What Is A Judgment Lien
Below is a MRR and PLR article in category Reference Education -> subcategory Legal.
Understanding Judgment Liens
Overview
A judgment lien is a legal claim placed on a property when a homeowner fails to pay a debt. It becomes significant when the homeowner attempts to sell the property, as the lien must be fully settled before the sale can proceed. Judgment liens can arise from various unpaid bills, such as credit card, utility, or home improvement expenses.
Key Characteristics
Unlike a trust, a judgment lien holder cannot foreclose on the property. They have to wait until the homeowner decides to sell to receive payment. To compensate for the waiting period, interest is typically applied to the lien amount, which can increase significantly over time.
Legal Process
To initiate a judgment lien, a creditor must take the homeowner to court. If the judge concludes that the homeowner owes money to the creditor and is unable or unwilling to pay, the court orders a lien against the property. This lien is recorded in land records, preventing the sale of the property until the debt is settled.
Multiple Liens and Payment Order
Properties can have multiple liens, creating potential complications during a sale. Liens are paid off in the order they were filed, with primary debts like mortgages settled before any judgment liens. In foreclosure situations, any remaining funds after paying off all prioritized debts go to address judgment liens, and any surplus belongs to the former homeowner.
Checking for Liens
Judgment liens and trusts are listed in different areas at the land records office. Both sellers and investors should verify these records to avoid surprises about debts attached to the property. Forgotten or unexpected liens can complicate sales and financial planning.
Managing Judgment Liens
While no one wants a judgment lien on their property, they are relatively common. Homeowners should strive to pay off these debts promptly to avoid accumulating substantial interest. Although payment can be deferred until the property is sold, addressing the lien sooner benefits the homeowner by clearing the debt and reducing financial stress.
Conclusion
Judgment liens are a protective tool for creditors to ensure they are eventually paid, with interest compensating for delays. While they can complicate property transactions, understanding and managing them effectively can minimize their impact.
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