How to Claim Surplus Funds from Foreclosure in New York

If a New York foreclosure auction sold your former property for more than you owed, you claim the leftover money by filing a surplus money motion in the same court that handled the foreclosure, proving your interest, and waiting for a distribution order. That is the entire process for how to claim surplus funds from a foreclosure in New York, and in a simple case the court filing costs about $45.¹ Many former homeowners never collect because they assume the process is complicated or don’t realize a surplus exists.

First, Confirm a Surplus Exists

After the auction, the court-appointed referee files a Report of Sale showing what the property sold for, what debts were paid off, and what is left. If the sale price exceeded the total owed, the difference is the surplus, and it is deposited with the county pending claims. Pull a copy of the Referee’s Report of Sale from the foreclosure case file. That document is also part of what you will attach to your motion.

Don’t wait to be notified. No one is required to track you down. Foreclosure records are public, and if you never file a claim, the money sits until it eventually moves to the state.

Who Has a Right to the Money

Under New York’s Real Property Actions and Proceedings Law, anyone with a legal interest in the foreclosed property can file a claim.² That generally means three groups:

Former homeowners who held title before the foreclosure.
Junior lienholders whose recorded liens were wiped out by the sale and remain unpaid, such as second mortgage lenders and judgment creditors.³
Heirs, estates, and co-owners. An estate representative usually needs letters testamentary or letters of administration from Surrogate’s Court to act on behalf of a deceased owner.⁴

A common misunderstanding: the former homeowner does not automatically come first. Surplus funds stand in for the property, so liens that attached to the property before the sale still apply to the money. The court pays claimants using the same “first in time, first in right” rule that governs the property, based on each lien’s recording date.²

Two categories jump the line regardless of when they were recorded. Unpaid property taxes and municipal charges like water and sewer bills generally hold the top spot. Condominium common charge liens sit ahead of everything except tax liens and first mortgages of record, under Real Property Law 339-z.⁵⁶ After every valid lienholder is paid, whatever remains goes to the former owner.

When You Need to File

Move quickly. Once the court confirms the foreclosure sale, RPAPL 1361 gives the court authority to determine claims and order distribution within three months of that confirmation, on motion of any party or any person who has filed a notice of claim.² Miss that window and your straightforward route narrows.

If enough time passes without any claim, the money is transferred to the New York State Comptroller’s Office of Unclaimed Funds. You can still recover it there, but you will be dealing with the state rather than the foreclosure court, and it takes longer.

Filing the Motion

You file in the same court that handled the foreclosure, usually the Supreme Court in the county where the property was located. The motion filing fee in Supreme Court is $45.¹

Your papers should include:

A Notice of Motion telling the court and every interested party that you are asking for the surplus to be released to you.³
An affidavit stating the legal basis for your claim, such as your former ownership or an unpaid recorded lien.
A certified copy of the Referee’s Report of Sale showing the auction price, debts satisfied, and the surplus amount.
Proof of your identity and interest, such as the deed, prior mortgage documents, a recorded lien, or, for an estate, certified letters from Surrogate’s Court.

After filing, serve copies on the foreclosure plaintiff and every other interested party, including any lienholders and judgment creditors.³ Everyone with a potential claim needs a chance to be heard before the court divides the money.

What Happens at the Hearing

Once service is complete, the court schedules a hearing. If you are the only claimant and the paperwork is clean, the judge can review it, confirm the surplus, and sign an order directing payment.

When more than one person claims a share, the court often appoints a referee to examine each claim, check lien filings and foreclosure records, and recommend how to divide the funds. The judge considers the referee’s report and any objections, then issues a final distribution order.² The order directs payment to each person entitled to a share.⁷

If you are a former homeowner up against junior lienholders, this is where priority disputes get resolved. Bring every relevant document: the deed, satisfaction-of-mortgage letters, payoff records, and anything showing that a lien has already been paid. Lienholders who cannot prove their claim is still valid and unpaid do not receive a share.

Getting the Check

With a certified copy of the signed distribution order, you go to whichever office is holding the funds. In some counties that is the county treasurer; in others, a court-appointed financial officer. Practices vary, and some offices will not release anything without an order signed by a Supreme Court judge.

Expect to provide a notarized affidavit and proof of identity when you collect. If an attorney handled the motion, they can usually pick up the check or arrange a direct deposit on your behalf. Once the paperwork clears, the county issues payment and closes the claim.

Taxes on the Money You Receive

The IRS treats a foreclosure as a sale of your home, so surplus funds are part of the sale proceeds. You may owe capital gains tax on any profit, calculated as the total sale price minus your adjusted basis (roughly what you paid plus major improvements).

If the foreclosed property was your primary residence, Section 121 lets single filers exclude up to $250,000 of gain and joint filers up to $500,000, provided you owned and lived in the home for at least two of the five years before the foreclosure.⁸ The statute treats seizures and involuntary conversions the same as voluntary sales for this purpose.

For most people who lost a home to foreclosure, the surplus is small enough that Section 121 wipes out the tax. If you had substantial equity, an investment property, or didn’t meet the residence requirement, you could owe. For 2026, the long-term capital gains rate is 0% for single filers with taxable income up to $49,450 (or $98,900 for joint filers), 15% above those amounts, and 20% once income exceeds $545,500 single or $613,700 joint.⁹

If the foreclosing lender also forgave any portion of your mortgage debt, that canceled amount may count separately as taxable income. IRS Publication 523 covers reporting on the sale of a home.¹⁰ If your situation involves both surplus funds and forgiven debt, a tax professional is worth the call.

Avoid Surplus Recovery Companies

Within days of an auction, some former homeowners get letters or door knocks from companies offering to recover their surplus “for a small fee.” The fee is rarely small. Some charge up to 50% or even 75% of the surplus for work you can do yourself for the $45 filing fee.

Signs to watch for:

Unsolicited contact. Legitimate attorneys don’t usually cold-call foreclosure defendants. These companies mine public auction records.
Percentage-based fees, especially 30% or more of whatever you recover.
Pressure to sign, or claims you’ll “lose” the surplus if you don’t act through them immediately.
Vague credentials. Many of these outfits are not law firms and cannot represent you in court. Ask whether the person contacting you is a licensed New York attorney.

If the surplus is large enough that you want help, hire a real estate attorney directly. Attorney fees for a surplus money proceeding are typically far less than what recovery agents charge, and a licensed attorney can appear at the hearing if competing claims come in.

If the Money Already Moved to the State

When surplus funds go unclaimed long enough, they transfer to the New York State Comptroller’s Office of Unclaimed Funds. The money is not gone. You search and file at the Comptroller’s website, osc.ny.gov. There is no fee to search or file, and the money does not expire once it reaches the Comptroller.

Search even if you are not sure a surplus existed. If your former property sold at auction years ago and you never filed a claim, the money may be sitting in the state’s database right now.

1
New York State Unified Court System. Filing Fees
2
New York State Senate. New York Code RPAPL 1361
3
New York State Unified Court System. Instructions to Claim Surplus Monies
4
New York State Senate. New York Code EPT 11-1.3 – Power and Duty of Executor Before Probate
5
New York State Senate. New York Code RPL 339-Z – Lien for Common Charges; Priority
6
New York State Unified Court System. Adam Plotch v. Citibank, N.A.
7
New York State Senate. New York Code RPAPL 1362
8
Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
9
Internal Revenue Service. Revenue Procedure 2025-32
10
Internal Revenue Service. Publication 523 – Selling Your Home