Judgment Liens

Let’s assume a creditor has obtained a judgment against you. A judgment is a piece of paper issued by a court that says you owe a creditor some money.

The creditor armed with a judgment can take your property, garnish wages, etc.
It’s up to the creditor.

If you own real estate, such as a home, the creditor may be able to have the property sold by the sheriff with some of the money going to the creditor to pay the debt.

As a practical matter, creditors usually do not have homes sold to pay judgment debts. It’s time-consuming and expensive.

Please note, Foreclosure of mortgages and deeds of trusts is a different subject. In this article, I’m talking about when an ordinary creditor, like a credit card company, gets a judgment against you. Mortgage and deeds of trust holders foreclose all the time.

So if an ordinary creditor gets a judgment, in theory, he can have your home or other real estate sold. But often a creditor does not want to go through the time and expense of having your home sold to pay a judgment. Instead, the creditor may simply record the judgment with the County Recorder. If that has happened then the judgment is a lien on your property.

You may not be aware that this has happened (although the County Recorder usually sends you a notice).

You may find out when you try to sell or refinance your property. You may be about to close escrow when you get a call from the escrow officer who asks you about the lien for $35,000 on your property. You will have to pay the lien off in order to close escrow. The amount of the lien will then be deducted from the amount you receive out of the escrow in connection with the sale or refinance. You won’t be happy!

Fortunately, there is a procedure when you are declaring bankruptcy to have these liens removed. This requires your attorney to file a motion to remove the lien. It’s called a Motion to Avoid a Lien.

It’s a fair amount of work for your attorney to file one of these motions and your attorney usually is entitled to be paid extra for this beyond the cost of the bankruptcy itself. It’s important that you tell your attorney about any judgments against you so you can discuss whether you want him to file the motion to remove the lien.

If your attorney didn’t remove the recorded lien you may call him years after the bankruptcy, when you are trying to sell or refinance the property.

Fortunately, it’s not too late.

Your attorney can ask the court to reopen the bankruptcy case to file the motion to remove the lien. This is more work for the attorney than if he had done it when you were originally filing Bankruptcy. And the court charges you a fee (around $260) to reopen your case. So it will cost you more to remove the lien after your bankruptcy closes.

Also, it can take several months to reopen a case and to file a motion to remove a lien. So you may lose the sale you are trying to close.

So it’s very important to tell your attorney about any judgments you know about and to decide whether to have that motion to remove any recorded liens.

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