Creditor's Liens And Foreclosures

I am a judgment broker, and not an attorney. This article is my opinion, and not legal advice. When you ever want a strategy to use or legal advice, please contact an attorney. Long ago, when the housing market was booming and a debtor owned property, recording a judgment lien was sometimes the automatic way to get your judgment satisfied.

Our present economy has eliminated most of the automatic part of recording liens to get a judgment paid, yet sometimes lien recordings are still (often a very long-term) a way to get a judgment paid.

In the last decade or so, an incredible amount of homeowners have either lost their houses, or are now faced with the chance of being forced out of their home or other real estate in a short or foreclosure sale. How does foreclosure, or other judgment debtor property sales, effect a judgment creditor having a lien previously recorded on the debtor's real estate?

If a judgment debtor gets behind on paying on a property loan, that is usually not good news for creditors. However, sometimes a foreclosure proceeding on a debtor's real estate can be good for a judgment creditor, potentially raising the chances for their judgment to be paid.

An ideal situation is when you recorded a judgment lien way before a judgment debtor's real estate was foreclosed on, and prior to when the mortgage lender recorded their mortgage or deed of trust. In most states and situations, the first to record a lien is usually the winner, so that makes your lien superior to the mortgage lender. Most often, with property sales or foreclosure auctions, all previously recorded (superior) liens (e.g., a judgment creditor's lien) must get paid first from any net proceeds of the property sale.

However, the first record their lien wins, is not always the case. In some jurisdictions, for example Florida, things are not always fair. I learned of a case where a judgment owner recorded a statewide judgment for fraud lien on their judgment debtor that owned bare Florida land. A negligent lending company ignored the judgment owner's Prior properly-recorded lien, and loaned the debtor a huge construction loan to build a big house on the debtor's raw property. After the judgment debtor's home was nearly finished, the judgment creditor started a Sheriff's sale, because no declaration of homestead was possible because the home was not yet the judgment debtor's residence.

The Florida lending company then sued the judgment creditor to end the Sheriff auction sale and to get quiet title to the property. After a court proceeding, the judge hastily sided with the lender. The judge decided that it didn't matter that the creditor was the first to record their lien, the lender made a loan, and they deserved to be repaid, and the lending company did not defraud the judgment creditor, so the judgment owner got burned.

What if you recorded your judgment lien after a lender's mortgage or trust deed got recorded? Sometimes, real property that begins a foreclosure proceeding, never actually ends up being sold at the foreclosure sale.

Sometimes a mortgagor (the debtor) is able to borrow money from a conventional lending company. That not only ends the foreclosure process, it might also get your judgment paid. Most conventional lenders and banks require that all prior liens be satisfied. This is so their new loan won't be in an inferior position to other lien holders. When that happens, your court judgment will be settled or paid off in full.

Sometimes a judgment debtor can get enough money from friends, family, or by selling some of their assets, to bring their real estate loan current to end the foreclosure sale. If that happens, you probably will not be paid at that time, however your lien and judgment will remain valid, allowing for a future chance to be paid.

What if the lien for your judgment is in a junior position, and your debtor's property actually sells at an auction? If the sale price is above what is needed for any liens above yours to be satisfied, the additional money from a sale will be applied to your judgment lien, to get you partially or fully satisfied.

Of course, if a judgment debtor's house gets| foreclosed on, there is usually insufficient equity to pay all the liens superior to the judgment creditor's In that situation, the judgment owner's collateral for the judgment lien on the property will be wiped out at the sale, and that creditor won't be repaid a dime. The judgment owner's judgment and general lien remains, however it no longer attaches to the foreclosed property. Their lien still can attach to other properties the debtor may currently own now or in the future.

For judgment owners with lots of assets, if a debtor's property gets sold at auction, in certain states and jurisdictions, the creditor might have a redemption right to buy the foreclosed real estate after a sale at a foreclosure auction, until the right of redemption time limit runs out. This only makes sense if you get instant equity with the purchase, that would most often satisfy the judgment.