Foreclosing On A Judgment Debtor's Home To Satisfy A Judgment
I am not an attorney, I am a judgment and debt referral expert (Judgment and Collection Agency Broker)
. This article is my opinion, based on my experience in California, and laws vary in every state. If you need a strategy to use or legal advice, you should contact an attorney.
What if your judgment debtor will not repay the judgment money they owe you, yet they have, or live in, a comfortable house they own. Does it make sense, and is it possible, to have the sheriff auction off a judgment debtor's property to repay your judgment? In theory, yes. However due to the economy, and laws (especially in California), the answer is most often, no.
There can be 2 factors that may stop a creditor from selling a judgment debtor's home residence. One factor is equity; if the property is underwater and the debtor has no equity, it makes no financial sense to auction off their property. The other factor is the laws that can impair a creditor's incentive to sell a debtor's primary residence, especially in California.
Every sale of real property to satisfy a judgment debt, is performed by the county sheriff at an auction, at the county where the property is located. Before this occurs, an abstract of judgment (or the equivalent for your state) must be recorded against the real property interests of the debtor in the county where the property is located. The abstract of judgment creates a judgment lien on the real property interests of the judgment debtor.
Judgment creditor-initiated sales of debtor real property is not a foreclosure, it's a "Sheriff's Execution Sale of Real Property". A sheriff's sale of Real Property has its own schedule of timetables and events, which is not the same as foreclosure timetables. Unless one has a lot of experience with selling debtor's properties, they should always retain a lawyer before attempting this kind of levy.
As with every levy, the judgment creditor must complete a "Notice of Levy" form, and provide an instruction letter to the Sheriff, for the county where the real property is located. In some counties, the sheriff will have a template available showing the steps required. Many states have sheriff's manuals, and they are good to review prior any complicated levy attempts.
Because the sheriff will be the levying officer, a writ of execution needs to be first issued by the clerk of the court where the judgment originated. As with every levy, writs are used to open a sheriff's levying officer file.
If the debtor's property is located at a different county than where the judgment originated, then a new case number must be obtained in the superior court in the county where the real property is located.
To get a new case number, one brings the original copy of a writ for the county where the property is located, and a certified copy of an abstract of judgment, recorded in the same county. The court charges a nominal fee, then assign a new case number for their court. That new case number will be required for all paperwork needed to attempt to levy and sell a debtor's property.
The sale of a judgment debtor's house is done with many steps, and if the judgment creditor or the sheriff makes one mistake or omits one step, the sale will not proceed. Selling a judgment debtor's home requires the judgment creditor to pay the sheriff at least $1,000 to start, sometimes much more, ask your sheriff.
What if the judgment debtor owns more than 1 property? It is far easier to sell a debtor's home when it is not their primary residence. Even then, this is a job for a lawyer, so please consult with one whenever you are planning to sell any real property of a debtor.
If the real property is the principal residence of the judgment debtor, then an order from a court is required to authorize the sale. The court order specifies the minimum auction bid for what the sheriff can sell the property for. The court order also specifies the amount of the homestead exemption to be paid to the debtor and other parties of the homestead, and other issues or additional requirements.
To auction off a principal residence of a judgment debtor, a real estate appraisal must be done, and an application is required. A litigation report is also required, which shows the order of priority for all liens on the property. The minimum auction sale price must be enough to pay off all senior liens, the homestead exemption, the sheriff costs, and possibly other costs.
In California, there is also a requirement that the opening bid needs to be, at a minimum, ninety percent of the fair market value of the real property on the date of the levy. In this economy, this may be very difficult to achieve.
If an opening bid covers all of the costs, liens, and exemptions, but is not at least 90 percent of the fair market value of the real property, then one can obtain a court order allowing the sheriff to sell the real property. However, if the opening bid fails to cover all the costs mentioned above, the court will deny a sale of the judgment debtor's home.
Even though newspapers are nearly obsolete now, the sheriff needs to publish in a newspaper of general circulation, the time, date, and location of the sale. Everyone is free to try to locate potential buyers to attend the sale.
When the judgment debtor's primary residence is sold, it is scheduled to happen 120 days after the court's order to sell the property. If the property sale is not the primary residence of the debtor, then the sale takes place 120 days after the recordation date of the levy, or the date of the first publication of the notice of the auction.
Selling a judgment debtor's real property is not easy, but the good news is that often one gets results by starting the process, if they show they intend to, and are able to finish it. Often when the judgment debtor and their other family members get served with notice of the pending sheriff's sale procedure, the judgment debtor finds or borrows funds to pay or settle off the judgment.
Should the judgment debtor fail to actually pay you after a settlement offer, the levy lien is "in rem", and should be good for 2 years. The real property levy can be restarted easily. And the lien could make you a secured creditor, and perhaps get you a partial satisfaction, if the judgment debtor applies for bankruptcy protection.
by: Mark Shapiro
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