During August 2018, one in every 1,456 homes in Ohio received a foreclosure filing, according to RealtyTrac.com. This was worse than the national average of 1 in every 1,882 homes, and placed Ohio just outside the top 10 states with the worst rates of foreclosure.
Foreclosure in Ohio is a judicial process by which a mortgage lender, taxing authority, or tax-certificate holder sells a person’s home after the homeowner defaults on a mortgage or fails to pay property taxes. Often, the foreclosure sale fails to raise adequate funds to pay the total amount due, resulting in a deficiency for which the homeowner typically remains liable.
But occasionally, particularly when the housing market is strong, a home will sell for more than the balance due on a mortgage or the amount of a tax lien. When that happens, the homeowner may be entitled to the surplus funds raised. Unfortunately, receiving that surplus is not an automatic process. Rather, the homeowner must ask the court overseeing the foreclosure to distribute the surplus to him or her.
If this is not done in time, the unclaimed foreclosure funds may be transferred to the county treasury and held indefinitely or forfeited entirely, depending on the type of foreclosure. Consequently, it is critical for homeowners to move quickly to obtain any surplus amount remaining after a foreclosure sale.
The Ohio Foreclosure Process
Ohio is a judicial-foreclosure state. In other states, banks and other mortgagees can foreclose on a mortgage without going to court, but in Ohio, foreclosure requires a formal lawsuit.
Foreclosures occur in one of two circumstances: First, if the home was bought with a mortgage, or a mortgage was later taken out on the home, then the mortgagee (the bank or other lender) can foreclose if the mortgagor (the homeowner) defaults. Contrary to a popular misconception, this can happen after just one missed payment, depending on the specific provisions of the mortgage.
Second, even if a person owns his or her home outright, without a mortgage, the home can be foreclosed if he or she fails to keep up with property taxes. In that event, the taxing authority will place a tax lien on the property. It can then either foreclose on that lien itself or sell a tax lien certificate to a private buyer, who becomes entitled to foreclose on the lien.
Learn more about the foreclosure process:
- Ohio Foreclosure Laws: What You Need to Know
- Ohio Foreclosure Timeline: How Fast Can the Bank Foreclose?
How Foreclosure Funds are Used
After a foreclosure sale, Ohio law specifies the order in which the funds raised are used. The precise details vary depending on the type of foreclosure and, in a foreclosure on a mortgage, the mortgage terms. In general, the funds will first be used to pay for the costs of the foreclosure action. Then, the funds will be applied against the balance owed on the mortgage or tax lien. Any excess amount will then be applied to pay off junior liens or remaining unpaid taxes, if any.
If there is still a surplus left over after all the above are paid, then that amount belongs to the owner whose home was foreclosed.
What Happens to Unclaimed Foreclosure Funds
As noted earlier, any surplus funds raised through a foreclosure sale belong to the homeowner whose home was foreclosed—but receiving those funds is not an automatic process. What happens to unclaimed foreclosure funds depends on the type of foreclosure.
Ohio Mortgage Foreclosure
For a foreclosure on a mortgage, the surplus will be given to the court clerk. The clerk will then attempt to notify the person to whom the surplus belongs that the funds are available. Then, according to O.R.C. § 2329.44:
- After 90 days from the date of the last notice, the clerk will post another notice at the courthouse or online.
- After another 30 days, if the funds remain unclaimed, the clerk will transfer the money to the county treasurer.
Once the unclaimed foreclosure funds have been transferred to the county treasurer, the former homeowner who is entitled to them must make demand on the treasurer, not the court.
This procedure represents a significant change to the law that became effective in September 2017. Prior to the amendment of section 2329.44, the statute did not say what happens to excess funds after the clerk’s initial notices. In response, some Ohio courts had said that a person’s right to the surplus funds would be waived if he or she did not respond in time.
Unfortunately, even with the new version of section 2329.44, the court, the clerk, or the county treasurer can make mistakes. For example, the court may wrongly distribute the surplus funds to the mortgagee. In that case, the former homeowner would have a limited amount of time in which to challenge that distribution. As always with the law, time is of the essence.
Ohio Tax Foreclosure
In a foreclosure on a tax lien, the surplus is paid to the court that oversaw the foreclosure process. During that time, the owner of the funds can file a motion to distribute them. Then, according to O.R.C. § 5721.20:
- After 60 days, if the money remains unclaimed, the court transfers the funds to the county treasurer, who holds them in the name of the “supposed owner.”
- During the next three years, the former homeowner to whom the unclaimed foreclosure funds belong can demand payment from the county treasurer, and the treasurer will disburse those funds to him or her.
- After three years from the date when the surplus was transferred to the county treasurer, the funds are forfeited. After this point, the former homeowner can no longer obtain the unclaimed foreclosure funds.
Exploring Foreclosure Alternatives
Foreclosure in Ohio can be a relatively quick process, and missing a deadline can mean losing your home even if you have a strong defense against foreclosure. When a foreclosure sale results in surplus funds, missing a deadline can make accessing those funds more difficult—or impossible.
If you are currently going through a foreclosure, you should work with an attorney to ensure that you can build a strong defense against foreclosure while meeting all necessary deadlines.
But keep in mind that there are alternatives to foreclosure, depending on how far along in the process you are. When you first experience difficulty paying your mortgage, you should contact your lender to try to work out a payment plan or apply for a mortgage modification. Your lender doesn’t want to go through the process of foreclosure any more than you do.
Ohio law also lets you negotiate a payment plan for delinquent taxes with the county treasurer in some circumstances.
Another alternative is to file bankruptcy. When you file bankruptcy under Chapter 7 or Chapter 13, you get the benefit of the automatic stay—a court order that forces creditors to temporarily stop trying to enforce your debts. It even puts a pause on foreclosure lawsuits and can give you the time you need to get back on track.
If you’re having trouble paying your mortgage or keeping up with property taxes, you need to act quickly to resolve those issues. For help understanding the foreclosure process and how bankruptcy may be able to help you, contact our experienced Ohio bankruptcy attorneys for a free consultation today.