17.26 Funds Paid to Trustee

• Library: Real Estate Practice Deskbook (2019 Ed.)

E. (§17.26) Funds Paid to Trustee

To the extent that funds are paid to the trustee as a result of the sale, the trustee is under a strict obligation to use these funds in the manner required by law and the terms of the deed of trust.

The deed of trust may provide little guidance on how surplus funds are to be distributed after expenses of the sale and the indebtedness secured are paid. Commonly a deed of trust will provide that the trustee must apply "the excess, if any, to the persons legally entitled to receive it." Stulz v. Citizen's Bank & Trust Co., 160 S.W.3d 423, 428 (Mo. App. W.D. 2005). It has been held that junior lienholders are entitled to the surplus proceeds from a foreclosure sale on a senior lien in the order of their priority—even if the mortgagor was discharged in bankruptcy on the debt of the junior lienholder. Id. But because courts may differ in their views as to entitlement to surplus proceeds, a prudent trustee will often interplead funds into a court and name all potential stakeholders as parties to the proceeding so that rights and interests may be determined. The trustee may seek recovery of expenses to bring the...