A judgment lien is a court-ordered, involuntary lien that grants a lender the ability to take possession of a borrower’s property if the borrower fails to meet his or her financial obligations to the lender. Because unsecured debt is difficult to collect after a borrower stops making payments, a judgment lien is the best way for lenders to recoup their losses.
A judgment lien prevents a property owner from refinancing or selling his or her property until a debt has been repaid. If a debtor does not satisfy his or her debt, his or her property may be seized and/or sold.
A lender may only place a judgment lien on a borrower’s property if the lender files a lawsuit against the borrower and wins. If the court indicates that a judgment is a proper legal remedy for the damaged party to collect their money, an abstract of judgment is issued. This written statement from the court summarizes the terms of a judgment against a borrower and/or places a judgment lien on the borrower’s property.
When a borrower does not own real property on which to place a lien, a lender has the right to place a lien on the borrower’s future real estate purchases.
Lien Termination and Priority of Liens
The priority of judgment liens is based on the date of judgment. However, judgment liens never take precedence over purchase and refinance-based liens which are mortgages, or tax liens.
Judgment liens can be terminated for the following reasons:
The borrower pays off the debt
The borrower declares bankruptcy
The borrower and lender reach a settlement
Statute of limitations is reached
If a borrower pays off his or her debts, the county must be informed and remove the judgment lien from the property within 20 business days of the payment.
If both the lender and the borrower consent to a settlement — which could be a full or partial payment of the original debt — the judgment lien may be removed. A lender will usually consider settling a debt for pennies on the dollar as a way of recouping some of their losses.
The statute of limitations for a judgment lien is ten years after its recording. If a property with a judgment lien forecloses and the borrower buys a new property within the ten year time frame, the judgment lien shifts to the borrower’s new property. If it is more than ten years, however, the lender loses the right to collect the debt.
Judgment Lien Specifics
In the context of real estate, a judgment is a court ordered lien placed on a property owner’s title when the property owner owes money for a debt. A judgment lien is a lien attached to the landowner’s property by an aggrieved contractor or service worker that claims to be owed money. The execution of a judgment lien against a property occurs when the plaintiff wins the right to record the lien in court. For this to happen, the court must determine the plaintiff’s claims are valid and therefore enforceable. If rendered as such, the aggrieved party has the right to order a judgment lien.
The losing party of a legal case can appeal the lower court’s ruling. If appealed, the case will go to a higher court, typically the court of appeals. The ruling of the appellate courts is usually final, unless the case is deemed a subject of great concern for future cases. In this occurrence, the case may then go to the state’s Supreme Court. Incidentally, if the case is not appealed on time, the lower court’s ruling will remain. In an appeal, the court may rule in favor, against, or partially in favor or against the lower court’s ruling.
A judgment lien can be placed on real property after the plaintiff wins the lawsuit. Following the decision of the court, the creditor will then record the judgment with the county. Judgment liens are placed only on property in which the discrepancy occurred or the county where the property is owned.
Judgment liens will remain on the property for 10 years. Even if the party who has a lien on the property purchases new land, it may attach to the newly purchased property. A judgment lien is effective against any property that is nonexempt from the rules guiding judgment laws.
Case Law As It Relates To Judgment Lien
Case Review: re Marriage of Cloney (2001)
In re Marriage of Cloney (2001) 91 Cal.4th 429, an escrow agent did not disclose knowledge of a seller’s name change to the buyer.
An escrow agent failed to disclose all vital information to a buyer. The escrow agent had full knowledge that the seller had changed his/her name, but did not disclose it to the buyer. This seller had a judgment lien on the subject property. The judgment lien on the seller’s property caused the buyer to purchase a property free of liens which meant the buyer did not have full ownership of the subject property.
The Superior Court determined that it was the duty of the escrow agent to disclose information about the seller to the buyer, including a valid judgment lien recorded against a debtor with multiple names.
