Is a surplus funds letter a scam?

A letter says money from the sale of your former property is waiting for you, and a company will get it for you. It is often true. It is also often a way to take a third or more of money you could have claimed yourself, for free. Here is how to tell the difference and what to do next.

What surplus funds are

When a home or parcel is sold at a foreclosure auction or a tax sale, the proceeds first pay the debt, interest and costs. If the sale brings in more than that, the leftover is surplus, also called excess proceeds or overage. Depending on the state and the type of sale, it can belong to the former owner, after any other liens on the property are paid.

The Supreme Court made this point sharply in 2023. In Tyler v. Hennepin County, a Minnesota county sold a condo for $40,000 over a tax debt of about $15,000 and kept everything. The Court ruled unanimously that keeping the surplus was an unconstitutional taking. Several states have since changed how they return it.

Why a company wrote to you

Foreclosure and tax sale results are public. Recovery companies, sometimes called asset recovery firms or finders, read the court dockets and county sale lists, see which sales left a surplus, then skip trace the former owner's current address and phone number from data brokers. That is the same data path that brings property owners "we buy houses" letters, and it is why the letter can arrive before the county has written to you.

Real offer, bad deal, or scam

The usual case: a real offer with a big fee

Most letters come from firms that will file the claim for a percentage of what they recover. That can be legal, and it can be expensive: the percentage is whatever the contract says, for paperwork an owner can often file alone.

Signs of a scam

• An upfront fee, or a "processing" or "release" charge before you get anything
• A request for your bank login, Social Security number or a copy of your ID before they will name the county and case
• Letterhead built to look like a government office, with no clear company name
• A request to sign a deed, or to sign over your rights to the money, rather than a fee agreement you can read
• Pressure to sign today because the funds are "about to be forfeited"

How to check, in ten minutes

1. Find the county or court that handled the sale. For a tax sale it is usually the clerk of court or the county treasurer; for a foreclosure, the clerk of the court where it was filed, or a public trustee in some states.
2. Call using the number on the official county website, not the letter.
3. Ask whether surplus is being held from the sale of your former property, how much, and how a former owner files a claim.
4. Ask about the deadline. Clerks often hold surplus for a limited time before it moves to the state.

If the money has already been transferred, it may be listed with your state's unclaimed property program. You can search every state's program from unclaimed.org, run by the state administrators' association, and claiming there is free.

Claiming it yourself

The process is usually a claim form, proof of identity and proof you were the owner, sometimes notarized. The Sarasota County clerk in Florida, for example, says on its surplus funds page that property owners can file a claim from a tax deed sale directly, at no fee, and that third-party providers who contact owners keep part of the funds as their fee.

Some states limit what finders can take. Colorado's 2016 law on foreclosure surplus voids finder fee contracts while the public trustee holds the funds and for the first two years after the state treasurer takes them, then caps the fee at 20%, or 30% for funds held three years or more. Rules differ by state and by type of sale.

Help can be worth paying for when the claim is complicated: a second mortgage or other liens, several heirs to a deceased owner's property, or a claim someone else is contesting. In those cases, ask a real estate or probate attorney what they charge before you sign a percentage away.

If you already signed

Read the agreement for the percentage, any cancellation terms and whether you assigned your rights. If anything looks wrong, contact the clerk holding the funds and an attorney before the claim is paid. If you were asked for money upfront or think it was a scam, report it to your state attorney general and to the FTC at ReportFraud.ftc.gov.

Why the letters keep coming

A surplus letter is a sign that your name, past property and current address are joined in data-broker files. Expect other offers too. The free exposure check shows which people-search sites publish your name and address.

The takeaway

Do not ignore the letter, and do not sign it yet. Call the county on its official number, confirm the money exists, and ask how to claim it. Most former owners can file the claim themselves and keep all of it.