How to determine if other creditors or lienholders could have claims to surplus funds in Delaware

Detailed Answer

Disclaimer: This is not legal advice. Consult a qualified attorney to discuss your specific situation.

When a property sells at a Delaware foreclosure auction, any sale proceeds that exceed the debt owed become surplus funds. Under Delaware law, the sheriff retains those funds and distributes them according to lien priority. See 25 Del. C. § 3565 (Del. Code tit. 25, § 3565).

To determine whether other creditors or lienholders may claim a share of those surplus funds, follow these steps:

1. Review Recorded Liens and Mortgages. Search the county Recorder of Deeds for all deeds of trust, mortgages, tax liens, mechanics’ liens and other recorded instruments affecting the property. Subordinate lienholders must record their liens prior to foreclosure to preserve a right to surplus.
2. Obtain a Title Report. A licensed title company can perform a comprehensive search of public records, revealing hidden or forgotten liens, judgements, and options affecting priority.
3. Check UCC Filings. If the borrower granted a security interest in personal property (e.g., business equipment), search the Delaware UCC records for financing statements that may claim priority to surplus proceeds.
4. Search Judgment Dockets. Judgment creditors can attach real property and may file a claim for surplus. Check the Superior Court’s judgment docket for outstanding money judgments against the borrower.
5. Monitor Claim Deadlines. Delaware requires claimants to file a written demand for surplus proceeds with the sheriff’s office within 60 days of sale. Late claims may be barred. See 25 Del. C. § 3565.
6. Review Court Filings. After sale, the sheriff must file a return of sale in the Court of Common Pleas or Superior Court. That return lists the surplus amount and invites claims. Examine the court docket for any formal claims or objections.
7. Assess Priority Rules. Delaware follows a “first in time, first in right” approach. Senior lienholders (e.g., the foreclosing mortgagee) get paid first. Subordinate lienholders and judgment creditors follow in recorded order.

Helpful Hints

• Use the Recorder of Deeds online portal for quick lien certificate lookups.
• Obtain a certified title commitment to identify potential claimants.
• Consult the UCC search system at the Delaware Division of Corporations for financing statements.
• Keep track of statute of limitations and claim‐filing deadlines to avoid forfeiture.
• Consider engaging a foreclosure or real estate attorney to handle complex priority disputes.
• Retain clear copies of all recorded documents and court filings related to the foreclosure sale.