Tag: excess

Surplus Foreclosure Funds

Posted by Jeff on

In Georgia, most foreclosures are non-judicial. Meaning that the lender does not need court approval or supervision to foreclose. Thus, most foreclosures in Georgia happen “privately.” This blog post addresses the lender’s obligations to disburse surplus foreclosure funds.

A lender who forecloses on real estate assumes the obligation of properly distributing the proceeds from the foreclosure sale. Holland v. Sterling, 214 Ga. 583, 585 (1958). The lender is entitled to apply the fund from the sale first to the costs of the sale, attorney’s fees, and the interest and principal of the secured indebtedness. OCGA § 13-4-42. If there are any surplus or excess funds, the lender must pay the surplus funds to lienholders and then to the borrower.

The lender’s interest in property exists only to the extent of the amount they are owed. Thus, the lender must account to the borrower for any surplus foreclosure funds. Palmer v. Mitchell County Federal Sav. & Loan Ass’n, 189 Ga. App. 646 (1988).

If there is a legitimate dispute to the surplus foreclosure funds, the lender can file an interpleader. An interpleader is a legal action where the lender gives the money to the court. And the court decides who is entitled to the money.

If there is no legitimate dispute regarding the surplus funds, and the lender fails to timely disburse the funds, the creditor may be liable for prejudgment interest to the party entitled to such funds. OCGA § 7-4-15. Such liability will largely depend on whether the amount of such surplus is a liquidated amount. Walton Motor Sales, Inc. v. Ross, 736 F.2d 1449 (11th Cir. 1984).

Georgia Tax Deeds: Excess Tax-Sale Funds and Super Liens

Posted by Jeff on

There was an important shift in Georgia tax deed law last year. The Georgia Supreme Court, in DLT List, LLC vs. M7even, 301 Ga. 131 (2017), decided that a party who redeems a tax deed is not automatically first in line to receive excess tax-sale funds following a tax sale.

The facts of DLT List are straightforward: a property was auctioned at a tax sale and sold for $110,000. The delinquent taxes were $5,000, so there were $105,000 in excess tax-sale funds. The delinquent taxpayer applied to the tax commissioner to receive the excess funds–there were no other claims to the funds. Several months later, a third-party, who held a lien against another property owned by the delinquent taxpayer, redeemed. The redeeming party applied for the excess tax-sale funds. The question became who was entitled to the excess tax-sale proceeds.

Under existing law in Georgia, a redeeming party, simply by virtue of redeeming, is entitled to first position against excess tax-sale funds. This arose out of an often-cited case, National Tax Funding vs. Harpagon, 277 Ga. 41 (2003), which involved competing lien holders in the context of a tax sale. Harpagon held that following a tax sale, a competing lien holder had two choices: (1) claim the excess tax-sale funds, or (2) redeem the property. Importantly, if a competing lien holder chose to redeem, the redemption converted the competing lien holder’s claim into a first-position lien against the property. This is known as a “super lien” and allows a redeeming party to leapfrog over higher priority creditors. A super lien has many benefits for tax sale investors.

Redeeming parties, relying on the super lien language in Harpagon, began claiming their super lien status not only gave them a first-position lien against the property, but also entitled them to the excess tax-sale funds following redemption. These claims were affirmed by the courts in cases like Wester v. United Capital Financial of Atlanta, LLC, 282 Ga. App. 392 (2006).

Fast forward to 2017.  In DLT List, LLC vs. M7even, the Georgia Supreme Court revisited the issue of excess tax-sale funds and found that super liens attach only to real estate, not to personal property. Therefore, because excess tax-sale funds are personal property, super liens don’t attach to excess tax-sale funds. Thus, redeeming parties aren’t entitled to any preference with regard to excess tax-sale funds. By so deciding, the Supreme Court distinguished Harpagon and overruled cases like Wester.

While this ruling isn’t likely to slow down the tax deed business in Georgia, as a real estate investor, it’s something to be aware of.