A judgment lien effectively converts a debt that was secured by nothing into one secured by your home.
Has a creditor sued you and gotten a judgment against you? If so, and you own a home, most likely there is now a judgment lien against your home.
The Dangerous Judgment Lien
What’s a lien? It attaches an asset you own to a debt you owe, and secures the debt with it.
A judgment lien, in most states, attaches your home to the amount you owe to the judgment-holding creditor. Usually without your consent, your home then secures that debt.
A judgment lien gives the creditor huge leverage to make you to pay the entire debt. Not only pay the debt, but also the creditor’s attorney fees, its other costs for getting the judgment against you, and its constantly accumulating interest.
If you try to sell or refinance your home, the judgment lien forces you to pay the judgment. That debt has to be paid—usually in full—out of the sale or refinancing proceeds. It comes straight out of money you would have otherwise received. A judgment lien can sometimes also prevent you from being able to do the sale or the refinance altogether.
Under some circumstances and in many states, the creditor can foreclose on the judgment lien even if you don’t sell or refinance the home. You could lose your home if you don’t come up with a way to quickly pay off the judgment amount.
Stealth Judgment Liens
Usually you know it when you’ve been sued by a creditor. You are served with papers that make that clear.
But sometimes you are not personally served and don’t know about the lawsuit. Or you may receive papers but don’t read them closely. Or you realize you’ve been sued but then nothing seems to happen and you don’t find out what did in fact happen with the lawsuit.
If you don’t respond by the deadline stated in the papers you receive, the creditor automatically wins the lawsuit. A judgment is entered against you in the amount the creditor sued you for. A judgment lien is then placed on your home in that amount plus the creditor’s often-substantial costs.
If you are not paying attention, you could easily have no idea that the court entered a judgment against you. Even if you are paying close attention, you are not necessarily informed that a judgment has been entered. And even if you do know about the judgment, you may not find out that your home now has a lien on it in the amount of the judgment.
Judgment Liens after Settlement
You could also have a judgment lien on your home even if you closely cooperated with a creditor. Have you ever settled with a creditor, agreeing to make monthly payments on a debt? The settlement could have included the creditor’s right to enter a judgment against you. That way it doesn’t have to go through the costs and delay of suing you if you don’t make the agreed payments.
Even if a judgment was not entered at the time of the settlement, it’s standard practice that one is entered automatically if you fail to make the agreed payments on time.
These kinds of settlements can be entered into whether or not the creditor filed a lawsuit before the settlement. So, if you’ve entered into a settlement with a creditor, you could easily have a judgment lien on your home. And that could be true even if you are current on your settlement payments.
The Limitations and Benefits of Bankruptcy
Bankruptcy writes off (“discharges”) most kinds of debts, but is generally not very good at getting rid of liens. Liens are creditors’ rights against your property, rights that the bankruptcy law generally respects. For example, if you want to keep your vehicle in bankruptcy, you generally have to pay off its lienholder.
But in many situations you CAN get rid of a creditor’s judgment lien on your home. We’ll show in a couple days in our next blog post.