Tax Foreclosures: Creditors Can Claim Surplus Tax Sale Proceeds, But it’s Tricky

King CountyCreditors read this:  Next week King County will be foreclosing hundreds of real property parcels, all at once.  The case is captioned In re Foreclosure of Real Property Tax Liens for Taxes Owed 2008 – 2011, King County Superior Court, Cause No. 11-2-19469-8 SEA.  Many of these parcels will sell for more than the tax owed, meaning there will be surplus funds.  There is opportunity here for judgment creditors to claim the surplus.  In doing so, don’t make the mistake that your lien automatically attaches to the surplus funds.  While this may be the case with nonjudicial foreclosures under RCW 61.24.080, where liens eliminated by the foreclosure attach to the surplus proceeds in the same order they once attached to the real property, IT IS NOT the case under the real property tax foreclosure statute, RCW 84.64.080.  This statute provides that the real property owner receives the surplus funds, and there is no provision for other lienholders.  See RCW 84.64.080 (stating, “the excess shall be refunded …, on application therefor, to the record owner of the property”).    A judgment creditor, regardless of how junior his judgment lien is, can get paid, and can even jump ahead of senior judgment lienors simply by being the first in time to serve a writ of garnishment on the County.  Timing is key.  The creditor must serve the writ after the tax sale (so the County will answer the writ stating that surplus funds exist, if any, and are owed to the property owner), but before the funds are paid to the debtor/real property owner, and of course, before a competing creditor serves his writ of garnishment on the County.