Charlotte’s Judgment Lien After Bankruptcy

Here is an interesting story about the experience of a judgment creditor by the name of Charlotte, and what happened regarding Charlotte’s judgment lien after bankruptcy.

Charlotte was taken to the cleaners by a shady character named Bob.  Bob cheated her out of several thousands of dollars in a real estate deal a few years ago.  When Charlotte woke up and smelled the baloney she decided to bring a civil suit against Bob.  In the course of events Charlotte ultimately won her court case.  Charlotte took her Certificate of Judgment to the county Judge of Probate and filed it which created a judgment lien on Bob’s house in the same county.

Click here to see a previous article about judgment liens on real estate property.

Bob never paid any money on the judgment debt he owed her.  A couple of years after winning her lawsuit, Charlotte received notice that Bob had filed for Chapter 7 Bankruptcy protection.  Due to the bankruptcy, her lawyer informed her that she could not attempt any collection activities on the judgment debt.  Later she found out her judgment had been discharged in Bob’s bankruptcy.  This meant that Bob was forever free from the judgment debt that had existed.

Charlotte was naturally disheartened to find out that Bob would get off the hook for the thousands of dollars that he had scammed from her.  But, she couldn’t do anything to change the facts of the judgment being discharged in bankruptcy.

This seemed to both Charlotte and Bob as the end of the story.  Charlotte and Bob had no further contact with each other at anytime after the bankruptcy.  She figured it was in her best interest to just forget about her loss and get on with her life.  She didn’t waste any time crying over spilled milk.

Three more years went by after the bankruptcy.  One day out of the blue, Charlotte received a phone call from Sharon.  Charlotte didn’t know who Sharon was.  Sharon informed Charlotte that she was considering purchasing a home in the county.  This particular home was the one Bob owned and where he had resided for over ten years.  In preparing for financing, Sharon’s bank uncovered the fact that a judgment lien had been recorded against the property a few years prior.  Charlotte confirmed to Sharon that this indeed had happened.  Sharon had been advised by her bank that Charlotte’s judgment against Bob had been wiped out in bankruptcy, but that the judgment lien on the property might still be viable.

Charlotte was flabbergasted.  She quickly contacted her attorney.  She told him everything that Sharon had said about the prospective sale of Bob’s house and the situation about the judgment lien.  Charlotte’s attorney did some quick research and came up with the fact that the bankruptcy court never actually ordered that the judgment lien on Bob’s real estate was being discharged.  The judgment was discharged, but not the lien.

To make a long story short, Sharon did go through with the purchase of Bob’s house.  At the real estate closing, a check was issued to Charlotte for almost $11,000 to clear up the title issues caused by her judgment lien.  Charlotte was ecstatic.  She finally received justice for the loss she had experienced at the hands of Bob five years prior.

Charlotte was fortunate.  She assumed that there was no chance to ever get any money from Bob once his bankruptcy occurred.  She didn’t know her lien survived the bankruptcy.  It is wise for any judgment creditor to do further research when one’s judgment debtor goes through bankruptcy.  If the court doesn’t specifically order that the judgment lien be extinguished, it well may survive.  We need to remember that just because a judgment has been discharged does not automatically mean that the judgment lien on property has been discharged.

Ah, hope springs eternal in the judgment creditor’s breast.

Don’t hesitate to consult a good judgment attorney or bankruptcy attorney to gain further clarification on this subject and to obtain professional advice.


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Superiority of Judgment Lien

This is short and sweet.  For those of you who have asked about the superiority of your judgment lien, here is the answer.

Remember that the lien which is filed first chronologically is the lien with the superior position over other liens.  It doesn’t matter if the other lien is a mortgage lien, mechanics lien, judgment lien, or whatever.  The first filed is superior.  When debtor property is sold in foreclosure, sheriff’s sale, etc. the money goes to the superior lien first.  Others with perfected liens against the debtor’s property (whether personal or real) will be paid in order until the money runs out.

Also, it is important to note that taxing authorities that hold a lien against the taxable property of a debtor are in possession of a lien that is superior to all others.

Many times a superior lien position is referred to as a senior position.  Superior or senior mean the same thing.

If you hold a judgment lien against a person or entity, it will behoove you to check the records to determine for sure whether your lien is superior or not to any other perfected liens.  This is particularly true if a sale of your judgment debtor’s property will not bring enough money to pay off all lien holder claims.

I hope this answers your questions about superiority of judgment liens.

Good luck as you successfully collect your judgment!


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Foreclosure on Judgment Debtor’s Real Estate

In the last few years record numbers of people have faced the threat of losing their home or other real estate to foreclosure.  If your judgment debtor becomes one of the unfortunate persons who could lose property to foreclosure, what effect does that have on you?  Believe it or not, it is possible that the foreclosure action against your legal adversary could be good for you.  Sometimes it enhances the possibility of your judgment being paid.

“How is this possible?” you ask.  There are several ways.  Let’s assume that you have a judgment lien on the real estate being foreclosed on.  If your judgment lien was recorded prior to the recording of the mortgage or deed of trust, your lien has a superior position to the mortgage or trust deed.  That means that if the judgment debtor’s property does indeed go to sale in a foreclosure auction, any superior lien must be paid off from the proceeds of the sale first.  Only after superior liens are paid, can the foreclosing mortgagee get any money from the auction of the property.  This means you will be paid for your court judgment.

Now let’s assume that your judgment lien was not recorded until after the mortgage or trust deed was recorded.  What could happen?  First of all, it is necessary to remind you that the overwhelming majority of real estate property that goes into the foreclosure process, never actually ends up being sold at a foreclosure auction.  Sometimes the debtor is able to borrow money from a conventional lending source.  This not only allows the foreclosure to stop, it probably will get your judgment paid and satisfied.  The reason is that most banks or other conventional lenders will require that any prior liens get paid off, so that the new money loan they fund will not be in an inferior position vis-a-vis other lien holders.

Sometimes a debtor will be able to totally refinance the entire debt on their property.  When this happens, all prior loans and liens that exist at that time will be paid off.  In this case, your court judgment will be paid.

Frequently the mortgagor (your judgment debtor) will be able to find enough money from friends, family, or by liquidating some assets to bring the real estate loan current and thereby stop the foreclosure.  If this happens, you won’t lose your judgment or lien position, but you are not likely to get your judgment paid through this process of bring the loan current.  Be patient, you are no worse off, you just have to keep trying.

If your judgment lien is in a junior position and the property actually sells at auction, what can happen?  First, if the sale price is sufficient for all liens superior to yours to be more than satisfied, any additional funds from the sale will be applied to your judgment lien.  Once again, you will be paid.

What if the sale price is not sufficient to cover all property liens superior to your and yours also?  In that case your judgment lien on the property is said to be wiped out at the sale.  This means the lien will expire.  However, it does not mean that your judgment expires.  Your judgment still exists and can be collected through whatever legal means you can employ.  It only means that you no longer have a lien against the particular property that sold at the foreclosure auction.  You still can have judgment liens against any other real estate that the judgment debtor owns.

Please note, in some states and jurisdictions you may still possess a right of redemption to buy the foreclosed real estate after the sale, up until the right of redemption runs out.  In my state this right of redemption lasts for a full year after the sale.  In this case if the sale price is insufficient for me to get paid from the sale proceeds, I have a right to buy the property for the same price as it sold for at the courthouse auction.  Of course I would only exercise my right of redemption if there would be substantial enough instant equity in the property if I bought it at that price.  If buying the property makes sense, I can buy it with sufficient equity and the virtual effect of doing so is that my judgment gets paid!

You can see by these examples that when your judgment debtor’s property is in foreclosure, there are real concrete possibilities of getting your judgment paid in full.  Basically there are no judgment collecting activities for you to have to perform to make it happen.  It is pretty much automatic when you get paid this way.  You don’t want to delay in getting a judgment lien put in place on any real estate that your debtor owns.  You don’t want to miss this opportunity to get paid because of the debtor’s mortgage difficulties.  Getting your judgment satisfied in these situations is easier than taking candy from a baby!


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How to Collect My Judgment Using Lien on Property

One of the most helpful tactics to employ in the process of enforcing a judgment is to create a judgment lien on property belonging to the debtor.

The process for creating a judgment lien is usually quite simple.  The exact process will vary from state to state, but most states allow a property lien to be created by the judgment owner.  The actual terminology of the documents and other details will also vary according to which state you are dealing with.

In California the judgment owner files an Abstract of Judgment with the County Recorder’s Office in the county where the debtor’s property is located.   A few days later the County Recorder will send the debtor a notice of the lien.  Whenever the judgment debtor finds out that a lien has been put on his property, he will discover that having a judgment against him is serious business.

In Alabama a judgment lien is established when a Certificate of Judgment issued by the Clerk of Court is filed at the County Probate Office.  This lien only applies to property located within that county.  If the debtor owns real estate in more than one Alabama county, a Certificate of Judgment must be filed with the Probate Office in each county where property is located, if you want a lien to be established there.

Occassionally notice of the lien is sufficient to convince the debtor to pay the judgment.  A judgment lien is a real encumbrance to the property.  The judgment debtor may be at risk of having the property sold by the sheriff in order to satisfy the judgment debt.  At the very least, having a lien will make it more difficult or impossible to get financing or refinancing on the encumbered property.  The bank will almost always require the judgment debtor to pay off the judgment when any financing is approved.

I have owned judgments that I had basically given up all hope of ever collecting.  Then one day out of the blue, the property is sold or refinanced, and the next thing you know, I get paid for the judgment in full.  It is easy to see how a simple process of establishing a lien can be a great tool in collecting a money judgment debt.  Establishing a lien on property is one of the very first actions to take when you win a judgment against your adversary.


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