When the Creditor Gets a Lien Against Your Property

A judgment creditor may be able to get a lien against your real estate or personal property. Learn what that means for you.

If a creditor gets a judgment against you, it can then place a lien on your property. The lien gives the creditor an interest in your property so that it can get paid for the debt you owe. If you sell the property, the creditor will be paid first before you receive any proceeds from the sale. And in some cases, the lien gives the creditor the right to force a sale of your property in order to get paid.

Except in special circumstances, most creditors cannot place a lien on your property until they first get a judgment against you. (Learn about other ways that judgment creditors can collect.)

Real Property Liens

The most common type of lien is on real estate. In most states, this is the only type of lien a judgment creditor may obtain.

How the Creditor Gets a Lien Against Your Real Estate

Usually, a creditor can get a lien on your property by filing papers with the court. The rules vary by state, but, in general, the creditor will file a copy of the judgment in the county in which you own real estate. The court will issue a lien, and record it in the court’s judgment lien docket.

This index is a public document. Credit reporting agencies regularly review judgment lien dockets, and will report the liens on your credit report.

How the Property Lien Helps the Creditor Get Its Judgment Paid

Once the judgment creditor has a lien against your real estate, it can get paid in several ways:

  • You may have to pay the lien in full before you can sell or refinance the property.
  • If the house is sold in foreclosure, the judgment lien must be paid before you receive any proceeds.
  • The creditor may force a sale of the real estate.

Judgment Liens and Voluntary Sales or Refinances

If you are selling property that is subject to a judgment lien, it is very likely that you will have to pay the lien before the sale can be completed.

In many states, the lien attaches to the title of the property. This means that the buyer of the property assumes responsibility for paying the lien.

In other states, the lien follows the judgment debtor, and if the proceeds of the sale are insufficient to pay the lien, the lien is “extinguished” as to that property. The lien does, however, remain in effect as to any other property you may own in that county.

As a practical matter, if the buyer needs a mortgage to buy the property, the lender will not make the loan unless you pay all judgment liens prior to closing. If the total of all liens on the property (such as mortgage liens) exceeds the purchase price, you will have to pay the difference in order to sell the property.

Similarly, if you want to refinance the property, your lender will require that the lien be satisfied. The lender may be willing to include the balance of the lien in the amount refinanced if there is sufficient equity in the property.

Judgment Liens and Foreclosure

If another creditor, such as your mortgage lender, forecloses on your property, the judgment lien will be paid from the proceeds of the sale. If the proceeds are not enough to pay the judgment lien, the creditor is out of luck.

Forced Sales by Judgment Lien Creditors

A lien gives the creditor the right to force a sale of any real estate you may own. As a practical matter, it is rarely worth it for the creditor to do this. When property is sold to pay a judgment lien, other liens on the property that existed before the judgment lien was filed must be paid first. Most homeowners have prior liens such as mortgages or home equity lines of credit.

Foreclosing on the property is very expensive for a judgment lien holder. In many states, the creditor must post a bond, and pay for a title search. If the amount owed is small, it is unlikely that the creditor will bother.

In addition, a certain amount of your equity in your home (that is, real property you use as a primary residence) cannot be taken by creditors. This is called your homestead exemption. The amount of your homestead exemption varies by state. For example, it can be as low as $5,000 or as high as $500,000. In some states, such as Florida, 100% of your equity in the home is protected from creditors.

Example 1. To illustrate how this works, assume that your house is worth $200,000, you have a mortgage of $150,000, and you live in Ohio. You have $50,000 in equity in the home. Ohio’s homestead exemption is $132,900. Because the exemption is greater than the equity you have in the home, the judgment lien creditor cannot force a sale of the property.

Example 2. Assume the same facts, except that you don't have a mortgage or any other lien on the property. In this scenario the judgment creditor could get $68,000 of your equity. In this case, it may be worthwhile to the creditor to attempt to force a sale of your home.

Personal Property Liens

In some states, a creditor may obtain a lien on your personal property, such as shares of stock, automobiles, jewelry, equipment, or other valuables (the types of property that are subject to a lien vary by state). California and Florida are examples of states that allow a creditor to obtain a lien on personal property.Other states don't allow personal property liens.

How the Judgment Creditor Gets a Personal Property Lien

In order to obtain the lien, the judgment creditor must file certain paperwork with the state. The lien is recorded in a central registry, and the details are publicly available. Credit reporting agencies regularly review these registries, and will include the lien on your credit report.

The lien serves two purposes.

Allows the creditor to take your property. The lien gives the creditor the right to force the sale of your personal property to satisfy the judgment. This is true in every state.

Notifies buyers of the lien on the property. The lien also serves as notice to potential buyers that your property has a lien on it. This notice that makes the lien a valuable tool for creditors. In some states, buyers of the property will be responsible for paying the lien. This makes it difficult for you to sell the property, thus providing an incentive to you to pay off the lien. However, some states, such as Florida, offer protections for innocent buyers by requiring the creditor to refund the purchase price to the buyer if it takes the property.

If you live in a state that permits liens on personal property, you should consult your state’s laws to determine the particular rules applicable to your situation.

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