Superior Court for the county where the sale occurred. When surplus is held by the clerk and there is a dispute or uncertainty about ownership, a special proceeding can be filed before the clerk to determine who is entitled to the money.

Key Requirements

Proof of entitlement (ownership and share): The claim must match the record ownership and any liens or claims that may have priority to the surplus.
Proper authority to act for the incarcerated owner: The adult child must show a valid financial POA that authorizes handling financial/property matters and receiving funds on the owner’s behalf.
Correct forum and procedure: Claims are handled through the Clerk of Superior Court in the county where the foreclosure sale occurred, and disputes/uncertainty may require a clerk-filed proceeding to determine entitlement.

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 to entitled persons or into the clerk’s office when there is doubt, inability to locate, or adverse claims.
N.C. Gen. Stat. § 1-339.71 (Special proceeding to determine ownership of surplus) – Allows a special proceeding before the clerk to decide who is entitled to surplus funds paid into the clerk’s office.

Analysis

Apply the Rule to the Facts: The foreclosure sale may have generated surplus proceeds after the payoff of the mortgage and sale-related costs. Because there are two living co-owners, the clerk will typically expect each owner (or a legally authorized representative) to claim that owner’s share rather than one person claiming everything. For the incarcerated co-owner, the adult child can often sign and submit the claim if the financial POA is valid and broad enough to cover receiving and endorsing funds, but the clerk may require specific documentation to confirm authority and identity.

Process & Timing

Who files: Each co-owner files for that owner’s share; for the incarcerated owner, the adult child files as agent under the financial POA. Where: The Clerk of Superior Court in the county where the foreclosure sale was held. What: A written claim/petition package typically including proof of identity, proof of ownership, and (for the agent) the POA and supporting documentation the clerk requests. When: As soon as the surplus is deposited with the clerk and the sale is final; timing can vary by county and by whether there is a dispute.
Clerk review and notice: The clerk’s office may require notice to other potential claimants (including the other co-owner and any lienholders who assert a claim). If the trustee paid the surplus to the clerk due to uncertainty or competing claims, the clerk may require a formal proceeding to sort out entitlement.
Order and disbursement: If the clerk is satisfied as to entitlement and authority, the clerk can disburse the appropriate share(s). If there is a factual dispute (for example, disagreement about shares or competing claims), the matter can be transferred for trial after issues are raised, and the funds are typically held until the dispute is resolved.

Exceptions & Pitfalls

POA problems: A POA that is outdated, not properly executed, revoked, or too limited can cause the clerk to reject the agent’s request. The clerk may also require the POA to clearly cover financial transactions, real property-related matters, and receiving/endorsing funds.
One co-owner trying to claim all funds: When title shows two owners, the clerk often requires each owner (or authorized agent) to claim separately unless there is a court order or clear legal basis for a different distribution.
Competing claims and liens: Judgment liens, tax liens, or other asserted claims can change who is entitled to the surplus and may force a formal determination proceeding under the clerk’s supervision.
Service/notice issues: If a special proceeding is needed, failing to name and properly notify all known claimants can delay the case or require re-filing.
Documentation gaps: Missing recorded deed information, unclear vesting language, or incomplete identity documents commonly slow down surplus disbursement.

For more detail on gathering proof for a claim, see what documents do I need to prove my right to the surplus funds and start the claim process. For the basic filing steps, see how to file a petition to claim surplus funds.

Conclusion

In North Carolina, foreclosure surplus proceeds are paid to the person or persons entitled to them, and when entitlement is uncertain the surplus is paid into the Clerk of Superior Court for the county where the sale occurred. With two co-owners, each owner generally claims only that owner’s share, and an incarcerated owner can often claim through an adult child acting under a valid financial power of attorney. The next step is to file the claim (and POA proof for the agent) with the Clerk of Superior Court where the surplus is being held.

Talk to a Surplus Funds Attorney

If there are foreclosure surplus funds and one co-owner cannot sign because an adult child is acting under a power of attorney, our firm has experienced attorneys who can help clarify the correct paperwork, notice requirements, and timelines with the Clerk of Superior Court. 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.