Surplus funds following a Washington foreclosure sale.

At a Washington foreclosure sale, whether trustee or sheriff sale, the foreclosing lienholder typically begins bidding with a credit bid.  If a 3^rd party ultimately outbids the foreclosing lienholder, there is a sale “surplus,” which is the amount of the winning bid above the credit bid. 

The Washington statutes governing trustee sales, mortgage foreclosures and sheriff sales all contain consistent rules and procedures for the handling and distribution of a sale surplus following foreclosure. RCW 61.24.080 (trustee sales); RCW 61.12.150 (mortgage foreclosures); RCW 6.21.110(5) (sheriff sales).  Under the statutes, interests extinguished by the sale automatically attach to the surplus in the order of their priority.  Under the Washington rules of interest priority, liens extinguished by the foreclosure sale generally have a greater priority than the ownership interest. 

The surplus funds are retained and protected by the court (in the case of a trustee sale, the trustee affirmatively deposits the surplus with the court).  Claimants to the surplus are then able to apply to the court for distribution.  Applications are made by motion, with notice given to all other potentially interested parties.  The court is empowered to adjudicate claim disputes, if any. If there is no timely claim, the surplus held by the court will escheat to the state.

As has been discussed in prior blog posts, interest holders need to maintain a good mailing address in the public record so timely notice is received of surplus funds proceedings.  It is not uncommon for the holder of a lost interest, often the foreclosed owner, to receive no actual notice because his or her published address is stale.