What is Judgment Lien?

The entity obtaining the court judgment against the debtor is called the judgment creditor, and the debtor or the entity which failed the lawsuit filed by the creditor is known as the judgment debtor. These liens are nonconsensual and are attached to the property without the owner’s consent.

Key Takeaways

  • Judgment liens are court orders providing a creditor the right to take control of the debtor’s property if the debtor fails to pay back a loan or does not abide by the contractual obligations.These liens are nonconsensual and are attached to the property without the owner’s consent.Every state in the US has its laws furnished for it; hence it may vary by state.The entity obtaining the court judgment against the debtor is called the judgment creditor, and the debtor or the entity which failed the lawsuit filed by the creditor is known as the judgment debtor.

Judgment Lien Explained

Judgment liens are produced by courts to help creditors in their recovery process due to breach of contracts by the debtorsDebtorsA debtor is a borrower who is liable to pay a certain sum to a credit supplier such as a bank, credit card company or goods supplier. The borrower could be an individual like a home loan seeker or a corporate body borrowing funds for business expansion. read more. For example, if a creditor is sure that the debtor will not make payments on the debt, the creditor can pursue a lien on the debtor’s property to increase the chances of recouping some losses. This provision reduces the amount going into bad debt expensesBad Debt ExpensesBad Debts can be described as unforeseen loss incurred by a business organization on account of non-fulfillment of agreed terms and conditions on account of sale of goods or services or repayment of any loan or other obligation.read more.

After deciding to pursue a lien, one of the relevant questions is “How to put a judgment lien on the property.” An unsecured creditor cannot simply put a lien on the property without securing a court order. It requires the creditor to sue the debtor, prove the fact in the court, and if the lien is established, the creditor will have the authority to take possession of assets equivalent to the value owed by the debtor.

The statute of limitations on judgment liens reveals important information. First, the duration of the lien varies by state; for example, in California, it is ten years, and in Florida, it is five years from the original filing date. Let’s take the general case of 20 years. It will be active for 20 years unless it is discharged or fulfilled. A creditor can renew such lien making it active for another 20 years by filing a notice of renewal in the same manner as the judgment and relating to the date the judgment is filed, given conditions like the notice of renewal is filed before the 20-year period expires to prevent the lien from expiring and the court validates the revival.

The goods that are subject to a judgment lien may differ by state. It can be attached to the debtor’s real estateReal EstateAt its most basic principle, Real Estate can be defined as properties that comprise land and its tangible attachments. The land includes the actual surface of the earth and any permanent natural objects such as water, dirt, or rock and any minerals or particulars under the surface. read more, personal property, and other assets. Let’s take a look at the situation of judgment lien in California. It can be connected to the debtor’s real estate, such as a house, building, or land, or attached to the debtor’s personal property, such as jewelry, art, antiques, and other valuables. In contrast, it can only be linked to personal properties in some other states.

Examples

Jake wanted to buy a luxury car. Since he didn’t have enough money, he financed the purchase using a car loan with a high-interest rate. However, due to the financial crisisFinancial CrisisThe term “financial crisis” refers to a situation in which the market’s key financial assets experience a sharp decline in market value over a relatively short period of time, or when leading businesses are unable to pay their enormous debt, or when financing institutions face a liquidity crunch and are unable to return money to depositors, all of which cause panic in the capital markets and among investors.read more, he defaulted on EMI for a long period. Also, the bank couldn’t recover the balance of the loans even after repossessing and reselling the car; hence resorted to filing a lawsuit against Jake to collect what remains. If the bank wins the lawsuit with the court passing a lien on Jake’s remaining assets, the bank can possess other assets, including all his bank accounts, even the accounts where he is a co-signer.

Another example is the judgment lien in the real estate field, where a real estate agent filed a lien after the property owner failed to pay the full amount as per the contract. When the agent filed a lawsuit, the homeowner was found guilty and had to pay the amount to fulfill the contractual obligation. However, the agent also claimed attorneys’ fees, and it is legal for the agent to enforce his lien granted by the court to recover the remaining amount against the attorney’s fees.

This article has been a Guide to What is Judgment Lien. We explain its examples, Judgment lien on personal property, and scenario in California. You can learn more about accounting from the following articles –

If the debtor fails to meet contractual commitments, a court order authorizes the creditor to control or utilize the debtor’s property. It is passed in the creditor’s favor, assisting him in recovering his losses. In this scenario, the creditor is referred to as the judgment creditor, while the debtor is referred to as the judgment debtor. These liens are non-consensual, meaning they are placed on the property without the owner’s (debtor’s) consent.

In the United States, every state has its own rules regarding the lien. Therefore, it may differ by state. However, the lien is generally valid for 20 years unless discharged. Also, the creditors must reapply to the court to prolong the lien further if required.

There are different ways to remove it from the property. The common way is to clear the debts to free the property from lien. Other solutions include negotiating with the creditor based on conditions like a partial payoff and automatically separating after the statute of limitation expiration.

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