Vermont: Complete Surplus Funds Recovery Guide -- Tax & Mortgage Foreclosure
Overview
Vermont operates a tax sale system for delinquent property taxes and uses both judicial and non-judicial (strict foreclosure and power of sale) methods for mortgage foreclosures. Vermont is a small state with 14 counties and 251 municipalities (towns, cities, and gores), each responsible for property tax collection and enforcement. The state's legal framework for surplus recovery has been significantly affected by the Tyler v. Hennepin decision, particularly regarding the longstanding practice of municipal retention of proceeds from tax sale properties.
Vermont's real estate market includes the Burlington metro area (Chittenden County), resort communities (Windham County/southern Vermont, Lamoille County/Stowe), and extensive rural areas. Property values have appreciated significantly, especially in resort and exurban communities, creating surplus recovery potential.
All statute references are current as of April 2026. Always verify current statutes before acting.
Tax Foreclosure Surplus
Think you might be owed surplus funds? Check for free at AuctionBlock.org — it takes 2 minutes, costs nothing, and we only charge a flat fee if we recover your money.
Tax Sale Process
Vermont uses a tax sale system. Under 32 V.S.A. Section 5251 et seq., when property taxes are delinquent, the municipality may sell the property at a public tax sale. The process:
- Delinquency: Property taxes become delinquent if not paid by the due date set by the municipality (typically varies by town).
- Tax Collector's Authority: The municipal tax collector has the authority to enforce collection through seizure and sale of property (32 V.S.A. Section 5252).
- Notice: The collector provides notice by posting in at least two public places in the town and by mail to the last known address of the property owner (32 V.S.A. Section 5253). Notice must be given at least 10 days before the sale.
- Public Auction: The property is sold at public auction. The collector sells only so much of the property as is necessary to satisfy the delinquent taxes, interest, penalties, and costs. If the whole property must be sold, any excess above the tax obligation constitutes surplus.
- Tax Collector's Deed: The purchaser receives a deed from the tax collector.
An alternative method is available under 32 V.S.A. Section 5258, which allows the municipality to foreclose tax liens through judicial action in the Superior Court.
Redemption Period
Vermont provides a one-year post-sale redemption period for tax sales (32 V.S.A. Section 5260). During this period, the former owner may redeem by paying the purchase price plus 1% per month interest and any taxes paid by the purchaser. This redemption right applies to tax collector's sales. For judicial tax foreclosures, the court may set the redemption period.
Who Holds Surplus Funds
Surplus from tax sales is held by the municipal treasurer. Under 32 V.S.A. Section 5256, any amount received at the tax sale in excess of the taxes, interest, penalties, and costs must be paid to the former owner.
Historically, compliance with this requirement varied widely among Vermont's 251 municipalities. Post-Tyler, the requirement to return surplus is constitutionally reinforced.
Claim Process and Deadlines
To claim tax sale surplus in Vermont:
- Contact the municipal treasurer where the property was located.
- Submit a written claim with proof of identity and ownership.
- The treasurer verifies the claim and disburses surplus.
Post-Tyler, Vermont enacted Act 73 of 2024, which strengthened surplus return requirements, mandated municipal record-keeping of surplus from tax sales, and established notice requirements to former owners. The act requires municipalities to make reasonable efforts to locate former owners before treating surplus as unclaimed. Unclaimed surplus is eventually subject to Vermont's Unclaimed Property Act (27 V.S.A. Section 1241 et seq.).
Fee Caps
Vermont enacted Act 74 of 2024, regulating surplus recovery agents. Key provisions:
- Fees capped at the lesser of 10% of the surplus or $1,500.
- No solicitation within 45 days of the tax sale.
- Written contracts required with disclosure of the right to file independently.
- 10-business-day cancellation period.
AuctionBlock's $4,999 flat fee exceeds Vermont's $1,500 dollar cap. Vermont-specific pricing must be implemented. For surplus under $15,000, the 10% cap would further reduce the maximum fee.
Mortgage Foreclosure Surplus
Judicial Foreclosure
Vermont permits judicial foreclosure through the Superior Court under 12 V.S.A. Section 4941 et seq. The court-supervised process includes:
- Complaint Filed: The lender files a foreclosure complaint in Superior Court.
- Service: The borrower and all interested parties are served.
- Mediation: Vermont has a foreclosure mediation program for residential properties, though participation requirements have varied with legislative updates.
- Decree of Foreclosure: The court enters a decree establishing the debt, lien priority, and ordering the foreclosure.
- Strict Foreclosure or Sale: The court may order either strict foreclosure (property passes directly to the lender after a redemption period) or foreclosure by sale (public auction).
Strict Foreclosure
Vermont, like several New England states, historically used strict foreclosure as a common method. Under strict foreclosure, the court sets a redemption period, and if the borrower does not redeem, the property passes directly to the lender without a public sale. No surplus is generated in a strict foreclosure because there is no auction.
Post-Tyler, strict foreclosure is constitutionally questionable when the property has equity exceeding the mortgage debt, because the lender acquires the owner's equity without compensation. Borrowers should request foreclosure by sale when significant equity exists.
Non-Judicial Foreclosure (Power of Sale)
Vermont permits non-judicial foreclosure through a power of sale contained in the mortgage, but this method is uncommon and subject to specific statutory requirements under 12 V.S.A. Section 4531a. Most Vermont mortgage foreclosures proceed judicially.
Lien Priority
Vermont follows a race-notice recording system (27 V.S.A. Section 342). Priority is determined by recording date with notice.
- Property tax liens: First priority (municipal tax liens are superior to all others).
- Mechanic's liens: Must be recorded within 180 days of the last furnishing of labor or materials (9 V.S.A. Section 1921 et seq.).
- Judgment liens: Created by recording a certified copy of the judgment in the town land records.
Who Holds Surplus
For foreclosure by sale, surplus is held by the court-appointed committee and deposited with the clerk of the Superior Court. For power-of-sale foreclosures (rare), the mortgagee holds and distributes surplus.
Claim Process
To claim mortgage foreclosure surplus in Vermont:
- Determine whether the foreclosure was by sale (strict foreclosure generates no surplus).
- Review the court's distribution order.
- File a motion for disbursement of surplus with the Superior Court.
- Provide proof of identity and ownership.
Deficiency Judgments
Vermont permits deficiency judgments after mortgage foreclosure under 12 V.S.A. Section 4941. The deficiency is the difference between the fair market value and the debt. After a strict foreclosure, the lender may not seek a deficiency judgment (the acquisition of the property is full satisfaction). When surplus exists in a foreclosure by sale, deficiency is not at issue.
Tyler v. Hennepin Impact
The Tyler decision significantly affected Vermont, particularly regarding:
- Municipal Tax Sale Surplus Retention: Vermont municipalities historically had inconsistent practices regarding surplus from tax sales. While 32 V.S.A. Section 5256 required surplus return, enforcement was lax. Tyler elevated this to a constitutional obligation.
- Strict Foreclosure: Tyler's principles apply to strict foreclosure when equity exceeds the debt. Vermont courts are increasingly scrutinizing strict foreclosure requests and requiring proof that no significant equity exists, or alternatively ordering foreclosure by sale.
- Act 73 of 2024: Strengthened municipal surplus return requirements and established notice and record-keeping obligations.
- Act 74 of 2024: Regulated surplus recovery agents.
- Retroactive Claims: Former owners from pre-Tyler tax sales and strict foreclosures may have constitutional claims for surplus/equity that was taken without compensation. The scope of retroactive liability is still being litigated.
Edge Cases
Strict Foreclosure and Equity: The most significant edge case in Vermont is the intersection of strict foreclosure and equity. When a lender forecloses strictly on a property with substantial equity, the former owner loses equity without any surplus being generated. Post-Tyler, these former owners may have claims for the equity value that was taken. This is an evolving area of law.
Resort Communities: Vermont's ski resort communities (Stowe, Killington, Stratton, Sugarbush area, etc.) and the southern Vermont exurban corridor (Brattleboro, Manchester, Woodstock) have high property values and significant seasonal ownership. Tax sale properties in these areas can have very large surplus potential.
Deceased Owner: Vermont requires probate for heirs to claim surplus. Vermont permits simplified probate for small estates under 14 V.S.A. Section 1902 (estates under $45,000).
Act 250: Vermont's Act 250 (10 V.S.A. Section 6001 et seq.) is a statewide land use planning law that requires permits for significant development. Properties with Act 250 permits or conditions may have restrictions that affect value and surplus. Foreclosure purchasers may be subject to Act 250 conditions.
Current Use Taxation: Vermont's Current Use program (32 V.S.A. Section 3751 et seq.) provides reduced property tax assessments for agricultural and forest land. Withdrawal from Current Use triggers a Land Use Change Tax of 10% of the fair market value of the developed land, plus 10% of the fair market value of the undeveloped land. This can create sudden tax obligations leading to delinquency.
Town Land Records: Vermont records deeds and liens at the town level (town clerk's office), not the county level. Each of the 251 municipalities has its own land records. This fragmentation creates operational challenges but also competitive barriers.