Detailed Answer
When a foreclosure sale in Maryland produces surplus funds—money left after satisfying the foreclosing lender’s claim—other creditors and lienholders may assert rights to those proceeds. The court distributes sale proceeds according to lien priority under Maryland law, primarily governed by Real Property § 7-105 and Maryland Rule 2-631.
1. Understand the Distribution Process
After the foreclosure sale, the foreclosing plaintiff must file a motion for disbursement of proceeds with the circuit court, listing known lienholders and providing their last known addresses. The court then holds a hearing to determine the proper allocation of funds.
2. Identify Potential Claimants
- Search County Land Records for recorded mortgages, deeds of trust, and mechanic’s liens.
- Review the circuit court’s judgment docket for recorded judgment liens against the debtor.
- Check for federal tax liens via the IRS Public Lien Registry.
- Contact the Maryland Child Support Administration for any support liens.
- Verify municipal liens for unpaid property taxes or code enforcement fines.
3. Monitor Court Filings and Notices
The foreclosing party must serve notice of the motion for disbursement on all listed lienholders. Under Rule 2-631, creditors have 30 days from service to file a claim or objection. Late claims may be barred.
4. Assess Lien Priority
Maryland follows a “first in time, first in right” rule for recorded liens. Priority generally runs:
- Senior mortgage or deed of trust.
- Tax liens (federal, state, local).
- Subordinate mortgages and recorded judgment liens.
- Mechanic’s and materialmen’s liens.
- Unsecured creditors (last in line).
5. Participate in the Distribution Hearing
At the Rule 2-631 hearing, each claimant presents evidence of their lien, its recording date, and the outstanding balance. The court issues an order allocating surplus funds according to lien priority and amounts owed.
Disclaimer: This article is for educational purposes only and does not constitute legal advice. Consult a qualified attorney to address your specific situation.
Helpful Hints
- Order a full title report covering at least 10 years of transactions.
- Request certified lien searches from the Clerk’s Office in every county where the property was located.
- Maintain accurate records of notice dates to preserve your right to file a timely claim.
- Consult with a real estate attorney before the distribution hearing to confirm your lien’s enforceability.
- Be prepared to present original lien documents and proof of outstanding balances at the hearing.