Detailed Answer
When a nonjudicial foreclosure in Virginia produces surplus funds, the trustee must distribute them according to lien priority under Va. Code §55.1-3235(link). First, sale expenses and senior secured debts get paid. Next, junior lienholders may assert valid claims. Any remaining surplus returns to the grantor.
To determine whether other creditors or lienholders have valid claims to those surplus funds, follow these steps:
- Conduct a full title search. Review the land records for judgment liens (Va. Code §8.01-447), mechanic’s and materialmen’s liens (Va. Code §43-3), homeowners’ association liens (Va. Code §55.1-1966), and any recorded mortgage or deed of trust.
- Review foreclosure documents. Identify which liens were paid from the sale proceeds and which remain unpaid.
- Determine lien priority. Virginia follows “first in time, first in right.” Liens recorded prior to the foreclosure sale enjoy seniority over those recorded later.
- Check statutory deadlines. Under Va. Code §8.01-129(link), any creditor or lienholder seeking surplus funds must file a claim within one year after the sale date.
- File a claim or petition. Junior lienholders typically submit their claim to the trustee or file a petition in the circuit court where the sale occurred, supported by proof of their recorded lien and amount owed.
Example: Suppose Jane’s foreclosure sale generated $25,000 after paying a senior mortgage. A contractor’s lien of $4,000 (recorded before sale) and a judgment lien of $2,500 (recorded afterward) remain. The contractor’s lienholder may claim up to $4,000 of the surplus. The judgment creditor can claim only if they recorded their lien before the sale and filed within one year.
Helpful Hints
- Hire a licensed title company to uncover all recorded liens and encumbrances.
- Keep a detailed timeline of each lien’s recording date to establish priority.
- Consult court rules in the circuit where the surplus funds are held for exact filing procedures.
- Track statutory deadlines carefully; missed deadlines usually bar claims.
- In complex cases, consider working with a probate or real estate attorney to navigate distribution.
Disclaimer: This article is for educational purposes only and does not constitute legal advice. Always consult a qualified attorney about your specific situation.