Understanding Judgment Liens
You know how sometimes, you might hear about legal stuff and it sounds complicated? Well, a judgment lien might sound intimidating, but it’s really just a way for someone to collect money that you owe them because of a court ruling. Let’s break it down.
What’s the Deal With Court Judgments?
Before we even talk about a lien, let’s quickly review what a judgment is. Imagine you get sued, and the court decides you owe the other person money. That court decision is called a judgment. It’s basically a formal declaration that you owe a specific debt.
But, what happens if you don’t just hand over the cash right away? That’s where the judgment lien comes in. It’s a legal tool for the person you owe the money to (the creditor) to make sure they eventually get paid.
How Does a Judgment Lien Work?
Here’s the nitty-gritty of how it works:
- Lawsuit and Judgment: First, there’s a lawsuit. Someone claims you owe them money, and the court agrees. The court then issues a judgment against you.
- Creating the Lien: The creditor doesn’t automatically get access to your money or property. Instead, they have to “perfect” the judgment by filing it with the appropriate public records office, which is usually with the local county clerk’s office or similar entity. This process is also often referred to as “recording” the judgment. This recording creates a judgment lien.
- Securing the Debt: Once recorded, the lien attaches to any real property you own in that county. This means, for example, that if you own a house, the creditor now has a legal claim against your house.
- Priority: Judgment liens are not always the only liens on the property, so it’s important to note that liens are typically paid off in the order they were filed. Meaning a mortgage, which is a first lien, would always get paid before a judgment lien, which is a subsequent lien. Therefore, a lien in position 1 gets paid first, a lien in position 2 gets paid second, and so on.
- Effect on Selling Property: If you decide to sell your property, the judgment lien will likely need to be paid off before you can get clear title. This means a portion of the sale proceeds would go to the creditor to satisfy the debt.
- Foreclosure: If you don’t sell the property, and the debt remains unpaid, the creditor may have the option to try to force a sale of the property, called a foreclosure, to collect their dues.
Who is Affected by Judgment Liens?
Judgment liens primarily affect individuals or businesses that have lost a lawsuit and owe money to another party. It’s important to know that judgment liens generally only apply to real property, like houses and land. If you only have personal property (like a car or furniture) then the lien will not be able to be placed on that.
This can be anyone from an individual who was sued over an unpaid credit card, a tenant that was evicted and has unpaid rent, to a business that failed to fulfill a contract and was sued.
Judgment Lien Examples
Let’s look at a few examples:
- Scenario 1: Unpaid Medical Bills: You have a large unpaid medical bill. The hospital sues you and wins. They get a judgment, record it with the county, and get a judgment lien on your house. If you sell your house, a portion of the proceeds will go to the hospital.
- Scenario 2: Business Debt: Your small business defaults on a loan. The lender sues and wins, getting a judgment lien on your commercial property. This can severely impact your ability to sell, refinance or borrow more on the property.
- Scenario 3: Car Accident: You’re at fault in a car accident and are sued by the injured party. The court orders you to pay damages, and the other person gets a lien on your house.
Understanding Different Types of Liens
It’s useful to note that judgment liens are just one type of lien. There are other kinds, including:
- Tax Liens: These are created when you owe the government (federal or state) unpaid taxes. They can have special priority and can be enforced very aggressively.
- Mechanic’s Liens: These are filed by contractors or other workers when you fail to pay for their services in improving or maintaining property.
How to Deal with a Judgment Lien
If you have a judgment lien against you, here are some strategies to consider:
- Negotiate with the Creditor: It’s usually better to try to work something out with the creditor. You might be able to negotiate a payment plan or a reduced settlement.
- Pay the Debt: The most straightforward way to remove the lien is to pay off the debt in full, along with any interest and penalties.
- Challenge the Judgment: If you think the judgment was wrong, you might be able to appeal the decision, but there are strict time constraints.
- Bankruptcy: In some situations, filing for bankruptcy can discharge (eliminate) the debt and potentially remove the lien, though this is not always the case. This should be a last resort option.
- Let the Lien Expire: Judgment liens do expire after a set period of time, which varies by state, but you may still owe the debt, even if the creditor no longer has a lien on your property. The creditor can also file to extend a judgment lien as well before it expires.
Common Mistakes and Misconceptions about Judgment Liens
- It is not just your bank accounts: Many people mistakenly believe that judgment liens affect personal assets like checking or savings accounts. Typically, only real property is affected, unless the creditor actively tries to seize other assets separately.
- Ignoring the Lien: Ignoring a judgment lien won’t make it go away. It will continue to encumber your property and could eventually lead to foreclosure.
- All Liens are Created Equal: As mentioned previously, liens are paid in order of priority. A first lien will always be paid off first before a later lien.
- Liens automatically disappear: Just because you forgot about the lawsuit does not mean the judgment lien goes away. Typically, creditors need to take some action to actively remove the lien after the debt is paid. This may involve filing a satisfaction of judgment with the county recorder’s office.
The Bottom Line
Judgment liens are a serious issue that can have significant financial impacts. It’s important to understand what they are, how they work, and what you can do to manage or avoid them. If you are facing a judgment lien, it’s a good idea to seek legal or financial advice to help you navigate the situation effectively.