Foreclosure Surplus Scams: How Predators Steal Excess Auction Money from Former Homeowners

Losing your home at a foreclosure or property tax auction is devastating. You pack up your belongings, move into temporary housing, and assume everything is gone.

Six months later, an official-sounding letter arrives in the mail:"URGENT: NOTICE OF UNCLAIMED COURTHOUSE PROCEEDS. Our asset recovery network has identified $64,000 in forgotten state funds linked to your former property. Under state forfeiture rules, the government will seize this money permanently within 30 days unless a claim is filed. Sign and return this claim agreement so our attorneys can release your funds."

Relieved that some money survived the foreclosure, you sign the document and send it back.

What the letter didn't disclose:

• Under a 2023 U.S. Supreme Court ruling (Tyler v. Hennepin County), that $64,000 was excess auction proceeds that already belonged to you legally.
• Buried in the paperwork was an Assignment of Rights that gave the recovery company a 50% contingency fee—taking $32,000 of your money for doing 20 minutes of basic paperwork.
• You could have claimed 100% of that $64,000 directly from your county treasurer for FREE with a single state form.

What Are Foreclosure Surplus Funds?

When a home is sold at a mortgage foreclosure or tax deed auction, it frequently sells for more than the outstanding debt.

• Example: You owed $12,000 in back property taxes. At the county tax auction, investors entered a bidding war, and your home sold for $82,000.
• The county takes the $12,000 to cover taxes and auction fees.
• The remaining $70,000 is SURPLUS EQUITY. By law, that money belongs to YOU, the former homeowner (or your heirs).

The U.S. Supreme Court's Tyler v. Hennepin County Ruling

In 2023, the U.S. Supreme Court ruled unanimously (9-0) that local governments cannot keep excess auction proceeds from tax foreclosures.

Writing for the Court, Chief Justice John Roberts stated:"The taxpayer must render unto Caesar what is Caesar’s, but no more."

This landmark ruling established that former homeowners have a constitutional right under the Fifth Amendment to recover their leftover equity.

How to Claim Your Surplus Funds for FREE

You never need to give up 40% or 50% of your equity to a third-party "surplus hunter":

• For Michigan Tax Foreclosures: Under state law (MCL 211.78t), download Michigan Treasury Form 5743. Fill it out and deliver it via certified mail to your County Treasurer by July 1 following the auction. The county will notify you of the exact balance, and you can claim the funds through a simple court motion.
• For Mortgage Foreclosures: If your home was sold at a sheriff's auction, call the county court clerk's office and ask for the civil division. Ask if surplus funds from your foreclosure case number are on deposit. A local real estate attorney can file a simple motion to disburse for a small flat fee.

The 3 Red Flags of a Predatory Surplus Hunter

• 1. Demands for 40% to 50% Fees: Charging half your money to file a public government form is predatory.
• 2. Pressure to Sign an "Assignment of Rights": Never assign your legal claim to an LLC. The claim must remain in your name.
• 3. False Forfeiture Threats: Scammers invent fake 48-hour deadlines to induce panic. Statutory claim periods are established by state law.

Frequently Asked Questions (FAQ)

Can heirs claim surplus funds if the homeowner passed away?

Yes. If the former homeowner of record passed away, their legal heirs can claim surplus proceeds through formal probate proceedings.

Do I need a lawyer to claim tax surplus funds in Michigan?

You can file Form 5743 directly with the County Treasurer yourself. While filing the subsequent motion in Circuit Court is often easier with an attorney, hiring a lawyer for a modest hourly or flat fee is thousands of dollars cheaper than signing a 50% contingency agreement with a third-party hunter.

Download the Free Surplus Funds Recovery Guide

Download the Foreclosure Surplus Recovery Playbook (PDF)

About the Author

Mark Druckmiller is a licensed REALTOR® and Customer Care Coordinator at Real Estate One in Michigan. He is the founder of Wounded Duck Studios LLC and SCAMREALESTATE.COM, dedicated to educating property owners and consumers on real estate rights, equity recovery, and fraud defense.

Disclaimer: This guide provides general consumer education and does not constitute formal legal counsel. For specific surplus recovery proceedings, consult a licensed real estate litigation attorney.