If your Alabama property was sold at a tax sale or a mortgage foreclosure and it brought more than the debt owed, that extra money belongs to you or to lienholders behind you, and Alabama surplus funds are recoverable through two different processes depending on which kind of sale produced them. Tax sale surplus is claimed through the County Commission under Alabama Code § 40-10-28 after you redeem the property. Foreclosure surplus is claimed by demanding payment from the lender or by filing a motion in the Circuit Court where the funds have been deposited. Both routes have deadlines, and the money eventually stops being recoverable.
Which Kind of Sale Produced the Surplus
The first thing to sort out is which process applies to you, because everything downstream depends on it.
A tax sale happens when a county sells property to collect delinquent property taxes. If the winning bid exceeds the unpaid taxes, interest, and sale costs, the leftover is surplus, and the county treasurer holds it in a separate account under § 40-10-28.1Alabama Legislature. Alabama Code 40-10-28 – Disposition of Excess Arising from Sale
A mortgage foreclosure happens when a lender sells property after the borrower defaults. Alabama allows non-judicial foreclosure through a power-of-sale clause in the mortgage.2Alabama Legislature. Alabama Code 35-10-1 – Power of Sale Constitutes Part of Security If the property sells for more than the debt, attorney fees, and sale expenses, the excess is surplus. The foreclosing lender or trustee holds those funds until they are properly claimed or deposited with the court.
Who Actually Gets the Money
Surplus does not go straight to the former owner. It follows lien priority based on interests recorded before the sale.
- Junior lienholders come first. A second mortgage holder, a judgment creditor, or a contractor with a mechanic’s lien gets paid from the surplus before the former owner sees anything, in the order the liens were recorded.
- The former owner gets whatever remains after every junior lien has been satisfied.
Before you invest time in a claim, pull a title search for the property and look at what was recorded before the sale date. If the liens equal or exceed the surplus, there is nothing left for you.
Claiming Tax Sale Surplus
Tax sale surplus in Alabama is tied to redemption. You generally cannot collect the excess without first redeeming the property, meaning buying it back from the tax sale purchaser. Most owners have three years from the date of the sale to redeem.3Alabama Legislature. Alabama Code 40-10-120 – When and by Whom Land May Be Redeemed
The First Three Years
During the three-year redemption window, the county holds the excess in a separate treasury account. The Alabama Department of Revenue has set out how to collect it. You obtain a Certificate of Pending Redemption showing that the other redemption costs have been paid, submit it to the County Commission, and the Commission issues an Excess Funds Voucher for the surplus amount. You present that voucher to the judge of probate in place of paying the excess bid amount, which completes the redemption.4Alabama Administrative Code. Alabama Administrative Code 810-4-1-.24 – Excess Funds Procedures for Tax Sales The voucher keeps you from having to front the inflated purchase price out of pocket just to recover the surplus.
After Three Years, Up to Ten
If nobody claims the surplus within three years, the county moves the money into its general fund. It is not gone yet. For tax sales in 2016 or later, you have up to 10 years from the sale date to file a claim with proof of proper redemption. The County Commission must order payment if you can prove you redeemed the property, though the county keeps any interest the funds earned.1Alabama Legislature. Alabama Code 40-10-28 – Disposition of Excess Arising from Sale
After 10 years, the money becomes the county’s permanently. That deadline is absolute.
What to Bring
Gather these before you contact the County Commission:
- Property identification. Tax parcel number, legal description, and date of the tax sale, available from the County Revenue Commissioner or Tax Collector.
- Proof of redemption. A court order, a properly recorded deed or conveyance, or a release and waiver from the tax sale purchaser, depending on how the redemption happened.1Alabama Legislature. Alabama Code 40-10-28 – Disposition of Excess Arising from Sale
- Proof of identity and ownership. Government-issued ID and documentation linking you to the property, such as the original deed.
Claiming Foreclosure Surplus
Mortgage foreclosure surplus works differently because there is no single Alabama statute laying out a claim procedure. Alabama is a non-judicial foreclosure state, so the lender sells without going to court. When surplus exists, the foreclosing party has an equitable obligation to return it to the parties entitled, but that obligation often goes unfulfilled unless someone asks.
If the Lender Still Holds the Funds
Start with a written demand. Identify the property, the sale date, the sale price, and the amount you believe is surplus. Include proof of your ownership interest, such as a copy of the deed recorded before the foreclosure. If the lender acknowledges the surplus and agrees on the amount, you may be able to get paid without court involvement. If the lender refuses or does not respond, you file a court action.
If the Funds Have Been Deposited with the Court
Lenders often deposit surplus with the Circuit Court Clerk, particularly when several parties might have a claim. Usually a case is already open, often an interpleader action filed by the lender. To participate, you file a Motion to Intervene or a Motion to Disburse Surplus Funds. Alabama Circuit Court charges $297 to file an intervention motion.5Alabama Legislature. Alabama Code 12-19-71 – Circuit and District Court Filing Fee
The motion needs documentation proving your right to the funds: the recorded deed showing your ownership before the foreclosure, any lien satisfaction records showing senior debts were paid, and an accounting of the sale proceeds. Serve it on every other interested party, including the lender, junior lienholders, and any other former owner. The court schedules a hearing and a judge decides who gets what based on lien priority.
Alabama does not set a specific statutory deadline for claiming foreclosure surplus, but general statutes of limitation on property claims apply, and the funds get harder to locate the longer you wait.
Finding Out if Surplus Exists
People often do not know surplus is sitting there. Lenders may not notify you, and counties are not always proactive.
For tax sale surplus, call the County Commission or County Treasurer in the county where the property sits and ask whether excess funds exist for your parcel number. You can also review the official tax sale docket at the County Revenue Commissioner’s office, which records the minimum bid and actual sale price for each parcel. The difference is a rough surplus estimate before fees.
For foreclosure surplus, start with the foreclosure deed recorded in the Probate Judge’s office. That document identifies the lender, the sale date, and the sale price. To check whether an interpleader case already exists, search the Alacourt system at pa.alacourt.com, which allows searches by name and case number.6Alacourt. Alacourt – Alabama State Trial Court Records Search under the former owner’s name. If nothing comes up, the lender may still be holding the funds.
The Alabama State Treasurer also runs an unclaimed property database. Tax sale surplus generally stays with the county under § 40-10-28, but other unclaimed funds sometimes end up with the state, and the search is free.
Claims by Heirs
If the former owner has died, heirs can still claim the surplus. The right passes through the estate like any other asset.
When probate is open, the personal representative files the claim, providing the court appointment documents (letters testamentary or letters of administration) along with the standard ownership and sale documentation.
When probate has not been opened, which is common if the only significant asset was the property that was sold, heirs may need an affidavit of heirship. This is a sworn statement, signed before a notary, that identifies the deceased, lists the heirs and their relationship, and is supported by a disinterested witness with personal knowledge of the family. Attach the death certificate and any birth or marriage certificates establishing your relationship. Whether the county commission (for tax sale surplus) or the circuit court (for foreclosure surplus) will accept an affidavit in place of formal probate depends on the amount and the complexity of the family situation. For larger sums or disputed heirship, the court may require opening a probate proceeding.
If You Have Filed for Bankruptcy
Bankruptcy changes everything. Under federal law, the bankruptcy estate includes all of the debtor’s legal and equitable interests in property, along with any proceeds from that property.7Office of the Law Revision Counsel. 11 U.S. Code 541 – Property of the Estate Surplus funds from a property you owned when you filed fall squarely within that definition.
In Chapter 7, the trustee claims the surplus as an estate asset. Your state homestead exemption may protect some of it, but anything above the exemption goes to unsecured creditors. In Chapter 13, surplus funds increase the value of your estate, which can raise the amount you have to repay through your plan. Either way, if you have filed for bankruptcy and think surplus funds exist, tell your bankruptcy attorney right away. Failing to disclose the funds to the court can result in denial of your discharge.
Tax Consequences
Surplus can create a tax bill. The IRS treats the total amount you receive from a property sale, including surplus, as part of the sale proceeds. If the sale was reported on Form 1099-S, the surplus is included in that figure.8Internal Revenue Service. Instructions for Form 1099-S (Proceeds From Real Estate Transactions)
Surplus is not a separate category of income. It feeds into the capital gain or loss calculation for the property, where you compare total sale proceeds (including surplus) minus selling expenses against your adjusted basis. If the result is a gain, it may be taxable.
One important exception: if the foreclosed property was your primary residence and you lived there at least two of the five years before the sale, you can exclude up to $250,000 of gain from your income ($500,000 if married filing jointly).9Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain from Sale of Principal Residence That exclusion wipes out any tax liability from the surplus for many homeowners. If you had significant equity, investment property, or did not live there long enough, you could owe capital gains tax. Talk to a tax professional before filing for the year you receive the money.
Be Careful With Surplus Recovery Companies
You may get letters or calls from companies offering to recover your surplus for a fee. Many are legitimate businesses, but their fees run 25% to 50% of the surplus. That is money you can keep by filing the claim yourself.
The tax sale process is something most people can handle without professional help, because the county already has a defined voucher procedure. The foreclosure process is harder because it requires a court filing, but even there, hiring a local attorney to prepare the motion usually costs far less than a percentage of your funds. Be especially wary of anyone who pressures you with a tight deadline or asks for an upfront fee before doing any work.