The days of cheap homes at trustee’s sales are largely a thing of the past. Investors are looking to wholesale deals and searching for owners wanting to sell. While less investors are interested in trustee’s sales, there are now opportunities to be had in excess proceeds. Any time the amount paid at the trustee’s sale is more than what was owed on the promissory note, there is an opportunity to be had.

If a home sells for more than what is owed, the trustee has a statutory obligation to account for the excess funds. This usually means the trustee will file a court action for interested parties to make claims to the funds. See, A.R.S. § 33-812. By statute, the trustee has to pay-out the proceeds following a priority schedule. For example, the trustee is to pay the costs and expenses of the sale, to other obligations undertaken by the lender before the sale, and then any condominium, homeowner’s association and to other lienholders. If there are any excess proceeds remaining, the trustee is to notify the former borrower. Instead of applying the proceeds pursuant to these priorities, a trustee can elect to deposit the excess proceeds with the county treasurer and start an interpleader lawsuit in Superior Court. The lawsuit would ask the court to determine who gets the money, and letting the interested parties litigate over it. The trustee is then discharged from further obligations.

The statutory scheme for such lawsuits actually contemplates and permits uninterested third parties to assist people with claims to collect their money. Many former owners are either unaware of these rights or they choose not to pursue the amounts because they think that the litigation is a hassle or don’t want to pay an attorney to file the Application. As a result, many entrepreneurs set up companies to assist with the process. The company need not be a law firm, but a lawyer or the former owner is required to file the actual court documents.

A.R.S. § 33-812(P) addresses permits such action. It says that a claimant may enter into an agreement with a third party to pay for or assist with the recovery of excess proceeds. The parties must have a written agreement and it cannot be entered into within the first 30 days after the trustee’s sale. The company can charge a fee, but the fee must be reasonable and anything over $2,500 is presumed unreasonable.

The process to collect the excess proceeds isn’t difficult, but: (1) it requires an attorney or the interested party to actually file pleadings, and (2) that they follow the statutory steps to get the money. A smart investor will find former owners who may have excess proceeds and are not interested in the hassle of obtaining them. Many owners may not even know that this possibility is available to them.

by Mark Zinman, Attorney, Zona Law Group