Courts may order property sales to return excess foreclosure proceeds

A property owner or certificate holder may ask the court to decide whether to sell the property to recover excess proceeds. The procedure applies when a court is foreclosing a defendant's right to redeem a tax lien. The court must find the request reasonable when the likely sale price is more than $2,500 above the listed claims, fees, and sale costs. The certificate holder must provide claim amounts, fees, liens, sale costs, and other value information. The property owner must provide a reasonable estimate of the property's market value. If the request is reasonable, the court must order the property sold and set the opening bid. A request may be made before the court's judgment becomes effective under court rules.

A qualified entity must sell the property at public auction to the highest bidder and may postpone or continue the sale under stated procedures. The rules apply to sales ordered after a court finds an excess-proceeds sale reasonable, including bidding, deposits, payment, and delivery of the deed. Bidders other than the certificate holder must provide a nonrefundable deposit of 10 percent of the opening bid or $2,500, whichever is greater. The certificate holder may make a credit bid instead of paying cash. A winning bidder who does not pay may lose the deposit and may face another sale or liability for resulting losses. The deed gives the purchaser title without a right of redemption and clears subordinate liens, claims, and interests. The sale must generally occur within 60 days after the court judgment, and the winning bidder must pay by 5:00 p.m. on the next nonholiday business day unless a written later arrangement applies.

The qualified entity must distribute sale proceeds first for sale costs and listed liens, then give any remaining money to the former property owner. The distribution applies to the property owner whose right to redeem was foreclosed and to the certificate holder, tax authorities, and other listed lien holders. The former owner does not need to attend the sale to receive a distribution. Unclaimed money must be handled under the state's unclaimed-property rules. A party entitled to proceeds may sue if the qualified entity fails to make the required distribution. Distributions must be made within 90 days after the property sale, and late compliance requires interest at the judgment rate.