Judgment Liens Explained: What Debtors and Creditors Need to Know

A judgment lien arises when a court rules you owe a debt, allowing the creditor to claim your nonexempt property until the debt is paid.A judgment lien is created after the entry of a judgment.

If you have been sued and either failed to formally respond (resulting in a default judgment) or were defeated in court (losing on the merits of the case), you become the judgment debtor. Consequently, your nonexempt property may be subject to a lien.

A lien, generally, is defined as a legal right or interest that a creditor has in another's property, lasting usually until a debt or duty that it secures is satisfied.

A lien is imposed against a judgment debtor's nonexempt property. For a list of exempt personal property, see this blog. For exempt homestead property, see this blog.

See here how a docketed judgment becomes a judgment lien against real property.

13 characteristics of a judgment lien:

• A judgment lien is a quick, simple and inexpensive enforcement procedure. Example: A creditor can easily file a lien against a debtor's property with minimal legal fees, rather than pursuing more complex enforcement methods.

• Typically, the creditor does not take possession of the property on which the lien has been obtained.[1] Explanation: The lien acts as a claim against the property's value, not a direct takeover of the property itself.

• The creditor may simply sit back and wait to get paid when a debtor needs to sell or refinance the property. Example: If a debtor decides to refinance their mortgaged home, the lien must be satisfied before the refinancing can proceed, ensuring payment to the creditor.

• An improperly docketed and indexed judgment, including name misspelling, could potentially invalidate the judgment (do a title search to verify proper recordation) and will protect a good-faith purchaser of the land subjected to the improperly indexed judgment. Example: A judgment filed against "Jon Smith" won't affect property owned by "John Smith," protecting an innocent buyer who purchases property from "John Smith."

• If you seek to enforce a judgment obtained in a different state, make sure your sister-state judgment is reduced to judgment and entered. Mere recordation of a sister-state judgment will not alone produce a lien against real property. Explanation: This means converting the out-of-state judgment into a local one, legally recognizing it in the state where enforcement is sought.

• A judgment lien on real property establishes priority over later claimants. Example: If a property is subject to multiple debts, the first recorded judgment lien takes precedence in being paid off over later ones.

• A judgment lien attaches to practically all of the debtor's real property in the county where the judgment was entered. Explanation: This may include land, buildings, and certain fixtures on the property in that county.

• A judgment lien attaches to the debtor's after-acquired property provided the judgment is docketed in the same county as the real property. Example: If the debtor buys new property in the same county after the lien is issued, the lien automatically applies to this new property.

• The judgment lien sticks to the property and assures priority to the judgment creditor as to after-acquired interests. Explanation: The lien remains with the property even if it changes hands, ensuring the creditor's claim is prioritized for any new interests in the property.

• A bankruptcy discharge may prevent the further reach a judgment lien. But a lien perfected more than 90 days prior to the filing of a bankruptcy petition will remain against the real property belonging to the debtor. Example: A debtor who files for bankruptcy cannot eliminate a lien that was perfected on their property three months before the bankruptcy filing.

• A judgment lien is less disruptive to a debtor's business life since there is no immediate physical taking; therefore this lien is less likely to trigger a bankruptcy filing for relief. Explanation: Because the debtor's assets aren't immediately seized, they can continue business operations, which lessens the financial strain that might otherwise lead to bankruptcy.

• Filing of a notice of levy in the appropriate county clerk's office will prevent the owner of the property from disposing of that property without first discharging the lien. Example: This legal notice effectively prevents the sale or transfer of the property until the debt covered by the lien is paid off.

• A judgment creditor can apply for an installment payment order to seize money you'll be receiving in the future, such as rental payments. Example: If the debtor is a landlord, the creditor can obtain a court order to divert future rental income from tenants to satisfy the debt.

Keep in mind friends that this post, along with all others, involve New York laws.