A Company Wants a Cut of Your Foreclosure Surplus. Here's What to Ask First.

When a home sells at a sheriff's sale for more than what was owed on the mortgage, the extra money is called the surplus, or overbid. That money belongs to the former owner. But most former owners never hear about it, because nobody is required to call them and explain it.

That gap is where surplus recovery companies operate. They find people who are owed surplus money, offer to handle the court paperwork, and take a percentage of the recovery as their fee. Sometimes these companies reach out before the auction even happens.

This is a legitimate business, and for some families it is the only reason they ever see the money. But the agreement you sign matters enormously, so here is what to understand before you put your name on anything.

How the process actually works

After a foreclosure sale, the lender gets paid first from the sale proceeds. Whatever is left over sits with the county clerk until someone files a petition asking the court to release it. In Indiana, that request is called a petition for release of surplus proceeds, and the court will order the clerk to pay the money to whoever proves they are entitled to it.

A recovery company does this work for you: they research the case, find you, draft the petition, hire a local attorney, and appear in court. In exchange, you sign an agreement giving them a percentage of whatever is recovered.

What these companies typically charge

Fees vary by state and by case. In Florida, many agreements give the company around 12 percent. In a recent Indiana case, the company's agreement gave it 20 percent of the recovered funds, with the company covering all court costs and attorney fees. In Ohio, one agreement took 33 percent. The harder the case, for example when the owner has died and there are multiple heirs, the higher the fee tends to be.

A 20 percent fee means you keep 80 percent of money you might never have known existed. That can be a fair trade. But the percentage is negotiable, and you should treat it that way.

Questions to ask before you sign

1. What exactly is my share worth? The company should be able to tell you the approximate surplus amount before you sign. The winning bid and the judgment amount are public records. If they cannot give you a number, that is a red flag.
2. What percentage do you take, and who pays the costs? Get the fee in writing. Ask whether court costs and attorney fees come out of your share or theirs. In the Indiana case mentioned above, the company paid all costs itself, which is favorable to the owner.
3. Is the agreement exclusive? Many of these agreements say you cannot work with any other company while the agreement is in force. That is common, but you should know it is there. Some also include confidentiality clauses that prevent you from showing the agreement to anyone else, which makes it harder to get a second opinion. Think carefully before agreeing to that.
4. Can the company settle for less without asking me? Some agreements give the company sole discretion to compromise or settle the amount recovered. That means they could accept a smaller payout to close the case quickly, and you would have no say. Ask whether you keep approval rights over any settlement.
5. What happens if they recover nothing? Reputable agreements say you owe nothing if no surplus is recovered. Make sure that language is in writing.
6. Do I have other options? You are allowed to file the petition yourself or hire your own attorney directly. In the same Indiana case, a second heir hired his own local attorney four months after the company signed the first heir, and the court awarded him his full share with no company fee involved. An attorney working directly for you typically charges an hourly rate or a smaller contingency, and every dollar they do not take stays with you.

If there are multiple heirs, each share is separate

When a homeowner dies without a will, the surplus is divided among the heirs under state law. Each heir owns their own share independently. A company that signs one heir has no claim on another heir's share. If you are one of several heirs, you do not have to use the same company your sibling or relative chose, and you do not have to sign anything at all.

The bottom line

Surplus money is real, and it is yours by law. A recovery company can be a useful shortcut, especially if the paperwork feels overwhelming. But you are the one with something valuable, which means you are the one with leverage. Read the agreement, ask the six questions above, and consider talking to a local attorney before you sign. The few hundred dollars a consultation costs could save you thousands.

This article is for general information only and is not legal advice. Every case is different; consult a licensed Indiana attorney about your specific situation.