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Collect Your Court Judgment With a Real Estate Lien

Learn what a real estate lien is, and how it might help you get your money.

If you win a judgment against someone who doesn't pay up (the "judgment debtor"), you can have a "lien" put on property the person owns. A lien gives you the right to be paid a certain amount of money from proceeds from the property.

If you are looking for money right now, however, liens won't do you much good, unless the judgment debtor is likely to sell or refinance his property soon.

A lien is essentially passive placing a lien doesn't get you your money right away. Instead, it gives you standing as a creditor to be paid from proceeds if the property is sold or refinanced. Because property to which liens are attached often change hands or are refinanced, usually a lien will produce enough cash to pay off a judgment, along with post-judgment costs and interest.

The Pros and Cons of Real Estate Liens

In general, when you collect a court judgment, you want to avoid aggressive collection measures that may push the debtor into bankruptcy. Placing liens on property is a good way to minimize this risk.

Collecting a judgment through liens involves little effort or expense, but a lot of patience. If many creditors are trying to collect a judgment through liens, you may find yourself at the end of a very long line. When the property sells or refinances, you will have to wait until other creditors those who placed liens or mortgages on the property before you did obtain their judgments.

For this reason, it's a good idea to check when you record your lien whether other liens already exist on the property. If there are other liens, still place yours, but seriously consider pursuing other strategies. (For additional collection strategies, read more about Collecting a Judgment.)

How to Create a Real Estate Lien

You can create a lien on any real estate owned by a debtor by registering your judgment with the land records office in any county in which the debtor owns real estate.

Limits of Real Estate Liens

As mentioned, you will be paid after the owner of the real estate sells or refinances her property if there is sufficient money available after the mortgage lender and anyone who has recorded a lien ahead of you is paid. For instance, if the debtor falls behind on her monthly payments and the mortgage lender forecloses on the property, your chances of collecting on the lien are low, given that a foreclosure sale rarely brings in enough to pay the amount owed to the mortgage lender.

You face another potential limitation if you attach a real estate lien to the debtor's primary home. In most states, when a sale of property is forced to pay off foreclosed mortgages or judgment liens, the law provides homeowners with the right to protect from collection a portion of the equity in their residence. This exemption, called a homestead, runs from as little as $7,500 in some states to an unlimited amount in other states.

This means you don't get paid until after the mortgage is paid off, the homeowner gets the exemption amount, and anyone who recorded a lien ahead of you is paid. If there's enough equity in the property for you to get paid, you will. But don't count on it.

You face another possible limitation if the debtor declares bankruptcy. The Bankruptcy Code gives debtors various ways to deal with liens in bankruptcy. One is called "lien avoidance," and it allows a debtor to wipe out a lien completely. Lien avoidance is available on judgment liens to the extent the lien impairs the debtor's homestead exemption. This means that if no equity remains after the mortgage (including any second mortgage) and homestead exemption are deducted, the debtor will likely be able to eliminate your judgment lien. (11 U.S.C. § 522(f).)

Liens on Jointly Owned Property

What happens to a lien when jointly owned real estate is sold depends on the form of joint ownership. To find out how property is owned, you can check the deed in the county recorder's office or hire a local title insurance company to check for you.

Tenancy in common. Property is held as a tenancy in common if the deed doesn't specify a particular type of joint ownership. A judgment lien attaches to the debtor's share of the tenancy in common and remains attached even if the judgment debtor transfers or leaves in a will her ownership to someone else.

Joint tenancy. A judgment lien attaches to the judgment debtor's share of the joint tenancy and remains enforceable if the debtor transfers his share to a third party. If the judgment debtor dies, however, your lien is wiped out under joint tenancy rules, which state that the interest to which a lien attaches is extinguished by the debtor's death. The surviving joint tenants automatically take the property without the lien.

Community property or tenancy by the entirety. A judgment lien attaches to the entire property when it is held by a married couple as community property or tenancy by the entirety. The lien will be enforceable against the property even if it is transferred to a third party.

For more information on collecting court judgments, see Everybody's Guide to Small Claims Court, by Ralph Warner (Nolo).