If you are in this position, it means a ruling was made against you in favor of a creditor or a party you owe money to that filed a suit against you. A court order empowers a creditor to seize property from you to satisfy the judgment.
Based on this ruling, the judgment creditor—also known as the judgment holder—can record a lien against your house through the county or any other authorized recording agency.
Once the lien attaches to the property, it imposes restrictions on selling the house or refinancing the mortgage. This puts you in an awkward position if you must sell the house.
You are probably asking yourself if it’s even possible to sell your house with a judgment against you that is still in place.
The good news is that you can sell the house even after the judgment against you has been declared. The bad news is that it will be a difficult sale to a tough audience, so you will be forced to settle below the prevailing market value.
A property lien makes it hard, or in some cases even impossible, to sell. You can’t close the sale because the title cannot be transferred to a new owner if it has a court-ordered lien.
Besides complicating the sale, it will adversely affect your pool of prospective buyers. The least painful approach if you are looking to sell the house is to pay off the judgment lien if you can and free up the property before it is listed.
Judgment creditors will release the lien they hold against your house upon receipt of the full unpaid debt. When the property title is transferred to the new property owner, the recently released lien doesn’t appear on it, nor will any previous judgment liens if they existed.
Your creditors can no longer record liens against this particular title in their debt collection efforts because it has a new owner.
Unfortunately, the odds that you will have access to this cash are slim when there is a court judgment against you. That you are a judgment debtor already implies that you are struggling to make ends meet.
The judgment will also appear in your credit report, which lowers your credit score significantly. This means it will be hard to qualify for financing elsewhere.
Your only way out might be to find a way to sell the house while the judgment lien is still in place.
Only the creditor has the authority to release the debtor’s property if they placed a lien on it. You can proceed with the sale, receive offers and even execute a sale and purchase agreement with the buyer without violating the court judgment.
However, the sale cannot be closed until the judgment creditor releases the lien to allow conveyance of the title. They will only do this if their debt is settled.
If you can’t raise the judgment debt from other sources but have sufficient house equity to afford it, you can wait for the buyer to pay and use the proceeds to satisfy the secured debt.
The escrow company will allocate the proceeds directly to the creditor, and your bank account will only receive what is left over if there are any overheads.
If your house equity is insufficient to cover the judgment debt, you will not be able to close the sale until you have enough funds to clear it.
The judgment creditor might decide to foreclose on your house and recover what they can. They are better off waiting for you to build equity or gather enough funds to clear the debt.
Enforcing a judgment lien on real estate is expensive because it transforms a simple civil procedure into a full-blown lawsuit involving multiple stakeholders like real estate attorneys and financiers who hold a mortgage lien over the property, among others. Other processes like title searches, eviction, and advertising the foreclosure auction require time and resources.
It is impractical to expect to recover all these costs plus the judgment debt from a foreclosure auction when the debtor’s equity in the property is deficient. The judgment creditor might hold off that foreclosure.
If you feel like your creditor will foreclose on the house anyway, yet you can’t raise the lump sum, there is an option of moving to bankruptcy court and filing for Chapter 7 Bankruptcy.
You will be put on a court-mandated repayment program of your own design that protects the house from foreclosure for a certain period. You will have bought peace of mind and plenty of time to sell the house comfortably.
A lien means a third party (the creditor) has a legal claim on your house because you owe them money. They don’t need your consent to foreclose on the judgment lien property as payment if you don’t settle the outstanding debt.
It is also evidence of financial distress, which the average buyer doesn’t know how to deal with. They will probably run for the hills when their title search turns a lien against your house.
You need to be forthcoming with information about the property lien and devise a plan to address it so you can reassure the buyers you get to talk to.
Because the judgment lien attaches to the property and not the individual, it will stick with the property even after you sell it unless it is satisfied before closing.
In most cases, the first lien holder will be given priority when paying if the house is foreclosed. If another party manages to attach a lien to the same property afterward, they will be paid with what is left after the first lien holder has been satisfied.
For this reason, financiers will be reluctant to fund property with outstanding liens. When lending institutions furnish a secured debt, they will not risk their security being seized by a third-party debt collector in lieu of payment.
It is easy to establish if a title has or has ever had a lien filed against it because they are filed through the local county records office. This renders them a matter of public record that is accessible to everyone. A judgment lien will therefore reduce your market size significantly.
Some buyers have the risk appetite to buy the house as is, along with the judgment debt.
They will take over the responsibility of settling the debt and lifting the lien. In exchange, you will have to agree to a discount on the asking price to cover the cost of debt.
These are investors, real estate developers and cash buyers who aim to flip the house and profit from it. They will be more interested in what the housing market looks like than the circumstances under which you wound up with a judgment against you.
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The judgment against you on its own doesn’t place a lien on your assets. The judgment creditor must find your assets and get a court’s aide to attach a judgment lien to a specific asset. It is then docketed in the county land records to make it effective.
Until then, the judgment is considered a floating lien with no connection to your personal property. If the judgment holder is yet to file the lien against the house, you can sell it with a clean title and get better offers.
If they come up short, they must find another asset to attach the lien. Consequently, you are free to sell the house or refinance the mortgage.
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