Liens

A creditor may place a lien on a debtor's property if a court has entered a money judgment against the debtor. For example, the defendant who loses a car wreck case where the plaintiff is awarded $100,000 will have a judgment against the defendant in that amount. The creditor (in this case, the plaintiff) can attempt to collect by seizing the debtor's property and selling it or garnishing a bank account. However, because those options typically yield little or no money to pay off the judgment, judgment liens are commonly placed on a debtor's real property.

If I place a judgment lien on my neighbor's property for the $10,000 money judgment she owes me, can I force a sale of the property?

Probably not. Typically, homestead property is exempt from seizure and sale to pay a judgment. Additionally, your lien is probably in second or even third place, after mortgage company liens.

How is a judgment lien ever paid if it is placed on exempt real property?

The judgment is paid from the proceeds remaining after the mortgage is paid off when the house is sold.

EXAMPLE: A person who owns a home sells it for $100,000. She owes $75,000 on the mortgage so her profit is $25,000. However, you have a judgment lien on the property for $25,000. When the house sale closes, you will get a check for $25,000.

TIP: Judgment liens "cloud" the title to property, making it almost impossible to sell until the judgment is paid off. No buyer wants to purchase a home that has a lien on it as the lien stays on the property until it is paid off. This situation often provides the impetus for the debtor to work out a settlement with the judgment creditor to have the lien removed so the property can be sold.

If I file bankruptcy, can I get a judgment lien on my home removed?

Yes. If you have no equity in your home (once the amounts owing on it are deducted), the lien can be removed or "avoided."