Judgment Liens

If a creditor obtains a liquidated money judgment in court against a debtor, then the judgment creditor may also have a judgment lien on any real property owned by the judgment debtor. A judgment lien is a lien on the property of the judgment debtor and is one of the primary methods of debt collection under state law. In most jurisdictions, judgment liens are applied to real property, not personal property. The judgment creditor has the right to sell the property to satisfy its debt.

The judgment lien has some advantages over an execution lien. Because the creation of a judgment lien is simpler and quicker than an execution lien, it may have priority over other creditors with an execution lien, since, in most jurisdictions, the execution lien is not actually created until the sheriff levies the property. Another advantage of the judgment lien is that it automatically attaches to any property acquired by the debtor after the judgment. However, in most cases, the creditor must perfect the lien so that it is good against 3rd parties.

However, the advantage of an execution lien over a judgment lien in most states is that an execution lien can be attached to both personal and real property, whereas a judgment lien can only be attached to real property. A judgment lien cannot even be attached to the proceeds that the debtor would receive if he sold his property. However, the judgment lien would still be attached to the property and so it would be a liability to the buyers. Only in a few states, can a judgment lien be attached to personal property.

Creating the Judgment Lien

The creation of the judgment lien not only depends on the jurisdiction, but also depends on whether the real estate is located within the county of the court where the creditor obtained a judgment. If the debtor's real estate is located in the same county as the court issuing the judgment, then, in most states, a judgment lien is created at the moment that the court clerk dockets the judgment. In some states, the lien is created even earlier, at the moment that judgment is granted. However, increasingly, and for the benefit of real estate buyers, judgment lienholders must also record the lien in the real estate title records to perfect the lien against 3rd parties who may want to buy the property or lend using the property for collateral.

In those states that don't require real estate recording, any buyer of real estate would not only have to search real estate title records for encumbrances, but also would have the tedious task of searching the judgment dockets. To search the judgment dockets of the entire state would be virtually impossible, especially in real time, so that any new liens would be instantly available to would-be buyers of the real estate or other parties with interest in the property, such as lenders who may lend money based on the real estate. Hence, a judgment lien on any real estate outside of the county of judgment is not created until it is listed in the real estate record.

Although judgments of one state are recognized by others, as required by the full-faith-and-credit clause of the United States Constitution, the judgment creditor must take certain actions to attach a lien on property in a state outside of the judgment state. If a state has adopted the Uniform Enforcement of Foreign Judgments Act (UEFJA), then the creditor can just register the judgment in the other state, and then must perfect the judgment lien by recording it in the real estate records for the county in which the property is located. However, if the state has not adopted UEFJA, then the creditor must file a new lawsuit in the other state before a judgment lien can be attached to the debtor's property in that state.

The judgment lien becomes attached, not only to the debtor's current property, but to all property that the debtor may receive for the duration of the lien, which, in most states, ranges from 5 to 10 years. So if the debtor inherits property within the lifetime of the lien, but still hasn't paid the judgment, then the lien attaches automatically to the new property.

However, if the property is a debtor's homestead, then the property may be exempt up to a certain value, depending on the state. However, if the debtor moves out, then the judgment lien can be attached to the property.

Judgment Lien Priority, Enforcement, and Termination

A judgment lien is a general lien that does not attach to any specific real property, but to all of the debtor's real property, and the lien transfers with the property. So if the debtor sold the property, then the buyers would be subject to the lien, which is why the trend is to require recording of the lien in the real estate records. Note that the proceeds of the real estate sale are not attached by the lien. Instead, the judgment creditor would have to use execution and levy to attach the proceeds.

The priority of the lien against other liens is governed by the general rule that earlier liens have priority over later liens. The only exception is for purchase-money liens, which are created when a lender lends money to either buy or improve the property.

However, for property acquired by the debtor after the judgment, most states hold that the priority of 2 or more judgment liens on the same property is the same, regardless of when the judgments were docketed, since the judgment lien on newly acquired property is not created until the debtor acquires it. Only in a few states, does the creditor with an earlier judgment have priority over subsequent judgment creditors.

To enforce a judgment lien, the creditor must go to court to seek approval to foreclose on the property. If the court agrees, then it directs the sheriff to sell the property for the benefit of the creditor.

A judgment lien terminates if:

  1. the underlying judgment is satisfied;
  2. the judgment creditor files a release of the lien;
  3. or the lien expires at the end of its statutory lifetime.

Removing Judicial Liens on Exempt and Oversecured Property in Chapter 7 Bankruptcy

You may be able to eliminate or reduce judicial liens on exempt property that is oversecured, where the total of all liens is greater than the value of the property. Here, only bankruptcy law matters, not state law. Judicial liens have the lowest priority of all liens, regardless of when the liens were perfected. (Normally, under nonbankruptcy law, perfected liens have chronological priority, with earlier liens having priority over later liens.)

Use this procedure for calculating how much of the judicial lien can be avoided:

Property Value - Consensual Liens - Tax Liens – Statutory Liens - Exemption Amount = Remainder

For more information on how to remove liens in Chapter 7 bankruptcy, see Lien Avoidance - Reducing Or Eliminating Liens In A Chapter 7 Bankruptcy.