Detailed answer: What is a foreclosure surplus and who can claim it?

When a property sells at a trustee’s sale for more than the total of debts, costs, and expenses secured by the deed of trust, the extra money is called the surplus (or excess proceeds). California nonjudicial foreclosure law requires the trustee to apply sale proceeds to pay liens in order and to distribute any remaining surplus to the person entitled to it.

The most common parties that may be entitled to the surplus are:

• The trustor or former homeowner (borrower) who lost the property
• Any recorded junior lienholder (for example, a second mortgage or mechanic’s lien) who is owed money after higher-priority liens are paid
• Other persons with a recorded interest in the property that survives the sale

See California’s nonjudicial foreclosure statutes for the general framework: California Civil Code §2924 and related provisions. For the trustee’s duties regarding sale proceeds, see California Civil Code §2924k (trustee’s accounting and surplus).

Statutory references (for your convenience):

• Cal. Civ. Code §2924 (nonjudicial foreclosure procedures)
• Cal. Civ. Code §2924k (application of sale proceeds and surplus)

Step‑by‑step: How to file a special proceeding to recover surplus funds

1. Confirm that a surplus exists

Obtain a copy of the trustee’s sale paperwork. Key documents include the Notice of Trustee’s Sale, the Trustee’s Deed Upon Sale, and the trustee’s sale report or accounting. These documents show the sale price and the amounts applied to liens and costs.

2. Contact the trustee and secured parties

First, contact the trustee (the trustee company named in the sale documents). Ask for an accounting and a demand for distribution of surplus. If the trustee has the surplus and you can establish you are entitled, the trustee may be able to disburse funds without court involvement.

3. Gather documentation to prove your entitlement

Common supporting documents:

• Government‑issued photo ID
• Trustee’s Deed Upon Sale and Notice of Sale
• Deeds, mortgage or deed of trust, payoff statements
• Recorded documents proving any junior lien or interest
• A signed declaration explaining your claim to the funds

4. Send a written demand (if you haven’t already)

Send a certified demand letter to the trustee and any beneficiary (lender) and to recorded junior lienholders asking for release of the surplus. Keep proof of delivery. A demand may resolve the matter without court action.

5. If the trustee refuses or you cannot locate the funds, prepare a special proceeding in superior court

When the trustee refuses or you cannot resolve entitlement informally, file a petition in the Superior Court in the county where the property is located asking the court to order distribution of the excess sale proceeds. In California this is treated as a special proceeding to obtain a court order distributing the surplus to the proper party.

6. What to include in the petition

Although local forms and practices vary, a typical petition or verified complaint to determine surplus distribution should include:

• A caption naming all interested parties (trustee, beneficiary, junior lienholders, former owner, any known claimants)
• A verified statement of facts: sale date, sale price, amounts applied to liens and costs, and the amount of surplus
• Copies of supporting documents (trustee’s deed, notice of sale, recorded instruments)
• A clear request that the court determine who is entitled to the surplus and order disbursement
• Declaration under penalty of perjury from the petitioner attesting to the facts

7. Service and notice to interested parties

Serve the petition and summons on all interested parties (trustee, beneficiary/lender, recorded junior lienholders, and others with recorded interests). You must follow California rules for service of process. The court will also require proof of service before it will issue an order.

8. Court hearing and evidence

The court will schedule a hearing. At the hearing, present your documents, accounting, and testimony showing your entitlement. The court will consider priorities among claimants and may order distribution of funds to the person it finds entitled. If multiple claimants exist, the court may hold an evidentiary hearing.

9. Receiving the funds

If the court orders distribution, it will direct the county clerk or the trustee where the funds are held to disburse the funds to the entitled party. You may need to provide proof of identity, a signed receipt, or additional documentation before you receive the funds.

10. Consider hiring counsel

Competing claims, complex title issues, or disputes about amounts can make proceedings complicated. An attorney can prepare pleadings, serve parties properly, and present your case at hearing.

Practical timelines and costs

• Filing fees: Superior Court filing fees apply (check the county fee schedule).
• Service: Expect additional cost for professional process service or certified mail.
• Timing: A simple uncontested court distribution can take a few weeks; contested matters take longer.
• Statute of limitations: Time limits may restrict claims to surplus funds. File promptly or consult an attorney to evaluate any deadlines.

Helpful Hints

• Start by asking the trustee for an accounting. Many surplus claims resolve without court action.
• Keep copies of all recorded instruments and sale paperwork. The trustee’s deed and sale accounting are critical.
• Serve every recorded interest holder. Failing to serve a party can delay or invalidate the court’s order.
• Use certified mail or a professional process server and keep proof of service.
• If the identity of claimants is unclear, the court can require publication notice—ask the clerk about local rules.
• Consider a title report to identify recorded liens and other interested parties before filing.
• Check the local superior court’s civil or probate clerk’s office for any specific local forms or required cover sheets.
• Document all communications in writing. Save receipts, letters, emails, and phone logs.
• If you have difficulty locating the trustee or funds, consider hiring an attorney or a claims professional experienced with trustee sales.
• Remember: transforming documents into a persuasive verified petition and proving entitlement at a hearing often requires legal knowledge—consult counsel if unsure.