Selling A Debtor’s Home

August 13, 2023

This article is my opinion, based on my experience in California, and laws vary in each state. If you ever need legal advice or a strategy to use, please contact a lawyer.

What if your judgment debtor refuses to repay the money judgment they owe you, yet they live in, or own, a nice property. Is it possible, and does it make sense, to have the sheriff sell (at auction) a judgment debtor’s property to satisfy your judgment? In theory, yes. However due to the economy, and laws (especially in California), the answer is most often, no.

You could try sending a notice of intent to conduct a forced sale to your judgment debtor. This sometimes works, and is much cheaper, and far less hassle than forcing a sale. And, if the court asks the debtor whether they were notified of the pending forced sale before you pushed it from an idea into reality, you can say Yes.

Selling a judgment debtor’s investment home or non-primary home is far easier than attempting to sell their primary living residence. There are two factors that can prevent a creditor from selling a judgment debtor’s home residence. One factor is equity; if the property is underwater and the judgment debtor has no equity; it makes no economic sense to sell their property. The other factor are laws that can impair a creditor’s ability to sell a debtor’s primary residence, especially in California.

Any sale of real property to pay a judgment debt, is performed by the county sheriff at an auction, in the county where the property is located. Before this happens, an abstract of judgment (or the equivalent for your State) must be recorded against the real property interests of the judgment 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.

Creditor-initiated forced sales of judgment debtor real property is not the same as a bank foreclosure, it is a “Sheriff’s Execution Sale of Real Property”. A Sheriff’s Sale of Real Property has its own schedule of events and timetables, which are not the same as regular bank foreclosure timetables. Unless one has considerable experience in selling judgment debtor’s properties, they should always retain a lawyer before attempting this kind of sale.

As with any levy, the creditor must complete a “Notice of Levy” form, and provide an instruction letter for the Sheriff, in the county where the real property is located. In some counties, the sheriff has a template available showing the steps required. Most states have sheriff’s manuals, and they are helpful to review before any complicated levy attempt.

Because the sheriff will be the levying officer, a writ of execution must be first issued by the clerk of the court where the judgment originated. As with every levy, writs are used to open the sheriff’s levying officer file.

If the debtor’s real property is located in a different county than where the judgment was obtained, then a new case number must be obtained in the superior court of the county where the real property is located.

To get a new case number, you bring the original copy of the 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 will charge a nominal fee, then assigns a new case number for their court. The new case number will be required for all future paperwork needed to attempt to levy and sell a judgment debtor’s property.

The levy of a judgment debtor’s property requires many steps, and if the creditor or the Sheriff makes one mistake or skips one step, the sale cannot proceed. Selling a judgment debtor’s home requires the 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 one property? It is much easier to sell a judgment debtor’s property 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 judgment debtor.

If the real property is the principal residence of the judgment debtor; then an order from a court is needed to authorize the sale. The court order specifies the minimum auction bid that the sheriff can sell the property for. The court order also specifies the amount of the homestead exemption to be paid to the judgment debtor and other parties of the homestead, and other issues or additional requirements.

To sell a principal residence of a judgment debtor, an application is required, and a real estate appraisal must be done. A litigation report is also required, which identifies the order of priority for all liens on the property. The minimum auction sale price must cover all senior liens, the homestead exemption, the sheriff costs, and possibly other costs too.

In California, when a property a homestead, there is also a requirement that the opening bid must be, at a minimum, 90 percent of the fair market value of the real property on the date of the levy. In bad economies, this may be very difficult to achieve. Commercial properties have no 90% requirement as they are not residences.

If an opening bid covers all of the liens, costs, 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 does not cover all the costs listed above, the court will probably not approve the sale of the judgment debtor’s home.

Even though newspapers are almost obsolete now, the Sheriff must publish in a newspaper of general circulation, the date, time, and location of the sale. Anyone is free to try to find more potential buyers to attend the sale.

If the debtor’s primary residence is to be 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 judgment debtor, then the sale takes place 120 days after the date of the recordation of the levy, or the date of the first publication of the notice of the sale.

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 the creditor shows they intend to, and are able to finish the process. Often when the judgment debtor and their other family members are served with the notice of the pending sheriff’s sale procedure, the judgment debtor finds or borrows funds to settle or pay off the judgment.

Should the debtor fail to actually pay you after their settlement offer, the levy lien is “in rem”, and is good for two years. The real property auction of the debtor can be restarted easily. And the lien might make you a secured creditor, and perhaps get you a partial recovery, if the debtor files for bankruptcy protection.

Talk to the Sheriff’s real properly Sheriff sale department. You will probably need a litigation title report to show who is ahead of you and who is behind. They may have other demands, however, all it takes is a Writ of execution and Sheriff instructions that show the pecking order of the creditors. In California, there is the CEB Guide (Continuing Education of the Board), which explains it all, step by step and has sample forms. Your local law library will have it.

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