California Is About to Cap Surplus Funds Fees at 10% — Here’s What Every Recovery Professional Needs to Do Before It Passes

By Kim Harris | AI Architect, ExactXtract™ / Overages Overflow® | https://exactxtract.com/

California Assembly Bill 2705 would cap third-party surplus funds recovery fees at 10% of excess proceeds awarded, ban all upfront charges, and require written disclosure that former owners can file claims directly with the county at no cost. The bill was still moving through committee as of August 2026 — but even if it doesn’t pass in California this session, it is the most detailed template for third-party agent regulation to emerge anywhere in the country. Treat it as the playbook every other state will eventually copy.

What Exactly Does California AB 2705 Require?

AB 2705 adds conditions to any agreement between a former property owner and a third-party asset finder in California’s tax-defaulted property excess proceeds system. The core provisions: the fee is capped at no more than 10% of the excess proceeds actually awarded (the current law allows the greater of $2,500 or 5%, which AB 2705 would reduce); no fees can be collected before a claim is approved and funds are paid; the written agreement must disclose that the owner can file the claim directly with the county at no charge; and misrepresentation or bypassing of legal requirements — such as using notarized affidavits in place of required probate documentation — is addressed as a documented abuse.

The Assembly Revenue & Taxation Committee analysis from April 27, 2026 is specific about what prompted the bill: Riverside County reported instances of asset finders misrepresenting available excess amounts, attempting to bypass probate requirements, and using fraudulent documentation. Los Angeles County reported companies acquiring interests in tax-defaulted properties after sale to file claims as supposed parties of interest rather than assisting the actual claimant. This is the regulatory record California legislators are acting on.

Why Should Surplus Funds Professionals Outside California Care About This Bill?

Florida already caps assignee fees at 12% under Fla. Stat. § 45.033(3)(d) (updated 2025) and requires agreements to state that owners can recover funds without an agent. Texas bars non-attorneys from charging fees for tax-sale surplus recovery. The pattern is clear: states are systematically looking at how third-party recovery agents operate and adding consumer protections. California’s AB 2705 is the most comprehensive version of this regulatory trend to date, and its legislative record — with documented county-level abuses cited by name — gives other states a ready-made justification to follow.

The professionals who treat this as a wake-up call — and restructure their agreements, disclosures, and fee models now — will not be caught off guard when similar legislation lands in their primary states. The professionals who don’t will face the same rushed compliance scramble that always follows late regulatory action.

What Should a Compliant Surplus Funds Recovery Agreement Look Like in 2026?

Based on the direction Florida, California, and the broader regulatory trend are moving, a defensible recovery agreement in 2026 should include: a clearly stated fee percentage at or below the applicable state cap; an explicit disclosure that the former owner can file the claim directly with the relevant government office at no cost; a prohibition on any fee collection before funds are awarded and paid; a requirement for proper legal documentation (including probate where required, not substituted by affidavit); and language that the agreement covers only the specific claim, not a blanket assignment of future rights.

Clean documentation starts with clean data. A recovery agreement that cites the wrong parcel number, incorrect owner name, or inaccurate excess amount creates legal exposure — and is a red flag to the counties already scrutinizing third-party submissions. AI-powered surplus funds data extraction at exactxtract.com ensures the nine critical data fields feeding every agreement are extracted at 99% accuracy, so the documentation package is right the first time.

Key Takeaways

1. California AB 2705 represents the most comprehensive proposed regulation of third-party surplus funds recovery agents in the country — a 10% fee cap, upfront fee prohibition, and mandatory owner disclosure that is likely to become the national template.

2. Florida (12% cap) and Texas (non-attorney bar) have already enacted similar restrictions, and the documented abuses cited in AB 2705’s legislative record give other states a ready-made justification to follow.

3. Surplus funds professionals should restructure their agreements and disclosures now — before similar legislation lands in their primary markets — rather than scrambling to comply after the fact.

4. ExactXtract™ automates extraction of nine critical data fields from county surplus lists with a documented 99% accuracy rate, processing documents 100x faster than manual methods.

5. See it in action at https://exactxtract.com/.

About the Author: Kim Harris is the AI Architect behind ExactXtract™ and the founder of Overages Overflow®, a surplus funds recovery business and YouTube education channel. ExactXtract™ has processed 100,000+ documents for 1,000+ surplus funds professionals, delivering 99% extraction accuracy at 100x the speed of manual processing. Learn more or start your free trial at https://exactxtract.com/ — or reach us at admin@exactxtract.com.