Dec32025
Surplus Funds Q&A Series

If I had a HELOC, does that lender get paid before me from the surplus, and how is that priority decided? – North Carolina

Short Answer

In North Carolina, a HELOC lender generally gets paid from foreclosure surplus funds before the former owner, but only if the HELOC was a recorded lien that is still owed. Priority is decided mainly by the order in which liens were recorded (and by tax lien rules), not by who files first with the clerk. After the foreclosing lien, valid junior liens (such as a HELOC) are paid in order of priority, and only what is left after all lienholders are paid can go to the former owner.

Understanding the Problem

The question is whether, after a North Carolina foreclosure that produced surplus funds, a home equity line of credit (HELOC) lender gets paid from those surplus funds before the former property owner, and how the law decides that order. This comes up when a property sells at foreclosure for more than what was owed on the foreclosing deed of trust, leaving extra money on deposit with the clerk of superior court. The concern is whether a HELOC secured by a deed of trust on the same property counts as a junior lien that must be paid first, or whether the former owner can claim the surplus directly, and what rules the clerk and court use to rank everyone’s claims.

Apply the Law

North Carolina law treats surplus funds as a substitute for the real estate, and lienholders keep the same order of priority they had against the property. A HELOC that is secured by a recorded equity line deed of trust is typically a junior deed of trust behind the first mortgage unless the recording records show otherwise. The clerk of superior court and, if needed, the superior court use the recording data, tax lien rules, and specific foreclosure statutes to decide who has priority to the surplus.

Key Requirements

  • Valid, recorded lien: The HELOC must be secured by a properly recorded equity line deed of trust on the foreclosed property and must not have been paid off, released, or extinguished.
  • Priority based on time and special rules: Except for taxes and certain statutory liens, lien priority generally follows “first in time, first in right,” using the date and time of recording in the register of deeds, with special rules for equity lines and future advance deeds of trust.
  • Surplus treated like the land: Once the sale proceeds pay the foreclosing lien, remaining surplus is applied to junior liens in their priority order, and only any remaining balance is payable to the former owner.

What the Statutes Say

Analysis

Apply the Rule to the Facts: Under the facts given, the foreclosure produced surplus funds after paying the foreclosing deed of trust. If the HELOC is secured by a recorded equity line deed of trust that was junior to the foreclosing loan, that HELOC lender normally has the next claim to the surplus, ahead of the former owner. If, however, the HELOC deed of trust was released or never properly recorded, or if taxes or another higher-priority lien remain unpaid, those liens may come ahead of or instead of the HELOC, and only what remains after all valid senior and junior liens are satisfied would belong to the former owner.

Process & Timing

  1. Who files: Any party claiming surplus funds (former owner, HELOC lender, or other lienholder). Where: With the Clerk of Superior Court in the county where the foreclosure sale occurred in North Carolina. What: A petition or motion in the special proceeding under N.C. Gen. Stat. § 45-21.32 (often titled a “Petition to Determine Ownership of Surplus Proceeds”) and supporting documents (deeds of trust, releases, payoff figures). When: After the trustee pays surplus into court under N.C. Gen. Stat. § 45-21.31(b); there is no fixed statewide deadline, but the clerk may proceed once notice has been given to known claimants.
  2. The clerk issues notice to all known potential claimants (including junior lienholders and the former owner), and sets a hearing to take evidence on lien priority and amounts due. Timeframes vary by county and docket, but several weeks to a few months from filing to hearing is common.
  3. After the hearing, the clerk enters an order determining which liens are valid, their priority, how much each is owed, and who receives any remaining balance. The clerk then disburses funds accordingly; an aggrieved party may seek review in superior court under the usual appeal rules for special proceedings.

Exceptions & Pitfalls

  • Tax liens and certain governmental liens can have priority over both the foreclosing lender and a HELOC, so they may be paid from the surplus before any junior deed of trust or the former owner.
  • If the HELOC deed of trust was recorded before the foreclosing deed of trust, or if subordination agreements changed the order, the HELOC might be senior; in that case the foreclosure of a later lien may not wipe out the HELOC, and the analysis of who gets surplus can change significantly.
  • A HELOC that has been fully paid and formally satisfied of record will not normally share in the surplus; failing to check for a recorded satisfaction can lead to incorrect assumptions about who must be paid.
  • Not all debts from the same lender are automatically secured; only obligations clearly covered by the recorded deed of trust or equity line instrument have priority as liens against the surplus.
  • Service and notice are critical; if a junior lienholder does not receive proper notice of the foreclosure or the surplus proceeding, that can affect enforcement of its rights and, in some situations, create arguments about whether its lien survived.

Conclusion

In North Carolina, a valid, recorded HELOC secured by an equity line deed of trust is typically a junior lien that must be paid from foreclosure surplus funds before any money goes to the former owner. Priority follows recording order, subject to special rules for taxes and for equity and future-advance instruments, and the clerk of superior court resolves competing claims in a surplus proceeding. The key practical step is to file a proper claim or petition with the clerk in the foreclosure county and support it with the recorded lien documents.

Talk to a Surplus Funds Attorney

If a foreclosure in North Carolina left surplus funds and there is a HELOC or other junior lien on the property, our firm has experienced attorneys who can help clarify lien priority and protect potential rights to the money. 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 a specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If there is a deadline, act promptly and speak with a licensed North Carolina attorney.

Category: Surplus Funds Q&A Series

Author: jpierce

Attorney Jared Pierce is the founder of Pierce Law Group in Raleigh, North Carolina, a firm he established with a dedicated focus on probate administration and estate planning across North Carolina. Born and raised in the Republic of South Africa, Jared moved to Durham with his family in 2001, bringing with him a rich cultural background and a distinctive accent that often serves as a conversation starter.