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).