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When standard debt recovery methods, such as collection letters and telephone calls, fail, some creditors opt to file a lawsuit. If the court sides with the creditor, it will award the creditor a legal judgment. A legal judgment grants the creditor the right to use more forceful debt collection methods such as placing a real estate lien against property the debtor owns and entering into property auctions.
How a Real Estate Lien Works
A lien is a title encumbrance and a matter of public record. Thus, any individual conducting a title search on the property in question can see that it carries a lien. Because real estate liens attach to the property rather than to the individual, a debtor may sell a piece of property without first paying off the debt and clearing the lien. The new owner would then have the option to either leave the real estate lien attached to the property or pay it off. Property liens make homes difficult to sell since most buyers do not want to assume responsibility for the former homeowner's debts.
Asset Disclosure After a Lawsuit
In some cases, a creditor may not know if a debtor owns any property that can be subordinated to a real estate lien. If the creditor has a court jurisdiction, it may use its jurisdiction to request a court order requiring the debtor to appear in court and disclose its assets. If the debtor's assets include real estate, the creditor can use the information provided to record property liens against each piece of property the debtor owns.
Property Liens Expire
Real estate liens can not linger on a home's title forever. If the debtor does not pay off the lien within the statute of limitations for judgment enforcement in his state of residence, the jurisdiction and lien will simultaneously expire. Each state has a different statute of limitations concerning how long sentences are valid. In California, for example, a sentence is only valid for ten years. Creditors in most states may renew sentences if they do so within the 30 day period prior to expiration of the judgment.
The Real Purpose Behind Property Liens
If a judgment creditor uses its judgment to become a lien holder, it has the right to seize the debtor's property if it refuses to pay. When the lien holder seizes the debtor's property, however, it must pay off any superior liens. Superior liens include mortgage liens and any other liens recorded prior to the judgment creditor's own real estate lien. Provided the property is worth more than the value of the liens against it, the judgment creditor can use its lien to forelose on the home and recover the balance the debtor owes.