What Is a Judgment Lien? 11 Things (2024) You Have to Know

Did you know that a credit card company could sue you if you don’t pay your balance?

And not only that, if they were granted a judgment lien, they could come after not only you but your house or land.

If this is alarming to hear, you’re not alone, these liens are called “nonconsensual” because they are attached to the property without the owner’s consent or agreement.

Here’s what you should know about judgment liens, how they work, and what you should do if you find out one is impacting your property.

1. What is a judgment lien?

A judgment lien is a legal claim or encumbrance placed on a property by a creditor.

This court judgment — often the result of a civil lawsuit — orders a debtor to pay a monetary amount to a creditor, typically because of unpaid debts, damages, or other financial obligations.

However, to enforce the payment, the creditor can place a lien on the debtor’s property.

This type of lien attaches to a debtor’s real property such as vacant land, houses, or buildings.

It then becomes part of the public record, serving as a notice to other parties that there’s a legal claim against the property.

If the debtor sells or refinances the property, the judgment lien must be satisfied or released to ensure a clear title.

2. How do judgment liens work?

As a landowner, if you owe money to a creditor and don’t pay, then they may sue you for the balance.

In court, the judge may rule against you in a civil suit.

This means the creditor is able to file a judgment lien against you.

Judgment liens are “nonconsensual” liens because they’re attached to a piece of property.

The owner doesn’t need to consent or agree for it to be placed.

3. How is a judgment lien created?

Here are the steps to creating a judgment lien:

bulletLawsuit: The creditor initiates a lawsuit against the debtor to recover the debt that is owed.

bulletJudgment: The court will make its ruling.

If the court rules in favor of the creditor, then it will establish that a debt is owed by the debtor.

bulletDocketing: After the judgment is made, the creditor will docket the judgment which makes it a matter of public record.

This ensures that the judgment is recognized and can be enforced.

bulletNotice: The judge will serve the debtor with a notice of judgment, inform them of the debt they owe, and let them know of the court’s decision.

The debtor will have the opportunity to satisfy the judgment voluntarily through the payment of the debt as well as associated interest or fees.

bulletLien attachment: If the debtor isn’t able to satisfy the judgment voluntarily, then the creditor can seek to attach the lien to the debtor’s property.

This process for this will depend on the jurisdiction.

However, most often, it will involve filing a document like an abstract of judgment with a government office like a county recorder’s office.

They track the debtor’s property.

Upon this filing, the judgement lien is formally created, and it gives notice to all other potential creditors or interested parties.

bullet Duration and priority: The duration of the judgment lien will depend on the jurisdiction.

In certain scenarios, liens can expire after a number of years if they are not renewed or enforced.

There is also a priority to liens depending on the claims on other properties and what was created or recorded first.

4. What is an example?

If you’re still confused about what a judgment lien is and how it works, let’s look at the following example.

Let’s say a person owes a significant amount of money to a credit card company.

Month after month, they fail to pay their bill, and thus, they have mounting debt.

The credit card company may decide to file a lawsuit against the debtor to recover the outstanding amount of money.

In court, the judge can decide to rule in favor of the credit card company and issue a monetary judgment.

After the ruling is made, the debtor will have an opportunity to settle their debt.

If they are still unable to repay their debt, then the company can proceed to attach a judgment lien to their property (such as their house or car).

Once the judgment lien is attached to the specific property that is owned by the debtor, it will impact their ability to sell or refinance the property if they do not satisfy or resolve the lien.

Additionally, they may not be able to get new loans or purchase other property because other creditors or interested parties will also be aware of the judgment lien through public records.

Overall, the debtor’s financial situation and creditworthiness will take a hit until the situation is resolved.

With this, how a judgment lien works will vary greatly depending on your jurisdiction, so be sure to do your research based on your location.

5. How does a judgment lien affect your property?

There are numerous ways that judgment liens can affect your property.

Here are the top 5:

bulletEncumbrance: Judgment liens create legal encumbrances on your property.

They serve as a claim or interest that a creditor has on your property because of the debt you owe them.

Before you’re able to sell or refinance your property, you must address and satisfy the lien.

bulletCloud on the title: If you’ve ever purchased a house or land before, you know that having any issues with your title is a big red flag.

When you have a judgment lien on your property, it creates a cloudy title.

Any time someone conducts a title search, they’ll see the lien pop up in the public records associated with your property.

Potential buyers and lenders will view the lien as a risk factor related to your property and therefore avoid any kind of transaction because of it.

bulletImpaired marketability: As noted above, prospective buyers will be hesitant to purchase a property that has a judgment lien because they know it’s entangled in a legal dispute.

Thus, this will limit your ability to market your property.

bulletLimitations on refinancing: Any judgment liens on your property will also limit your ability to refinance since lenders require a clear title to approve applications.

bulletPotential foreclosure: If debtors are unable to resolve the lien and creditors continue to enforce it, then it could lead to the foreclosure of the property.

There will need to be specific circumstances and laws governing this instance in your area for foreclosure to occur.

6. How can you discover if there’s a judgment lien on your property?

If you believe there is a judgment lien on your property, we recommend taking the following steps to check:

bulletConduct a title search that allows you to search through public records that are maintained by the county recorder’s office and other relevant government agencies.

bulletHire a title company to perform the search on your behalf.

bulletExamine the title report to look for any indications of a lien against your property, specifically look for those mentioning your name or property’s legal description.

bulletReview the judgment information in the title report, including the name of the creditor, the amount owed, and the date of the judgment for more context.

bulletVerify the current status of the judgment lien as liens can be satisfied, released, or expired depending on the actions of the creditor or changes in legal circumstances.

bulletSeek legal assistance if you’re having difficulty interpreting a report or aren’t able to obtain clarification.

7. Can you remove or release a judgment lien?

Yes, under certain conditions, judgment liens can be removed or released.

If you’re interested in doing this, you should consider the following tactics:

bulletSatisfy your debt

This is by far the easiest way to remove a judgement lien.

When you satisfy the underlying debt in full, the creditor will be responsible for releasing the lien.

Always be sure to keep records of the payment as well as your communication with the creditor.

bulletNegotiate with the creditor

You may also consider negotiating with your creditor.

This is an option for those who aren’t able to make payment in full.

Some creditors are willing to take partial payment rather than no payment at all, or they may consider setting up a payment plan with you.

If you want to negotiate with a creditor, make sure you consider all options you’re open to in advance: reduced payment amount, payment plan, or lump sum settlement.

You should always keep documentation and receipts of any payments made.

bulletFile a satisfaction of judgment

If you have satisfied the judgment by making payments (or through another agreed-upon means), then you can file a “Satisfaction of Judgment” with the court.

This document will notify the court and create a record that your debt has been paid and resolved.

After you’ve submitted this paperwork, the court will be able to release the judgment lien from the property records.

bulletChallenge the validity of the judgment or lien

Not all landowners believe that the judgment or lien are valid.

If you think that they were obtained improperly or in error, then you can pursue legal action to challenge their validity.

To do this you’ll need to file a motion in the same court that issued the judgment.

Next, you’ll need to defend your claim and present evidence to support it.

Ultimately, you’re looking for a court to set aside or vacate the judgment and release the associated lien.

bulletUtilize exemption laws

Do some research on exemptions in your state and assert your rights under those exemptions.

Keep in mind that each state has different laws that protect certain types and amounts of property, so you’ll likely need to consult with a qualified attorney to determine the applicable exemptions laws and how they may apply to your situation.

bulletSeek legal assistance

Legal assistance can always be a stellar resource when it comes to the removal or release of a judgment lien.

8. What are exemptions from judgment liens?

Exemptions allow debtors to protect certain types and amounts of property from being seized or encumbered.

By using exemptions, debtors can retain essential assets and maintain a basic standard of living even if they have outstanding debts that creditors are pursuing.

Here are some exemptions that you may consider using when faced with a judgement lien.

bulletHomestead Exemption: A debtor’s primary residence is exempt under the homestead exemption.

It allows a specified amount (depending on the state) of equity in the home to be immune from judgment liens.

bulletPersonal Property Exemption: Certain types of personal property like clothing, furniture, appliances, vehicles, and tools of trade are often exemption up to a certain value depending on the jurisdiction.

bulletRetirement Accounts: Qualified retirement accounts (i.e., 401(k)s, IRAs, pension plans, etc. are often protected from liens up to a certain limit.

bulletWages and Income: Depending on your jurisdiction, a portion of your wage and income may be exempt to cover your basic living expenses.

bulletPublic Benefits: Government benefits like Social Security, disability benefits, unemployed compensation, and public assistance are generally exempt from judgment liens.

9. How can you protect your property?

If you’re concerned about judgement liens, there are a few strategies you can use to protect yourself and your property.

bulletAvoid debt and settle any debts that may occur

bulletFile for bankruptcy which halts creditor collection actions, including the ability to attach liens to your property

bulletFamiliarize yourself with exemptions that allow you to protect specific types and amounts of property from being seized or subject to liens

bulletLearn more about asset protection strategies like establishing trusts and utilizing legal entities like limited liability companies

bulletConsult with an attorney to assess your specific situation if you want to proactively protect your property

10. What should you do if confronted with judgment liens?

If you’re a debtor who is confronted with judgment liens, there are a few steps you can take to satisfy the lien.

Of course, the most obvious route is to avoid the lien altogether, but if you’re already in this position, then there’s no use dwelling on that now.

Just make sure you use this as a learning experience.

bulletOption #1: Pay off your obligation

Repaying the debt is, by far, the simplest option.

Creditors will remove the lien if you pay them.

After the debt is paid, they’ll file a release through the same court (county or state) where the lien was recorded.

bulletOption #2: Use lien avoidance to your advantaged  

Debtors can use lien avoidance to their advantage if the correct conditions are present.

Lien avoidance allows debtors to file for bankruptcy and use an exemption to prevent an asset from being taken to satisfy a lien from a court.

So, what conditions must exist?

  1. The lien must originate from a money judgment issued by a court
  2. The debtor who owes the judgment must have the right to protect a portion of their property’s value through an exemption
  3. If the property (i.e., real estate or a vehicle) were to be sold, the lien would cause the debtor to lose some or all of the value that is protected by the exemption

Liens can be either fully or partially wiped out.

It is most helpful to a debtor when full lien avoidance is possible, but if it is not, don’t count out partial lien avoidance.

11. What is the difference between a judgment lien and a property lien?

Judgment liens are awarded by courts without the consent of the debtor.

On the other hand, property liens are permitted by the debtor who voluntarily relinquishes the rights to his or her property.

As a result, property liens are deemed consensual.

Therefore, if you borrow a large sum for a mortgage or car, the lender may require collateral for additional security.

If you’re not able to make a payment, then the creditor can put a lien on your property.

In doing so, the creditor has the ability to foreclose on the property that you offered as collateral if you default on the loan.

Final Thoughts

Judgment liens are specifically imposed on debtors as a way to make sure they pay creditors.

If you get caught in this position, do everything in your power to settle the debt.

Otherwise, the creditor is able to come after you for much more than the amount you owe them.

Never bite off more than you can chew when it comes to borrowing money!

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Erika Gokce Capital

Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.

Erika

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