| Possibly one of the best kept secrets in the | | | | become the county's money. |
| foreclosure industry is "overage". Overage is the | | | | Here is what has happened - a homeowner is |
| amount of money left over after a foreclosure | | | | approached by a person one or two days before |
| auction when the buyer has paid more than the | | | | the foreclosure sale and is offered $100 for a |
| lender's final judgment. This money can be as little | | | | deed to his home. If the homeowner knows he |
| as a few dollars or as much as millions of dollars. | | | | can't stop his foreclosure sale and redemption is |
| Depending on which state the homeowner lives in, | | | | not possible, he views the $100 as free money. |
| his foreclosure sale will be conducted by a sheriff, | | | | The buyer pays $100 and proceeds to go to the |
| a trustee, or a county clerk of the court. As | | | | auction and perhaps even puts in a bid or two to |
| prescribed by law, the person in charge of the | | | | get the price higher. If he won by accident, he |
| auction will sell the property to the public with | | | | can renege on the bid and it reverts to the last |
| "open outcry bidding" until the property is sold or | | | | bidder. Let's look at the above example where |
| redeemed by the lender. The location is usually on | | | | the overage was $20,000, which is a very |
| the courthouse steps or similar convenient place | | | | common amount. The "new" homeowner makes |
| that is readily accessible to the public. | | | | claim to the court and his $100 investment |
| Normally the first bid on a property is by the | | | | becomes $20,000. |
| primary lender who bids his final judgment amount | | | | This practice was and is very common in good |
| as awarded by the county court plus $100. The | | | | real estate markets and where the state hasn't |
| next bid will come from an interested party to | | | | passed legislation to stop this practice. It is not |
| the property such as a junior lien holder or an | | | | illegal in many states and even in the ones where |
| investor who believes there is equity in the | | | | it is illegal, the states allow some form of |
| property. These bids will continue until the last bid, | | | | "commission" or fee to be paid to a person who |
| which wins the property. | | | | brings in the seller to reclaim his overage. At one |
| Let's assume the final judgment on a property is | | | | courthouse I frequent for auctions, there is a |
| $100,000 and the bank bids $100,100 and some | | | | group of 4 - 6 individuals gathering the data from |
| bystanders start bidding until the final bid is | | | | the clerk's sales to use for later sending out |
| $120,000. The lender submits his final judgment | | | | letters to sellers to claim their overage. The usual |
| documents to the county clerk and the winning | | | | fee is 10% of the total amount and can be very |
| bidder must bring in cash anywhere from the | | | | lucrative because the average overage is about |
| same day to 30 days later, depending on state | | | | $21,800. |
| and county laws. Once the funds are in the | | | | What does this mean to a homeowner in |
| courthouse and any redemption period has passed | | | | foreclosure? It means that despite what you may |
| the lender gets his $100,000 and the buyer gets a | | | | think your home is worth, it could be sold at |
| deed to his property. A redemption period is a | | | | auction for more than is owed to his former |
| specific period of time from 1 day to 454 days, | | | | lender and he is entitled to whatever money is |
| where the foreclosed homeowner can return with | | | | remaining - the overage. So don't sell what you |
| money to get his property back if he pays the | | | | think is a worthless deed because on average it |
| buyer his costs plus fees and expenses. In some | | | | could be worth over $20,000. |
| states there is no redemption period. | | | | Occasionally, the lender will get a final judgment |
| The clerk of the court has taken in $120,000 plus | | | | against a homeowner by appraisal and not by sale |
| some transfer fees and paid out $100,000 and | | | | because this is allowed in some states. The |
| has a $20,000 credit in his bank account. The | | | | homeowner should always challenge this appraisal |
| homeowner is entitled to this "overage" money. | | | | and have the judgment reduced if the property |
| The homeowner has to make a claim to the | | | | sells for more than the final judgment amount |
| county clerk and the court usually reviews these | | | | later. The moral to this story is that even in the |
| claims and awards the homeowner his money. | | | | worst of foreclosure situations, the loss of your |
| This is an ideal world scenario, but in the real | | | | home, the homeowner still has a chance to make |
| world, the homeowner may not know he has | | | | money. |
| money coming to him and these funds eventually | | | | |