How County Surplus Funds Work After Tax Deed Sales

7/15/2025 12:00:00 AM

Here's something that surprises a lot of people: when counties sell properties at tax deed auctions, they often collect way more money than what was actually owed in back taxes. A house with a few thousand dollars in tax debt might sell for tens of thousands at auction. So what happens to all that extra money?

It doesn't just disappear into the county's general fund (though they'd probably love that). In most states, that surplus gets held in a special account, waiting for the rightful owners to claim it. The catch? Most people have no idea this money exists, and counties aren't exactly sending out friendly reminder letters.

The surplus is created when auction fever takes over. Let's say a property has back taxes of $3,500, but investors at the auction drive the bidding up to $25,000 because it's worth $60,000 once fixed up. The county takes their $3,500 for the unpaid taxes, plus any administrative fees and costs, then holds the remaining surplus—about $21,000 in this example—for the former property owner.

This happens more often than you'd think, especially in markets where property values have risen significantly since the tax debt began accumulating. Properties that went into tax default years ago might be worth substantially more now, creating these surplus situations.

So who gets to claim this money? The hierarchy is pretty straightforward in most states, though the specifics vary by location. First in line is usually the former property owner—the person who lost the house to the tax sale. If they don't claim it within a certain timeframe (often one to three years), then other lienholders get their shot.

This might include mortgage companies, contractors with mechanic's liens, HOAs with unpaid fees, or anyone else who had a legitimate claim against the property. They get paid in the order their liens were recorded, just like in a regular foreclosure.

The application process varies wildly by county. Some have simple online forms and clear instructions. Others require notarized affidavits, certified copies of documents, and what feels like a treasure hunt through their bureaucracy. The better-organized counties maintain searchable databases of surplus funds waiting to be claimed.

Many counties require proof of identity, evidence of your claim to the property (like old deeds or mortgage documents), and sometimes even court orders depending on the complexity of the ownership situation. If you're a former owner, you'll typically need to prove you actually owned the property and that your ownership ended due to the tax sale.

Here's where it gets interesting for investors. In some states, if nobody claims the surplus funds within the statutory timeframe, they either go to the county or become available to the winning bidder from the auction. This creates an additional profit opportunity beyond just acquiring the property itself.

Some investors specifically research surplus funds as a separate business model. They identify unclaimed surplus money, track down the rightful owners, and help them claim it in exchange for a percentage of the recovery. It's like being a private investigator for money that's hiding in plain sight.

But there are pitfalls to watch out for. Fraudulent surplus recovery companies have popped up in many areas, targeting former property owners with high-pressure tactics and excessive fees. Legitimate surplus funds don't require upfront payments or signing over rights to your property. Counties don't hire third-party companies to collect these funds on their behalf.

The deadlines are also unforgiving. Miss the statutory deadline, and that money is gone forever. Counties aren't required to hunt you down or extend deadlines because you didn't know the money existed.

For property owners who lost homes to tax sales, it's worth checking with the county to see if surplus funds are available. Many people assume that losing their house to a tax sale means they get nothing back, not realizing that competitive bidding might have created a surplus.

For investors, understanding surplus funds adds another layer to your due diligence. When you're bidding on properties, you're not just competing for the real estate—you might also be determining how much surplus gets created for the former owner to claim.

The record-keeping varies dramatically between counties. Some maintain detailed, searchable databases going back years. Others keep paper records in filing cabinets that haven't been organized since the Clinton administration. Some counties actively try to locate rightful owners; others do the bare minimum required by law.

This system creates opportunities for those who understand it and frustration for those who don't. Like many aspects of tax deed investing, the counties that run transparent, well-organized programs are generally easier to work with across the board.

The surplus funds process is just another reminder that tax deed sales involve more than just buying distressed properties. There's a whole ecosystem of laws, procedures, and unclaimed money that most people never think about—until it affects them directly.

This blog post is for informational purposes only and should not be relied upon as financial or investment advice. Real estate investments carry risk and individual results will vary. Always consult with your team of professionals before making investment decisions. The authors and distributors of this material are not liable for any losses or damages that may occur as a result of relying on this information.