Who is holding the funds before the hearing, and do they earn interest? – North Carolina

Short Answer

In North Carolina, surplus funds from a foreclosure or other qualifying sale are paid into and held by the Clerk of Superior Court for the county where the sale occurred. By law, the clerk must deposit and, in many situations, invest these funds in interest-bearing accounts, but the way any interest is handled can depend on the size of the deposit, how long it is held, and specific court or administrative rules.

Understanding the Problem

The narrow issue is: after a North Carolina foreclosure or similar sale generates surplus funds, who actually holds that money before a surplus-funds hearing, and does that money earn interest during that time? This comes up when a lender or trustee completes a sale, applies the proceeds to costs and the debt, and there is money left over that must be turned over and held while potential claimants assert their rights. The focus is only on custody and interest between the sale and the court’s final distribution order.

Apply the Law

Under North Carolina law, once the sale is complete and surplus funds exist, the person conducting the sale (such as a trustee or sheriff) must pay that surplus into the office of the Clerk of Superior Court in the county where the sale occurred, if the payor does not know for sure who is entitled to receive it or if there are competing claims. The clerk then holds the funds in the court’s custody while a special proceeding determines ownership. State law also requires clerks to use interest-bearing accounts and, for larger and longer-held deposits, to invest the money, subject to detailed limits.

Key Requirements

Custody of surplus funds: After applying sale proceeds to costs, taxes, assessments, and the secured debt, any remaining surplus that is not immediately paid to a known entitled party must be delivered to the Clerk of Superior Court for the county where the sale occurred.
Clerk’s duty to hold and safeguard funds: Once received, the clerk must safeguard the money, credit it properly, and hold it until a special proceeding or order identifies the person legally entitled to it.
Deposit and investment/interest rules: Money held by the clerk by virtue of the office must be deposited in interest-bearing accounts, and for larger balances expected to remain on deposit for more than six months, the clerk generally must invest the excess above a statutory threshold in approved interest-bearing instruments.

What the Statutes Say

N.C. Gen. Stat. § 45-21.31 (Foreclosure sale proceeds and surplus) – Requires the trustee or mortgagee to pay any surplus to the clerk of superior court when the rightful owner is unknown, cannot be located, or there are adverse claims.
N.C. Gen. Stat. § 45-21.32 (Special proceeding for surplus) – Provides for a special proceeding before the clerk to determine who is entitled to surplus funds paid into the clerk’s office.
N.C. Gen. Stat. § 7A-112 (Investment of funds in clerk’s hands) – Authorizes and, for larger deposits expected to be held more than six months, requires the clerk to invest money received by virtue of the clerk’s office in approved interest-bearing investments, subject to dollar thresholds and exceptions.
N.C. Gen. Stat. § 7A-112.1 (Deposit of money held by clerks) – Requires clerks to deposit funds received by virtue of office in interest-bearing checking accounts at the maximum feasible rate, subject to safety requirements.

Analysis

Apply the Rule to the Facts: With no specific facts given, the standard pattern is that, after a North Carolina foreclosure sale, the trustee applies the proceeds as the statute directs and then pays any surplus into the office of the Clerk of Superior Court if there is any uncertainty over who should get it. The clerk then holds those funds in the clerk’s accounts as required by the statewide deposit and investment rules, which generally means they sit in one or more interest-bearing accounts until the court orders distribution to the rightful claimant.

Process & Timing

Who files: A person claiming surplus funds. Where: In a special proceeding before the Clerk of Superior Court in the North Carolina county where the sale was held. What: A verified petition or application to determine ownership of surplus funds, referencing the foreclosure file or sale. When: Typically after the surplus has been paid into the clerk’s office and any required upset bid period and sale confirmation steps have concluded.
The clerk reviews the petition, provides notice to other known or potential claimants identified in the file, and may schedule a hearing to receive evidence about who is legally entitled to the surplus. Depending on the number of claimants and issues, this may take several weeks, and timelines can vary by county and court workload.
After the hearing or upon agreement of all interested parties, the clerk enters an order determining ownership of the surplus and directing disbursement. The clerk then releases the funds by check or other approved method to the person or persons the order designates.

Exceptions & Pitfalls

Interest handling can differ for small balances or funds expected to be held for only a short time, because the investment mandate mainly targets amounts above a threshold kept on deposit longer than several months.
Some categories of money held by a clerk (such as certain bonds or funds payable quickly to a governmental unit) are treated differently and may not go through the same investment process.
Failure to identify all potential claimants in a surplus-funds petition can delay the hearing, keep funds in the clerk’s account longer, and affect when the court can order release.
Confusion between foreclosure surplus funds and other types of court-held money (like condemnation deposits or interpleaded funds) can lead to incorrect assumptions about when and how interest accrues and who is entitled to it.

Conclusion

For North Carolina surplus funds after a foreclosure or similar sale, the Clerk of Superior Court for the county of the sale holds the money in the court’s custody once the trustee or other sale officer pays it in. State law requires the clerk to place these funds in interest-bearing accounts and, for larger balances held longer, to invest them under specific rules. To have funds released, a claimant must file a surplus-funds proceeding with the appropriate clerk so the court can enter an order directing disbursement.

Talk to a Surplus Funds Attorney

If surplus funds from a North Carolina foreclosure or sale are being held by the Clerk of Superior Court and questions remain about who should receive them or how interest is treated, our firm has experienced attorneys who can help explain the process and protect claim rights. 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 any 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.