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Quality Claims Investigative Services: Surplus Funds White Paper

by: Ronald R. Reitz, SPPA, CPI & Robyn Bui

Background Mortgage Servicers, foreclosing attorneys and trustees often find themselves the subjects of negative media coverage for foreclosing on homeowners. The role of the foreclosing attorney is often viewed unfavorably. Nonetheless, within the foreclosure process exists a lesser-known aspect that holds the potential to offer a new beginning to previous homeowners.

Following a foreclosure sale, the foreclosing attorney and/or trustee has certain statutory obligations with respect to the funds in excess of the total debt (plus fees). This financial benefit, referred to as “Surplus Funds”, is governed by statutory provisions such as California Civil Code Section 2924j which define the procedural framework and timelines foreclosing attorneys and/or trustees must adhere to.

Private investigators emerge as pivotal players in locating and engaging beneficiaries entitled to Surplus Funds in cases where the initial outreach by the foreclosing attorney and/or trustee does not result in successful contact or the beneficiary is leery of the process.

Leveraging Private Investigators Private investigators can play a very important role in locating and engaging rightful beneficiaries. In many cases, the borrowers are deceased and it is necessary to identify, locate and contact the borrowers’ heirs. The subsequent sections highlight notable instances where this approach yielded positive outcomes:

Locating Foster Children:

Following the death of their mother, two young boys were placed into the foster care system. By leveraging private investigators from Quality Claims® Investigative Services, the boys were identified and their case worker contacted. Ultimately, the boys received the surplus funds from their mother’s house. These funds helped to change the lives of those two boys. Homeless Borrower Located: Actions taken to locate former borrowers can take many different paths. In one California case, the traditional methods used by the foreclosing attorney and/or trustee proved ineffective. After engaging the services of a private investigator from Quality Claims (R) Investigative Services, a full investigation was conducted which ultimately led to the discovery that the former borrower was living on the streets in Northern California. The private investigator helped to facilitate communication and submission of the Surplus Funds claim. Surplus Funds extended a fresh start to this individual, highlighting the transformative impact of private investigator involvement.

Blind Borrower Located:

A husband and wife owned a house together as a married couple. The wife went for a run one morning and was killed in a hit-and-run accident. The man who was blind not only lost his spouse but also his main support person. While his brother was available to assist in certain matters, unfortunately he lived in a neighboring state and was not able to visit the former borrower on a regular basis. The statutory process followed by the foreclosing attorney was unsuccessful in communicating with the former borrower. Ultimately, a licensed private investigator from Quality Claims® Investigative Services was retained, able to locate and make contact with the borrower, explained he is entitled to the surplus funds, provided time-sensitive communication through text messaging where he was able to have the text messages read to him, and arranged for future materials sent to him (including the Surplus Funds claim form) in braille.

Each of the cases can be used to highlight some of the good work a reputable licensed private investigative firm such as Quality Claims® Investigative Services can perform. It should be noted that in effort to enable foreclosing attorneys and/or trustees to make an exhaustive effort to locate the beneficiaries, the foreclosing attorneys and/or trustees should complete a legal review of the relevant statutes governing the process to determine whether the reasonable fees and costs can be deducted from the funds themselves or are otherwise reimbursable.

Other Parties Contacting Former Borrowers

Efforts to contact former borrowers are complicated by third-party solicitation companies seeking business opportunities. The first contact a former borrower receives following the foreclosure sale may potentially be from a predatory company offering to assist in the recovery of the surplus funds in exchange for an exorbitant fee—often 30%-50% of the total amount of the Surplus Funds. Once the borrower hires them and agrees to pay them a substantial sum, the company simply contacts the trustee and coordinates the disbursement of the funds. This potentially predatory behavior makes the outreach to the former borrowers even more challenging as they believe they are being solicited rather than being contacted by the foreclosing attorney, trustee or their representative.

Interpleading or Petitioning Funds

In some cases, there are numerous heirs that may be entitled to the funds. Occasionally, there are disputes among family members or heirs about who is entitled to the surplus funds. In those cases the trustee may decide that interpleading the funds is the best course of action to take. However, this approach should be pursued only after all other efforts to locate the heirs have been exhausted. By leveraging private investigators, trustees can enhance beneficiary engagement, leading to transformative outcomes for beneficiaries. Furthermore, foreclosing attorneys and/or trustees should complete a thorough legal review of the relevant statutes governing the process with regards to their fiduciary duty to locate beneficiaries prior to interpleading the funds.

Unclaimed Funds Reporting

Finally, per California Code of Civil Procedure Section 1500, foreclosing attorneys and/or trustees must submit a report and deposit unclaimed funds with the California State Controller if funds remain undisbursed after a three-year period or in the absence of a valid claim memorandum. This provides a timeline for the attorneys and/or trustees to make an exhaustive attempt to locate beneficiaries although attorneys and/or trustees should complete their own reviews of all of the relevant statutes with regards to their responsibilities and timelines to distribute the funds properly.

In Conclusion

By adopting the recommendations and insights outlined in this paper, mortgage servicers, foreclosing attorneys, and trustees can reshape public perceptions, promote transparency, and contribute to some positive narratives within the post-foreclosure process.

Quality Claims® Investigative Services is a licensed private investigative firm and a leading provider of full-service investigations nationwide. Their background in default servicing related products makes them uniquely qualified to assist in the distribution of Surplus Funds. Quality Claims Management Corporation® was established in 2007 to provide customized services to the mortgage industry.

For more information contact Quality Claims® Investigative Services at:

Ronald R. Reitz, SPPA, CPI Robyn Bui

President SVP Sales and Business Development

Phone: (619) 450-8601 Phone: (619) 450-8602

NOTICE: This article is for information purposes only and not to be construed as legal advice. The authors of this article are not attorneys and not licensed to practice law.

QIS Surplus Funds White Paper Content 10 23 2023
Download PDF • 113KB

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