Judgment Lien

Published on :

21 Aug, 2024

Blog Author :

Edited by :

Reviewed by :

A Judgment Lien refers to the lien entitled to the creditor by the court. It gives the creditor the right to keep possession of property belonging to the debtor until the debt owed by the debtor is discharged.

What Is Judgment Lien?

Judgment liens are court orders providing a creditor the right to take control of the debtor's property if the debtor fails to pay back a loan or does not abide by the contractual obligations.
These liens are nonconsensual and are attached to the property without the owner's consent.
Every state in the US has its laws furnished for it; hence it may vary by state.
The entity obtaining the court judgment against the debtor is called the judgment creditor, and the debtor or the entity which failed the lawsuit filed by the creditor is known as the judgment debtor.

Judgment Lien Explained

A judgment lien is the process by which a party attaches itself to the property of another party with an aim of recovering the lent amounts. These procedures by courts, in short, help creditors in their recovery process due to breach of contracts by the debtors. For example, if a creditor is sure that the debtor will not make payments on the debt, the creditor can pursue a lien on the debtor's property to increase the chances of recouping some losses. This provision reduces the amount going into bad debt expenses.

An unsecured creditor cannot simply put a lien on the property without securing a court order. It requires the creditor to sue the debtor, prove the fact in the court, and if the lien is established, the creditor will have the authority to take possession of assets equivalent to the value owed by the debtor. The statute of limitations on judgment liens reveals important information. First, the duration of the lien varies by state; for example, in California, it is ten years, and in Florida, it is five years from the original filing date.

The goods that are subject to a judgment lien may differ by state. It can be attached to the debtor's real estate, personal property, and other assets, like vehicles. Let us take a look at the situation of judgment lien in California. It can be connected to the debtor's real estate, such as a house, building, or land, or attached to the debtor's personal property, such as jewelry, art, antiques, and other valuables. In contrast, it can only be linked to personal properties in some other states.

When a judgment lien is enforced, it changes the ownership status of the debtors. This is because the process lets the lenders sell the debtor’s property and thereby transfer ownership rights to the highest bidder and buyer, who then settles the debt of the original owner.

Secondly, it also affects the credit score of the debtors. This would mean no future loans approved from the lenders for those on whom judgment lien has been enforced at any point in time.

The next major impact of such liens is that it leads to decrease in the value of the property in the long run. The buyers may not prefer buying homes that have some debt obligations associated with it.

How To File?

For the judgment lien to put forth, the creditors must obtain a court order first. Once this order is acquired against the debtors, creditors are free to file this lien on the property. To put this lien, the creditors need to connect and file with the record office in the country where the property of the debtor is located. This way, the creditor tries to attach themselves with the debtor’s property so that they can recover the amount which the latter has defaulted on.

The judgment lien gives creditors the right to initiate garnishment and foreclosure when the debtors fail to repay the creditors the loan amount. This lien is supervised and guided by multiple sets of rules and regulations and hence the process is legally monitored all time. When this lien is exercised on the real estate property, the creditors acquire the right to sell the house of the debtors forcefully to recover their money. However, this is, no doubt, the last resort for any creditor. They try to get back their money in all ways and when nothing works, they go for judgment lien option.

This lien when supported by a court judgment can lead to foreclosure.

How To Enforce?

There is a series of steps that one must follow to ensure proper enforcement of this lien. Let us have a look at some of the steps below:

The first step is to be aware of and know the laws. Every state or country has different set of rules concerning such liens. Hence, it is important to explore this part of the process. While there are a few record offices that would automatically start with activating the lien when one files the matter, the others may want creditors to submit court’s judgement before they begin with approving the filing.
One must know the legal aspects of the process. Taking assistance from a legal expert is the best source of help in this matter.
There is no specific timeframe assigned to this process. It might take shorter time or might take years to be enforced effectively.

Examples

Let us consider the following instances to understand the concept well:

Example 1

Jake wanted to buy a luxury car. Since he didn't have enough money, he financed the purchase using a car loan with a high-interest rate. However, due to the financial crisis, he defaulted on EMI for a long period. Also, the bank couldn't recover the balance of the loans even after repossessing and reselling the car; hence resorted to filing a lawsuit against Jake to collect what remains. If the bank wins the lawsuit with the court passing a lien on Jake's remaining assets, the bank can possess other assets, including all his bank accounts, even the accounts where he is a co-signer.

Another example is the judgment lien in the real estate field, where a real estate agent filed a lien after the property owner failed to pay the full amount as per the contract. When the agent filed a lawsuit, the homeowner was found guilty and had to pay the amount to fulfill the contractual obligation. However, the agent also claimed attorneys' fees, and it is legal for the agent to enforce his lien granted by the court to recover the remaining amount against the attorney's fees.

Example 2

Let’s take the general case of 20 years. It will be active for 20 years unless it is discharged or fulfilled. A creditor can renew such lien making it active for another 20 years by filing a notice of renewal in the same manner as the judgment and relating to the date the judgment is filed, given conditions like the notice of renewal is filed before the 20-year period expires to prevent the lien from expiring and the court validates the revival.

How To Avoid?

There are ways in which debtors can avoid being trapped by the judgement lien. Let us have a look at the measures of removing the effects or avoiding such liens:

Many provisions are there to help debtors to apply and request for exemptions.
There are legal regulations to help debtors to challenge the lien or defend their matters.

Judgment Lien vs Property Lien

When it comes to liens, there are many types that one may come across. Judgment lien and property lien are two most common ones, the differences between which have been listed below:

Judgment lien is when the debt recovery order comes from the court and the debtor has to forcefully sell the property. On the other hand, property lien is the process where debtors willingly sell their property for debt recovery.
In judgment lien, the creditor put the lien on the property, while in property lien, the homeowner puts the property as collateral to back up their loan.
In short, the former is a non-consensual lien and the latter, i.e., the property lien is the consensual lien.

Frequently Asked Questions (FAQs)

What is a judgment lien?

If the debtor fails to meet contractual commitments, a court order authorizes the creditor to control or utilize the debtor's property. It is passed in the creditor's favor, assisting him in recovering his losses. In this scenario, the creditor is referred to as the judgment creditor, while the debtor is referred to as the judgment debtor. These liens are non-consensual, meaning they are placed on the property without the owner's (debtor's) consent.

Do judgment liens expire?

In the United States, every state has its own rules regarding the lien. Therefore, it may differ by state. However, the lien is generally valid for 20 years unless discharged. Also, the creditors must reapply to the court to prolong the lien further if required.

How to remove a judgment lien from a personal property?

There are different ways to remove it from the property. The common way is to clear the debts to free the property from lien. Other solutions include negotiating with the creditor based on conditions like a partial payoff and automatically separating after the statute of limitation expiration.