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

Short Answer

In North Carolina foreclosure and judicial sale cases, surplus proceeds are typically paid into the office of the Clerk of Superior Court if entitlement is unclear or disputed; otherwise, the trustee or sale officer may hold them briefly before deposit. Once the Clerk holds the funds, the Clerk must administer and, when appropriate, invest them under North Carolina law. Investment earnings generally belong to the rightful owner, subject to a small statutory investment fee.

Understanding the Problem

The narrow question is: in North Carolina surplus funds matters, who holds sale proceeds between the sale and a disbursement hearing before the Clerk of Superior Court, and whether those funds earn interest during that period. The focus is the custody of funds and investment while the case is pending before the Clerk after a foreclosure or judicial sale becomes final.

Apply the Law

Under North Carolina law, after a foreclosure by power of sale or a judicial sale, any surplus (money left after paying sale costs and senior liens) is either (1) briefly held by the trustee/commissioner/sheriff and then deposited with the Clerk of Superior Court if there is any doubt about who should be paid, or (2) paid directly to the entitled party if there is no dispute. When the Clerk holds funds, the Clerk administers and invests them as authorized by statute. If a single account will exceed $10,000 and reasonably remain for more than six months, the Clerk must invest the funds within a defined timeframe; otherwise, the Clerk still manages the funds consistent with statutory investment options. The disbursement forum is the Clerk of Superior Court in the county of sale, after the upset bid period closes and the sale is final.

Key Requirements

• Custody of surplus: If entitlement is uncertain or multiple claims exist, the trustee/commissioner pays the surplus into the Clerk of Superior Court, who then holds it pending court order.
• Forum: Disbursement issues are decided by the Clerk of Superior Court in the county where the sale occurred.
• Sale finality: No disbursement occurs until the sale is final after the statutory upset bid period closes.
• Investment trigger: When funds held by the Clerk in a single account exceed $10,000 and are reasonably expected to remain more than six months, the Clerk must invest them within 60 days in authorized investments.
• Earnings and fees: Investment earnings belong to the beneficial owner, net of a statutory investment fee that is capped by law.

What the Statutes Say

• North Carolina Gen. Stat. § 45-21.31 (Foreclosure surplus) – Surplus after a power-of-sale foreclosure is paid to the person entitled or paid into the Clerk’s office if entitlement is uncertain, for court-ordered distribution.
• North Carolina Gen. Stat. § 7A-112 (Investment of funds by Clerk) – Authorizes and, in specified circumstances, requires the Clerk to invest funds held by virtue of office in safe, approved investments within a defined period.
• North Carolina Gen. Stat. § 7A-308.1 (Investment fee) – Requires a limited fee on funds the Clerk invests, capped by investment earnings or a dollar limit.

Analysis

Apply the Rule to the Facts: With no specific facts provided, consider two narrow scenarios. If the trustee deposits surplus into the Clerk’s office due to competing claims, the Clerk holds the money and, if the balance is over $10,000 and likely to sit more than six months, must invest it within 60 days; the earnings (after the capped fee) go to the eventual payee. If a small surplus is deposited and resolved quickly, the Clerk still administers the funds, but practical interest may be minimal given the short holding period.

Process & Timing

1. Who files: Claimant or lienholder seeking payment. Where: Clerk of Superior Court in the county of sale, in the foreclosure or sale file. What: Motion or petition for order disbursing surplus proceeds; include evidence of entitlement and notice to other known claimants. When: After the sale is final (following the 10-day upset bid period) and funds are deposited with the Clerk.
2. The Clerk sets a hearing if needed. Timeframes vary by county; allow several weeks for calendaring and notice so all claimants can be heard.
3. After the hearing, the Clerk enters an order directing disbursement. The Clerk then issues checks per priority, including to the owner if no superior claims exist.

Exceptions & Pitfalls

• If entitlement is undisputed, the trustee/commissioner may pay the surplus directly without depositing with the Clerk, which can affect whether interest accrues.
• Expect a statutory investment fee on funds the Clerk invests; earnings net of that fee belong to the ultimate payee.
• Provide complete claimant information and taxpayer details when requested; missing information can delay investment or disbursement.
• Serve subordinate lienholders and known claimants; failure to give notice can delay or jeopardize disbursement.

Talk to a Surplus Funds Attorney

If you’re dealing with surplus proceeds from a foreclosure or judicial sale and need to understand who holds the funds and whether they earn interest, our firm has experienced attorneys who can help you understand your options 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.