Quick overview: What are foreclosure surplus funds?

When a foreclosure sale brings in more money than needed to pay off the foreclosing lien (and any costs ordered by the court), the extra money is called the “surplus” or “excess proceeds.” Tennessee law provides procedures for distributing those funds to people who have a legal right to them (for example, the former owner or junior lienholders).

Detailed answer — Step‑by‑step process to file a special proceeding in Tennessee

1. Confirm a surplus exists and collect sale paperwork.

   Start by getting the foreclosure sale paperwork: the trustee’s or sheriff’s sale report, the accounting showing the sale price and disbursements, and the court order confirming the sale (if the sale was confirmed by court). These documents show the existence and amount of any surplus.

2. Identify the correct court and procedure.

   In Tennessee, claims related to foreclosure sales and surplus funds are typically handled in the chancery or circuit court for the county where the property is located. The claim is usually filed as a special proceeding or petition asking the court to determine who is entitled to the surplus and to order distribution.

   Use the Tennessee Code and court rules as reference: Tennessee Code (searchable) at https://www.capitol.tn.gov/legislation/statutes/ and Tennessee court rules/forms at https://www.tncourts.gov/.

3. Draft a petition (special proceeding) or claim for the surplus funds.

   Your petition should include:

   • Case caption and court name (county chancery or circuit court).
   • Your name, contact information, and your legal interest in the funds (e.g., former owner, holder of a junior lien).
   • Identification of the foreclosure sale (property address, sale date, trustee/sheriff, purchaser, case number for the foreclosure if any).
   • Amount of the surplus you claim and the basis for the claim (documents showing a lien or ownership interest, payoff statements, receipts, etc.).
   • Request that the court find you entitled to all or part of the surplus and enter an order directing the clerk/treasurer to pay you the funds.
   • Attach supporting evidence: certified copy of the deed of trust or mortgage, foreclosure sale accounting, order confirming sale, payoff statements, and any recorded junior liens.
4. File the petition and pay required fees.

   File the petition with the clerk of the appropriate chancery or circuit court. Pay the regular filing fee for petitions or special proceedings in that court. The clerk can tell you the exact fee and provide local filing requirements and form preferences.

5. Serve notice on all interested parties.

   Notify every person or entity who might have a legal claim to the surplus. Typical parties include:

   • The foreclosure purchaser (successful bidder)
   • The foreclosing lender or trustee
   • Junior lienholders and judgment creditors (from public records)
   • The former property owner

   Service methods vary by party and local rules: certified mail with return receipt, sheriff or process server, or personal service. File proof of service with the court.

6. Comply with any publication or additional notice requirements.

   Some courts require publication of notice to unknown claimants or absent parties or additional notice if parties cannot be found. Follow the court’s order or local rules for publishing notices in a local newspaper and file an affidavit of publication.

7. Attend the hearing and present evidence.

   The court will set a hearing date. At the hearing, be prepared to:

   • Explain your legal basis for the claim (ownership, recorded lien, equitable interest).
   • Submit documentary evidence (deeds, recorded liens, payoff statements, sale accounting).
   • Answer any challenges from other claimants who will present competing evidence.
8. Obtain a court order directing distribution.

   If the court finds you entitled (in whole or in part) it will enter an order directing the clerk, trustee, or county official to pay you the awarded funds. The court’s order may identify payment instructions or require you to submit an affidavit or identification before release.

9. Collect the funds and close the matter.

   Bring a certified copy of the court order and valid identification to the clerk or designated office to collect the funds. Keep records of the payment and file any required receipts with the court. If multiple claimants share the award, follow the court’s distribution instructions.

10. If you lose or another party has a competing claim.

    You may be able to appeal a judgment under Tennessee appellate rules. Alternatively, the court may allow interpleader or set off competing claims. Consult the court clerk for timelines to appeal or to ask the court for reconsideration.

Helpful hints

• Start early. Identify potential claimants by searching public records (real estate records, judgment liens). If you delay, other claimants may file first.
• Keep a clear packet of documents: certified copies of foreclosure sale papers, recorded instruments, and photo ID to speed collection after the court order.
• Follow local rules. Chancery and circuit courts have local practice rules and filing requirements; the clerk’s office can give specific guidance for your county.
• Proof matters. The stronger your documentary proof of ownership or lien priority, the more likely the court will award you funds.
• Watch deadlines. While time limits vary by claim type, you should file as soon as you learn of the surplus. Ask the clerk about any statute of limitations or required time frames in your county.
• Be realistic about costs. Filing fees, service fees, publication costs, and attorney fees can reduce the net recovery — weigh the likely recovery against costs.
• Consider an attorney when: the surplus is large, there are multiple competing claimants, title issues exist, or the facts are complex.

Where to find Tennessee statutes, forms, and local contacts

• Tennessee Code (searchable) — official statutes: https://www.capitol.tn.gov/legislation/statutes/
• Tennessee Courts (rules, forms, and court contacts): https://www.tncourts.gov/
• Contact the clerk of the chancery or circuit court in the county where the property sits for local filing requirements and fees.