In some foreclosure cases, the sale of a property results in proceeds that exceed the total amount owed to the foreclosing lender and related costs. These remaining funds are known as excess funds or surplus proceeds, and in certain situations, they may be available to the former homeowner—but not always.
This article outlines when excess funds may exist, who has a legal right to them, and how the claim process works in Colorado.
What Are Excess Funds?
When a foreclosed property is sold at a public auction, the sale proceeds are distributed in a legally defined order:
- Foreclosure Costs – Trustee fees, legal fees, advertising, and other sale-related costs are paid first.
- Foreclosing Lender’s Debt – The outstanding loan balance that triggered the foreclosure is paid next.
- Junior Liens and Other Creditor Claims – Any subordinate lienholders may be entitled to payment if their claims meet legal requirements.
- Former Homeowner – If any funds remain after all valid debts are satisfied, the balance may be returned to the former owner of the property.
For example, if the total owed (loan + costs) is $320,000 and the property sells for $370,000, the $50,000 difference is considered excess funds.
When Might Excess Funds Exist?
Excess funds are more common when:
- The homeowner had significant equity at the time of foreclosure.
- Property values increased substantially during ownership.
- Competitive bidding occurred at auction, especially in high-demand areas.
- The loan balance was relatively low compared to the property’s market value.
However, if the sale price is lower than or equal to the total amount owed, there will be no excess funds to distribute.
How Junior Liens Are Treated
Junior lienholders—such as second mortgages, HELOC lenders, judgment creditors, and HOAs—may have a legal claim to excess funds, but only if specific statutory requirements are met:
- The lien must have been valid and recorded before the foreclosure sale.
- The lienholder must have been properly noticed in the foreclosure process (usually by being named in the Notice of Election and Demand).
- The lienholder must file a claim for excess funds within 60 days after the expiration of all redemption periods, as outlined in C.R.S. § 38-38-111(2.5).
In most Colorado residential foreclosures, redemption periods no longer apply to junior lienholders due to changes in the law (notably after 2008). As a result, the 60-day deadline generally begins immediately following the foreclosure sale.
If a junior lienholder files a valid claim within that window, they may be entitled to receive all or part of the surplus proceeds, based on lien priority. If they fail to do so, their rights to the funds are extinguished.
If there are multiple claims or disputes over entitlement, the Public Trustee typically deposits the funds with the District Court, where a judge determines the proper distribution.
Rights of Redemption in Colorado
Colorado used to allow junior lienholders and former homeowners to redeem properties after a foreclosure sale. However, significant reforms—particularly HB 1387 (2008)—eliminated redemption rights in most residential non-judicial foreclosures:
- Junior lienholders (such as private lenders or HOAs) no longer have a redemption right in most cases.
- Homeowners generally do not have a post-sale redemption right under current law.
- The IRS and certain governmental agencies may retain limited redemption rights under federal law, but these are rare.
In nearly all Colorado residential foreclosures today, the property is transferred to the high bidder at the foreclosure sale without any statutory redemption period afterward.
How and When Former Homeowners Can Claim Excess Funds
If there are excess funds remaining after payment of all valid lienholders, the former homeowner may claim the balance. This involves the following steps:
- Notification – The Public Trustee or District Court will send a written notice to the former homeowner’s last known address and may also post information on the county website.
- Filing a Claim – The homeowner must complete a notarized claim form and submit supporting documents to establish identity and ownership (e.g., a copy of the deed, driver’s license, or probate documentation).
- Deadlines – The former owner typically has up to five years to claim the funds. After that period, unclaimed funds are transferred to the State of Colorado’s Unclaimed Property Division.
Former owners are strongly encouraged to act promptly and maintain current contact information with the Public Trustee or the court to avoid missing important notifications.
Legal Assistance Recommended
Our firm specializes in short sale processing and pre-foreclosure support. Once a property has been foreclosed, we do not assist with post-sale matters, including excess funds recovery. If you believe you may be entitled to excess funds from a completed foreclosure, we strongly recommend consulting with a licensed Colorado attorney who is experienced in foreclosure and real estate law.
An attorney can help assess lien priority, file the necessary paperwork, and represent you in court if required—especially in situations involving multiple claims or disputed funds.
Final Thoughts
Excess funds can provide financial relief after foreclosure, but they’re subject to strict legal rules and timelines. If you’re a homeowner facing foreclosure, understanding your equity position early and pursuing alternatives—like a short sale—can often preserve more value and avoid the uncertainty of the foreclosure process.
If you’re a real estate broker or homeowner exploring pre-foreclosure options, contact us to discuss how a professionally negotiated short sale can help avoid foreclosure and protect remaining equity before the sale occurs.