Subject: Judgment Liens

Question:

I am trying to sell my property and the title company told me that I have a judgment lien

that must be paid before the sale can close. I have not been sued so how this be true and how

do I get rid of it? Help!

Answer:

Assuming the judgment is valid, one possibility is that the plaintiff was granted an order

allowing service of the lawsuit by publication in a local newspaper. If a defendant is not aware

of the publication (many are not) and the time to respond to a lawsuit expires, the defendant

has a certain time period to file a notice of default and subsequently apply to the court for a

default judgment against you. In some states, an order for judgment or final judgment

constitutes an automatic lien against your property. However, in most states the judgment

must then be recorded at the County Recorder’s office to perfect the lien against your

property. Also, many owners are not aware that recorded judgments may affect property

acquired after the judgment was obtained. The owner later discovers that a lien exists and

must be paid before the property can be sold and refinanced.

Judgments expire after a period of years, the number of which depends on the state’s relevant

laws. If you are the plaintiff, you may want to ensure you are aware of that expiration date in

the event you want to renew the judgment. If you are the defendant and the plaintiff forgets

to renew or simply chooses not to for whatever reason, you are in luck.

There are several ways to remove a judgment lien. If there is a legal basis and assuming you

are within the court’s time limits, you may have the option of moving the court to set aside the

judgment. However, there are specific criteria that must be proven first, i.e., newly discovered

evidence that would have changed the outcome of the case, fraud, a void judgment, lack of

jurisdiction, wrongfully filed lawsuit, etc. It is a good idea to consult with a real estate attorney

who can evaluate the situation and recommend whether or not there are sufficient grounds to

file such a motion.

If there is no legal basis to set aside the judgment or the court denies the motion for lack of

evidence and the judgment stands, there are several options to satisfy the judgment and

release the lien it created. You may pay the judgment together with statutory interest in full,

but you might first want to explore the potential for negotiating the judgment balance with the

plaintiff/creditor. Keep in mind that if a creditor has information about your employment,

other income or assets, the creditor has the option of collecting the entire balance via wage

garnishment, bank garnishment (multiple bank garnishments if the first one does not pay the

judgment balance in full), rental income garnishment, and/or seizing and forcing the sale of

assets that are not exempt considered exempt. The homestead exemption is one example and

the statutes vary depending on the laws in your state. If the creditor is confident that the

judgment can be executed, there may be less chance to negotiate the judgment balance.

Generally, if you are unemployed, your income is exempt (social security income would be one

example of exempt income), you have little or no money in the bank and/or do not own assets

that can be seized, the judgment creditor has few options and more likely to be open to

negotiation or agreeing to a payment plan providing for payments over time. The latter might

work well in cases where a home sale or other time-sensitive issue is not pending, or you may

be able to convince the creditor to satisfy and release the judgment lien in exchange for a

payment agreement stipulating that the debtor will agree to an entry of judgment in the event

of a default on the payments, the specific terms of which can also be negotiated. Another

factor to consider is whether there will be proceeds out of the sale or refinance. If yes, you

may be able to pay the judgment out of the proceeds as part of the transaction closing. Finally,

you may be able to negotiate a lump sum settlement for a portion of the judgment balance.

Some defendant debtors who meet the qualifications choose to file Chapter 7 bankruptcy to

discharge all their debt, including judgments and debts incurred before the bankruptcy is filed.

However, if you are in the process of selling or refinancing your home, a bankruptcy filing may

place a hold on anything in progress pending the outcome of the bankruptcy. Debtors who

meet the qualifications to file a Chapter 13 bankruptcy providing for payments on all your debt

directly to the bankruptcy court trustee assigned to your case. However, again, if a sale or

refinance of your home is pending, this may cause a delay, so it is important to obtain legal

advice so that you can make an informed decision.

Once the judgment balance is deemed paid in full, the creditor should satisfy and release the

judgment lien. Depending on the laws in your state, this may mean simply filing a satisfaction

of judgment with the court, but in most states, a release would also have to be recorded with

the County Recorder’s office. Unfortunately, not all creditors take the time properly satisfy

and release the judgment, so it is a good idea to follow up with the creditor and ensure that

you receive copies of the documents with the court and recorder’s stamps. If you have those

documents in your files, you will be ready if you need to correct a credit bureau reporting or

present to a title company