Disclaimer: This is general information and not legal advice. Laws change and every situation is different. Consult a licensed Texas attorney to apply the law to your facts.
Detailed Answer
If a foreclosure sale produced money in excess of the debt and costs (a “surplus”), an interested person can ask a Texas court to order those funds paid to the rightful owner through a special proceeding. The process in Texas is governed by the rules for nonjudicial foreclosure sales and related court procedures. For background on trustee sales and related duties, see the Texas Property Code, Chapter 51: https://statutes.capitol.texas.gov/Docs/PR/htm/PR.51.htm.
Below is a practical, step-by-step outline of the usual steps people follow to file a special proceeding to recover foreclosure surplus funds in Texas. This outline assumes a reader with no prior legal knowledge and describes the typical documents and courtroom steps you should expect.
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Confirm a surplus actually exists.
Obtain the trustee’s deed or sale record from the county where the property was located (county clerk records). Compare the foreclosure sale price to the amount owed (loan balance, accrued fees, foreclosure costs). If the sale price exceeded the total owed, the excess is potentially recoverable as surplus.
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Identify who is holding the funds.
Determine whether a surplus was deposited with the trustee, the foreclosure purchaser, or the county clerk. Check sale paperwork, trustee affidavits, and county clerk records. If you cannot locate the funds, ask the trustee or sale purchaser in writing where the excess was deposited and request documentation.
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Gather proof of your claim to the funds.
Collect documents that show you are entitled to the surplus. Typical documents include the deed showing ownership, payoff statements, the promissory note, the deed of trust, probate records (if the owner is deceased), documents showing you paid or are entitled to payment, photo ID, and any correspondence about the sale.
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Prepare the special proceeding petition (verified application).
File a verified petition or application in the appropriate Texas court (usually the county or district court in the county where the property is located). The pleading should:
- Identify the foreclosure sale (date, trustee, property, parties).
- State the amount of the surplus and where it is believed to be held.
- Explain your legal basis for recovery (owner, lienholder, heir, assignee, etc.).
- Name as defendants the parties who may claim an interest (trustee, mortgagee, purchaser, lienholders, heirs, and any other recorded parties of interest).
- Request an order directing the holder of the funds to turn them over to the court clerk or to you, after notice and any hearing.
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File the petition and pay clerk fees.
File the pleading in the proper county court. The county clerk will assign a cause number and may charge filing fees. If funds have been deposited with the county clerk, the clerk may require a deposit of the petition and certain forms—follow the clerk’s local procedures.
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Serve notice on all interested parties.
Serve the petition and any temporary restraining orders or notices on the trustee, mortgagee, foreclosure purchaser, and other named parties according to Texas service rules. Proper notice lets the court determine conflicting claims and prevents later surprises.
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Attend any hearings and present evidence.
The court will set a hearing as needed. Be prepared to present documentary evidence and witness testimony that shows your entitlement. If multiple claimants appear, the court will resolve competing claims before ordering distribution.
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Obtain a written court order for disbursement.
If the court finds you are entitled to the surplus, it will sign an order directing the holder (or the county clerk) to pay the funds to you or to the person or entity the court designates. Keep certified copies of the order for the clerk and for your records.
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Provide required documentation to the clerk or payor and collect funds.
Follow the county clerk’s procedures to collect the funds. That usually means delivering the court order, valid identification, and tax paperwork (such as a W-9) and completing any clerk disbursement forms. The clerk then releases the funds per the court’s order.
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Consider appeals or competing claims.
Other parties may appeal or file competing claims. If that happens, the court may keep the funds under registry or require additional proceedings (interpleader). A contested claim can lengthen the process.
For statutory background about trustee sales and related duties, review Texas Property Code Chapter 51 (Trustee’s Sale) here: https://statutes.capitol.texas.gov/Docs/PR/htm/PR.51.htm. Because procedures and deadlines can turn on the facts, consult an attorney promptly if you think you have a claim.
Helpful Hints
- Act quickly. Delays can make locating funds harder and may create procedural obstacles.
- Start at the county clerk’s office where the property is located. Records there (trustee’s deed, recorded affidavits) give crucial sale details.
- Request a written accounting from the trustee or purchaser showing the sale price, payoff, costs, and any purported distribution.
- If the owner is deceased, get the probate paperwork or letters testamentary before filing. Courts often require proof of authority for heirs or personal representatives.
- If you are representing someone else, bring written authorization (power of attorney) and ID.
- Expect to file a verified petition and provide sworn evidence. Unsigned or unsupported claims rarely succeed.
- If multiple people claim the same funds, ask the court for a declaratory judgment or interpleader to avoid personal liability for distributing disputed funds.
- Keep detailed copies of all documents you file and receive. The clerk and the court will expect organized evidence at hearing.
- If the amount is small, weigh the cost of court and attorney fees against the likely recovery. Sometimes negotiation with the trustee or purchaser resolves the matter faster.
- Because procedure and local practice vary by county and courts require strict compliance with rules, consider at least a consultation with a Texas attorney experienced in foreclosure matters.
Remember: this article explains general steps under Texas procedures and is not legal advice. For a definitive answer about your situation, consult a licensed Texas attorney.