Where the foreclosure sale produces a surplus, the rules governing who participates in that surplus and the priority of that participation are generally clear. Statutes often regulate the distribution of the surplus, especially in the power of sale setting. Some simply codify the principles described a car title loan in Atlanta, others seen their face to give the surplus to the mortgagor and make no reference to the rights of junior lienors. However, these latter statutes have generally been interpreted to give junior lienors right in the surplus and the priority over mortgagors generally described in the preceding paragraph. A few statutes make no mention of priorities, but simple authorize the mortgagee or trustee to pay the surplus to the clerk of court.
Suppose that for some reason a senior lien has been foreclosed and a surplus was produced, but a junior lien exist that is not in default. Should that junior lioner be entitled to pay from the surplus? Some courts have said yes. On the other hand, in re Castillian Apartments is an interesting case in this regard, in that case, a senior mortgage was foreclosed and produced a substantial surplus. The junior mortgage was not in default and contained no acceleration clause that would have made it due and payable whenever the senior mortgage went into default. Moreover, because the junior debt had previously been determined to be usurious, under North Carolina law all right to receive interest on it was forfeited. As a result, the North Carolina Supreme Court approved a lower court determination that the surplus should not be paid to the junior lienor and that it instead should be invested in a certificate of deposit for junior lienor’s benefit but with interest to be paid to the debtor.
The foregoing situation is relatively uncommon for several reasons. First, when foreclosures sale result in a surplus, the debts of junior lien claimants normally will be in default. This will be true automatically with respect to junior judgment lionors. Moreover, if the mortgagor has allowed senior debt to go into default, the chances are strong that the junior debt is in default as well. Second, even if the mortgagor has not otherwise default on senior debt, many junior mortgages provide a ground for acceleration that any default or foreclosure with respect to a senior encumbrance will give the junior mortgagee the option to accelerate the junior debt. Acceleration for such a reason is generally upheld. Finally, a few states appear to give junior lienors that are not default the right to be paid from a foreclosure surplus at the car title loan in Atlanta.