Short Answer

In North Carolina, a surplus funds petition is usually filed in the name of the person or entity that is legally entitled to the surplus, which often tracks who held the ownership interest at the time of the foreclosure sale. When real property is held in a trust arrangement with a separate trustee and beneficiary, the trustee often must be named at least as a party because North Carolina law generally treats transfers “to” or “by” a trust as transfers to or by the trustee. The beneficiary may also need to be named (at least as a defendant or claimant) if the beneficiary claims the surplus or if there is any doubt about entitlement.

Understanding the Problem

In North Carolina, when a foreclosure sale produces surplus money, a claim has to be presented in the correct name so the Clerk of Superior Court can determine who is entitled to the funds. The decision point is whether the surplus funds petition should be filed under the trustee’s name, the beneficiary’s name, or both when title was held in a land trust with separate trustee and beneficiary roles. Timing matters because the funds may be held by the Clerk of Superior Court until the correct parties are brought before the clerk in the required type of proceeding.

Apply the Law

North Carolina surplus funds disputes are typically handled as a “special proceeding” before the Clerk of Superior Court in the county where the foreclosure sale occurred. If the person holding the sale proceeds is unsure who is entitled to the surplus (or if there are adverse claims), the surplus is paid to the clerk. A person claiming the surplus then files a special proceeding asking the clerk to determine ownership. In trust-held property situations, North Carolina’s construction rules for conveyances involving trusts generally treat a transfer to a trust as a transfer to the trustee, and a transfer by a trust as a transfer by the trustee, which often makes the trustee a necessary named party for property-related claims tied to title.

Key Requirements

• Proper claimant: The petition should be brought by the person or entity claiming they are legally entitled to the surplus (often the owner of record at the time of sale or another party with a superior right to the funds).
• All known competing claimants must be joined: Everyone who has filed a claim with the clerk, or who is known to assert a claim, must be named as defendants so the clerk can decide entitlement in one case.
• Correct forum and procedure: The matter is filed as a special proceeding before the Clerk of Superior Court; if factual issues are raised, it can be transferred to Superior Court for trial.

What the Statutes Say

• N.C. Gen. Stat. a7 45-21.31 (Disposition of proceeds; surplus to clerk) – Requires sale proceeds to be applied in order and addresses when surplus is paid to the clerk if there is doubt or adverse claims.
• N.C. Gen. Stat. a7 45-21.32 (Special proceeding to determine ownership of surplus) – Allows any person claiming the surplus to file a special proceeding before the clerk and requires other known claimants to be made defendants.
• N.C. Gen. Stat. a7 39-6.7 (Construction of conveyances to or by trusts) – Provides that conveyances to a trust are deemed conveyances to the trustee(s), and conveyances by a trust are deemed conveyances by the trustee(s).

Analysis

Apply the Rule to the Facts: The real property interest is described as being held in a land trust with a separate trustee and beneficiary, and the goal is to file the surplus funds petition under the correct party. Because North Carolina generally treats property transfers involving a trust as transfers to or by the trustee, naming the trustee as the petitioner (or at least as a necessary party) usually lines up with how the clerk evaluates ownership interests tied to title. At the same time, the surplus statute requires joinder of all known claimants, so if the beneficiary claims the surplus under the trust arrangement (or if the trustee’s entitlement depends on acting for the beneficiary), the beneficiary should typically be included as a party so the clerk can decide entitlement without later challenges.

Process & Timing

1. Who files: A person or entity claiming the surplus. Where: Office of the Clerk of Superior Court in the county where the foreclosure sale occurred. What: A special proceeding petition to determine entitlement to surplus funds, plus supporting documents showing the claimed right (often including the foreclosure file information and documents showing the claimant’s relationship to the property interest). When: After the surplus has been paid into the clerk’s office, and as soon as practicable to reduce the risk of competing claims and delays.
2. Service and notice: The petition should name and serve all other known persons who have asserted or may assert a claim, as required by the surplus funds statute. If a served party contests ownership or raises factual disputes, the case can move from the clerk to the Superior Court civil issue docket for trial.
3. Order and disbursement: If the clerk (or Superior Court, if transferred) determines who is entitled, an order issues directing disbursement of the surplus. Processing times vary by county and by whether the matter is contested.

Exceptions & Pitfalls

• Leaving out a necessary claimant: The statutes require known claimants to be made defendants; missing a beneficiary, trustee, lienholder, or other claimant can delay the order or require amendment and re-service.
• Confusing “title holder” with “beneficial owner”: In trust-held property, the recorded chain of title often points to the trustee, while the trust agreement may allocate the economic right to the beneficiary. The petition and attachments should align those two ideas so the clerk can see why the claimant is “legally entitled” to the surplus.
• Authority and capacity problems: If the trustee files, the record should reflect the trustee’s capacity (as trustee) and authority to pursue the claim. If the beneficiary files, the beneficiary may still need the trustee joined and may need to show why the beneficiary (not the trustee) is the proper claimant under the trust terms and the foreclosure posture.
• Engagement name vs. filing name: An engagement agreement may list an individual for intake and billing purposes, but the petition should be filed in the name of the party that holds the legal claim to the funds, with clear identification of capacity (for example, “as trustee”). Mismatches can usually be corrected, but they can cause clerk questions and delays if not addressed up front.

Conclusion

In North Carolina, a surplus funds claim is typically decided in a special proceeding before the Clerk of Superior Court in the county where the foreclosure sale occurred, and all known claimants must be named. When the property is held in a trust arrangement with separate trustee and beneficiary roles, the trustee often needs to be named because North Carolina generally treats conveyances involving a trust as to or by the trustee. The next step is to file the special proceeding petition with the Clerk of Superior Court and name and serve all known competing claimants promptly.

Talk to a Surplus Funds Attorney

If a foreclosure surplus involves a trust, the naming and service issues can control how fast the Clerk of Superior Court can release the funds. Our firm has experienced attorneys who can help identify the correct parties, prepare the petition, and manage the clerk process 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.