You make money with tax sale overages by finding surplus funds left over after a property sells at a tax auction for more than the owner owed, tracking down the former owner, and charging a fee to help them claim the money. It is a legitimate business built on a constitutional principle the Supreme Court confirmed unanimously in 2023: a government may collect what it is owed in back taxes, but keeping the excess sale proceeds is an unconstitutional taking under the Fifth Amendment.1Supreme Court of the United States. Tyler v. Hennepin County, No. 22-166 The money belongs to the former owner. Most former owners have no idea it exists. That gap is the business.
It is also a heavily regulated one. Fee caps, solicitation bans, unauthorized-practice-of-law rules, and short filing windows can void your agreement or wipe out the surplus before you ever reach it. Understanding those rules matters as much as finding the funds.
Where the Money Comes From
When a property owner falls behind on property taxes, the county eventually auctions the property. The opening bid covers the delinquent taxes, interest, administrative fees, and foreclosure costs. If competitive bidding drives the final price above that floor, the difference is the overage. A property with a $5,000 tax debt that sells for $50,000 leaves roughly $45,000 sitting with the county.
The county holds that money in trust until someone with a legal right to it files a claim. It does not become county revenue. That is the pool you are working from.
Finding Surplus Funds
The county treasurer, tax collector, or clerk of court maintains a public record of tax sale results, often called a surplus list or excess proceeds list. Many counties post it online through a tax sale portal; others keep it on paper. The completeness of digital records varies widely, and when it is thin, visiting the office in person to review physical ledgers is often the only way to see the full picture.
The calculation is simple. Compare the final high bid to the opening bid. The opening bid is the tax debt; the spread is the approximate surplus. Auction records usually include the parcel identification number and sale date, and sometimes the former owner’s name, though some jurisdictions redact personal identifiers under privacy laws.
Older lists deserve attention. Many clerks keep records for several years to cover the different filing deadlines that apply, and surpluses from auctions months or years back are frequently still unclaimed. That is where a lot of recovery work concentrates, because current lists get worked hardest by competitors.
Estimating What Actually Reaches the Former Owner
A surplus number on the auction list is not the same as money the former owner will receive. Any liens of record on the property at the time of sale — mortgages, home equity loans, HOA liens, mechanic’s liens, judgment liens — generally get paid first, in the order they were recorded. Whatever survives goes to the former owner.
A homeowner who lost a property with a substantial outstanding mortgage may see little or nothing. Before you invest hours in skip-tracing, mailing, and paperwork, pull the property’s title history and identify the liens. If competing claims land on the same surplus, the county typically files an interpleader action and a judge decides distribution based on priority. That adds time and usually requires an attorney.
The rule of thumb: the surplus you can actually deliver to your client is the auction spread minus the recorded liens, and if the math does not leave a meaningful amount, the file is not worth working.
Getting Authorized to File
The county will not talk to you about someone else’s claim without written authorization from that person. That authorization is usually a limited power of attorney granting you permission to act on the former owner’s behalf, paired with a signed fee agreement. Many jurisdictions also require you to submit a W-9 and a copy of the fee agreement itself.
The claim package the county expects generally includes:
- The parcel identification number from the auction records.
- The county’s claim form (sometimes called a Claim for Surplus Proceeds or Petition for Excess Funds), typically signed and notarized.
- Government-issued photo identification for the claimant.
- Proof of ownership at the time of the tax sale, such as a recorded deed or utility bills.
Where the former owner has died, heirs can claim, but the paperwork expands to include a death certificate, probate documents or letters of administration, and an affidavit of relationship. In small estates, a probate affidavit with notarized identity verification may substitute. State statute or the county’s rules set the specifics.
Filing is usually done by certified mail to the tax deed or foreclosure sales department. Some counties accept uploads through an online portal, which confirms receipt faster. Once filed, county auditors verify identity, confirm ownership, check for competing claims, and issue a check minus a small administrative fee, often under $50. Uncontested claims typically pay out 30 to 90 days after review. Contested claims that go to court take much longer.
How You Can Legally Charge
State law caps what recovery agents can charge, and the caps vary. In many regulated states the ceiling falls somewhere between 10% and 25% of the amount recovered, sometimes with different limits for contested claims. Charging more than the statutory maximum, or charging where the state does not permit it, can void the agreement in court and leave you with nothing.
Texas draws the sharpest line. Only a licensed attorney may charge a fee to recover excess proceeds there, and even the attorney’s fee is capped at 25% of the recovery or $1,000, whichever is less. Non-attorneys are prohibited from charging anything.2State of Texas. Texas Tax Code Section 34.04 – Claims for Excess Proceeds Every state you plan to work in needs its own compliance check before you send a single letter.
Your fee agreement should state the percentage clearly, describe the scope of your authority, and comply with the caps and rules of the state where the property sits. Agreements that violate state law can be declared void, and a void agreement means no legal claim to compensation even after you have done the work.
Solicitation Rules and the Unauthorized Practice of Law
Several states restrict how you can reach former owners. Some prohibit in-person or telephone solicitation entirely. Texas requires that an assignment of a surplus claim not result from in-person or phone solicitation, and prohibits any assignment until at least 36 days after the surplus is deposited with the court.2State of Texas. Texas Tax Code Section 34.04 – Claims for Excess Proceeds Waiting periods and solicitation bans exist because former homeowners are a protected class of potential clients: they have just lost a property and are vulnerable to signing away a large share of what remains.
The other line to watch is unauthorized practice of law. If you are not an attorney, filling in legal forms for a client, drafting a court petition, or advising the former owner on their legal rights can each constitute UPL depending on the state. A workable boundary for non-attorneys is locating the owner, telling them the funds exist, and helping them gather factual documentation. Legal strategy, court filings, and document preparation belong to a licensed attorney. When a claim becomes contested or ends up in an interpleader, hiring counsel to handle those steps is standard practice.
Deadlines and Escheatment
Every jurisdiction sets a claim deadline, and missing it can mean permanent loss of the money. The window ranges from as little as 120 days after notification in some states to several years in others. The clock usually runs from the tax sale date or from the date the county mails notice that surplus funds are available.
After the deadline, unclaimed surplus generally escheats to the state’s unclaimed property system. The state may hold it for another two to five years, sometimes longer. In most states the former owner can still recover escheated funds through the state unclaimed property office, though the process is more cumbersome. Some states hold the funds indefinitely; others eventually absorb them.
For a recovery business, deadlines cut both ways. Fresh auction results carry urgency because the filing window is running. Older records still hold opportunity when funds have moved into the state’s unclaimed property division and remain claimable there.
Risks That Eat the Profit
The economics of the business live or die on a handful of practical risks.
- Outstanding liens can reduce the payout to nothing. Title research before you file is the only way to see it coming.
- Former owners who lost property to tax foreclosure have often moved, and forwarding addresses are frequently stale. Skip-tracing costs mount with no guarantee of contact.
- Popular surplus lists are worked by multiple agents. The owner may already have been contacted, or may have filed on their own.
- State-specific fee caps, solicitation rules, and UPL exposure create real compliance overhead when you operate across state lines. An attorney familiar with each state’s rules is a practical necessity.
- Contingency work means you absorb every denied claim, every missing document, every missed deadline. There is no guaranteed payment.
How the IRS Treats Your Fee
A fee you earn helping a former owner recover surplus funds is ordinary business income and is subject to self-employment tax. If the county or the former owner pays you more than $600 in a calendar year, they may be required to issue a Form 1099. Track fees the same way you would for any service business, and plan for quarterly estimated payments if this becomes steady income.
The agents who last in this work operate transparently, charge within the statutory limits of every state they touch, keep clear written agreements, and hand contested matters to attorneys. Done that way, the service is real: many former owners never learn the money exists until someone reaches out.