Do Foreclosures Get You Paid?
I'm a judgment broker, and not an attorney
I'm a judgment broker, and not an attorney. My articles are my opinions, and not legal advice. When you ever need a strategy to use or legal advice, please contact a lawyer. Long ago, when the housing market was booming and your judgment debtor owned property, recording one's judgment lien was often the "automatic" way to get a judgment satisfied.
Our present economy has eliminated the majority of the "automatic" part of recording liens to get a judgment paid, yet sometimes lien recordings still are (often a very long-term) a way to get a judgment paid.
In the previous five years or so, an amazing number of people have either been forced out of their houses, or are facing a chance of being forced out of their home or other real estate in a short or foreclosure sale. How does foreclosure, or other debtor property sales, effect a judgment creditor having a lien previously recorded on their debtor's real estate?
When a judgment debtor gets behind on making payments for their real estate loan, that's usually bad news for creditors. Yet, sometimes a foreclosure proceeding against a debtor's property can be good for the judgment creditor, potentially increasing the odds for their judgment to get paid.
The best scenario is if you recorded a judgment lien way before the judgment debtor's property foreclosure started, and before the mortgage lender recorded their deed of trust or mortgage. In most states and situations, the first to record a lien usually wins, so that makes your lien ahead of even the lender's lien. Usually, on foreclosure auctions or property sales, any superior (previously recorded) liens (e.g., a judgment creditor's lien) must be paid first from the proceeds of the property sale.
However, the first record their lien wins, is not always the law. In certain jurisdictions, for example Florida, laws aren't always right. I know of a case where a judgment creditor recorded statewide a fraud judgment lien on a debtor that owned bare land in Florida. A negligent lender ignored the judgment owner's properly recorded prior lien, and loaned the debtor a huge loan to construct a mansion on the debtor's raw land. After the judgment debtor's home was almost completed, the judgment owner began a Sheriff's sale, because no homestead could be declared because the home was not yet the judgment debtor's residence.
The Florida lender then sued the judgment owner to stop the Sheriff sale and to get clear title to the debtor's property. After a court proceeding, the judge quickly sided with the lending company. The judge decided that it didn't matter that the judgment owner was the first to record their lien, the lender lent money, and they were entitled to be repaid, and the lender did not harm the judgment owner, so that judgment owner got burned.
What if you recorded your judgment lien after a lender's mortgage or trust deed got recorded? Sometimes, real property which begins a foreclosure process, never actually ends up being sold at the foreclosure sale.
Every now and then a mortgagor (the judgment debtor) can swing borrowing money from a conventional lending company. That not only ends a foreclosure proceeding, it may also get your judgment satisfied. Most banks and other conventional lenders require that any prior liens get satisfied. This is so their new loan won't be in an inferior position to other lien holders. When that happens, your court judgment will be paid in full or settled.
Sometimes the debtor will be able to get sufficient money from family, friends, or from selling some of their possessions, to bring their real estate loan current to stop the foreclosure. When that happens, you probably won't be paid at that time, however your lien and judgment will remain intact, allowing the future possibility of being paid.
What if the lien for your judgment is in a junior position, and your judgment debtor's house really does sell at auction? If the sale price is more than is needed for any liens superior to yours to be satisfied, any leftover money from the sale is applied to your judgment lien, to get you fully or partially satisfied.
Of course, when a judgment debtor's property is| foreclosed on, there's most often insufficient equity to satisfy all the liens ahead of the judgment judgment owner's In that case, the judgment creditor's judgment lien collateral for the real estate will be lost at the sale, and that creditor won't get repaid a dime. The judgment owner's judgment and general lien remains, however it will no longer be attached to the foreclosed property. Their lien still attaches to other real estate the judgment debtor might currently own now or later.
For judgment owners with lots of money, when a debtor's real estate gets sold by auction, in certain jurisdictions and states, they might have a redemption right to purchase the foreclosed property after a sale at a courthouse auction, until that right of redemption time limit runs out. This only works if one gets instant equity with the sale, that would usually satisfy the judgment.
by: Mark Shapiro
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