Foreclosure Surplus Recovery Safety Checklist (2026 Edition)

A Comprehensive Homeowner Protection Guide

When a property is sold at foreclosure for more than the total debt owed, the remaining funds are commonly called “excess proceeds” or “surplus funds.” These funds do not belong to the lender. They belong to the former property owner or lawful heirs.

Unfortunately, the surplus recovery industry contains both ethical professionals and predatory actors. Contracts can range from reasonable contingency agreements to extreme assignments that strip homeowners of a large percentage of their equity.

This guide is designed to protect property owners first — whether they choose to file a claim independently, hire an attorney, or work with a recovery firm.

1. Understanding How Surplus Funds Are Created

In Texas, most mortgage foreclosures are conducted under Texas Property Code § 51.002, which governs non-judicial foreclosure sales. When a trustee conducts a sale and the property sells for more than the total debt (principal, interest, attorney’s fees, and costs), the excess amount becomes surplus funds.

In judicial sales or sheriff’s sales, distribution of proceeds may involve Texas Civil Practice & Remedies Code § 34.03, which addresses the handling of sale proceeds in certain execution contexts.

In tax foreclosure cases, surplus distribution is often handled through the court registry and governed by the Texas Rules of Civil Procedure, along with specific tax code provisions.

Key point: Not all foreclosures are handled the same way. The applicable statute depends on the type of foreclosure — mortgage, HOA, tax, or execution sale.

2. Where Are Surplus Funds Held?

Surplus funds may be held by:

• The substitute trustee (temporarily)

• The district clerk or county clerk

• The court registry

• The sheriff’s office

• The Texas Comptroller (if transferred as unclaimed property after dormancy)

Homeowners should verify:

• The exact case number

• The court of record

• The total amount held

• Whether any competing claims have been filed

Never rely solely on a third party’s representation of the amount. Confirm directly through official records.

3. Do You Need a Recovery Company?

In some cases, no.

If you are:

• The sole titled owner

• Alive and competent

• In possession of identification

• Facing no lien disputes

• Not involved in probate complications

You may be able to file a claim directly with the court registry without hiring a recovery company.

Typical self-filing steps include:

1. Obtain certified sale documents.

2. Request a claim form from the clerk or registry.

3. Provide proof of identity and ownership.

4. Submit a notarized affidavit of entitlement.

5. Attend a hearing if required.

However, complexity increases significantly when:

• The former owner is deceased

• There are multiple heirs

• There are competing lienholders

• Bankruptcy was involved

• The property was jointly owned

• A divorce or title defect exists

These situations often require legal coordination.

4. Statutes to Be Aware Of (Texas Examples)

While not exhaustive, homeowners should be aware of:

Texas Property Code § 51.002Governs non-judicial foreclosure procedures.

Texas Civil Practice & Remedies Code § 34.03Addresses distribution of proceeds in certain court-ordered sales.

Texas Estates CodeRelevant when the former owner is deceased and heirship must be established.

Texas Unclaimed Property LawsIf surplus funds remain unclaimed beyond statutory holding periods, they may transfer to the Texas Comptroller’s unclaimed property division.

Always verify current statutory language through official legislative sources.

5. Surplus Recovery Contract Red Flags

Before signing any agreement, review carefully for the following warning signs:

• Fees exceeding 35–40% of total recovery

• Upfront “research” or “filing” fees

• Contracts presented as “time sensitive” with pressure to sign immediately

• Assignment of rights language that permanently transfers ownership of funds

• Power of attorney clauses without clear explanation

• Hidden arbitration clauses limiting your right to court

• No written copy provided for review

• Refusal to disclose company address or contact details

If you feel rushed, pause.

Reputable professionals do not prevent you from reviewing documents or consulting family.

6. What Is a Reasonable Fee?

There is no universal statutory cap in Texas for surplus recovery services in most foreclosure contexts, though some states regulate or cap fees.

Fee reasonableness depends on:

• Complexity of heirship

• Need for probate

• Litigation requirements

• Time and investigation required

• Risk assumed by the service provider

Homeowners should ask:

• Is the fee contingent on successful recovery?

• Is the percentage fixed or variable?

• Are litigation costs deducted separately?

• Does the agreement allow cancellation within a cooling-off period?

A fee should reflect work and risk — not urgency or fear.

7. Claims Involving Deceased Property Owners

If the former owner has passed away, the claim may require:

• Determination of heirship proceeding

• Small estate affidavit (if eligible)

• Probate administration

• Affidavit of heirship recorded in property records

• Court order recognizing heirs

Disputes between heirs can delay distribution significantly.

In these situations, legal counsel may be appropriate.

8. Timeline and Dormancy Risk

Surplus funds are not held indefinitely.

After statutory holding periods, funds may transfer to:

• State unclaimed property divisions

• Government custodial accounts

Once transferred, additional administrative steps may be required to recover the funds.

Homeowners should verify:

• The exact holding deadline

• Whether funds have already transferred

• Whether interest accrues

Delays can complicate recovery.

9. Ethical Questions to Ask Any Recovery Firm

Before signing, ask:

• Are there any upfront fees?

• What is the maximum total percentage?

• What happens if the claim fails?

• Can I cancel within a specified period?

• Will I receive a full copy of all filed documents?

• Are you licensed where required?

• How long have you operated in this field?

The answers should be direct, not evasive.

10. Final Surplus Protection Checklist

Before entering into any agreement:

• Confirm the amount held through official records.

• Identify the governing statute.

• Determine whether probate is required.

• Compare at least two options (self-file, attorney, recovery firm).

• Review the contract slowly and independently.

• Ensure you understand every clause.

• Confirm there are no hidden deductions.

• Avoid signing under pressure.

Your surplus funds represent equity — often the last remaining value from a property. Protect them accordingly.

Educational Disclaimer

This guide is provided for educational purposes only and does not constitute legal advice. Laws vary by jurisdiction and circumstance. Homeowners are encouraged to consult independent counsel regarding their specific situation.