What if your 70-year old judgment debtor owns their house outright, however there is a tax lien on their property? As an example, their house with land is worth $300K, your judgment is worth $30K, and the pre-existing tax lien is $40K.
This article is my opinion, and not legal advice. I am a judgment solutions expert, and am not a lawyer. If you ever need any legal advice or a strategy to use, please contact a lawyer.
One cheap and passive strategy in judgment enforcement is to record a property lien and simply remain patient. Getting repaid is not guaranteed. For example, your judgment debtor could get a reverse mortgage on their property, file for bankruptcy protection, transfer the property, or add someone else as another owner of their property.
For any judgment recovery effort involving a judgment debtor’s real estate, the available equity left on their property is an important consideration. Creditors should consider buying a preliminary title report from an established title company or an online company such as Court House Direct, Fidelity National Title, or (I have heard good things about DocEdge).
One judgment recovery strategy is recording a lien, and then hiring the Sheriff to sell the judgment debtor’s property at an auction. This is not simple, so most judgment creditors should retain an attorney to guide them through how things work in the county where their debtor’s property is.
Sheriff real estate auctions are expensive, and they may also cause your judgment debtor to file for bankruptcy protection. Also, in many states, there are laws that give extra protection to older debtors. Despite this, selling a debtor’s real estate remains a popular choice for attempting to recover a judgment. After a successful auction, any prior tax liens must be fully paid off first. Mortgage companies prevent tax lien investors from selling properties until the tax liens and real estate liens are paid off first.
In theory, a tax lien holder has first priority over most other liens, and does not have to do anything but wait to be paid. In some states and circumstances, a tax lien holder can have their county foreclose and get the property free and clear of most other liens including judgment liens.
One reason investors buy property liens are because a few of them will have properties with plenty of equity even after paying off any other secured creditors and the tax lien holder, including any interest owed. Of course, most tax and property liens are on properties having little or no equity.
With all deeds and liens, the recording date priorities are usually very important. There are two types of deeds, Grant Deeds and Deeds Of Trust. Grant Deeds (quit claims, etc.) transfer property from one party or entity to another.
Deeds of Trust are loan and mortgage documents that protect the lender. Deeds of Trust are usually tied to a loan agreement or a promissory note. The deed of trust is the security instrument, and the note is the document that creates the loan agreement identifying the property that the deed of trust secures.
Besides a Sheriff levy auction of the debtor’s property, what other strategies might work? Although a long shot, one potential idea is to structure some kind of deal to get the deed to the debtor’s house, to satisfy your judgment with no out-of-pocket cost to them. The idea is that you get ownership of the debtor’s property in exchange for letting them continue to stay there for as long as they want.
Owners of notes secured by a deed of trust can probably sell their note at a discount to an investor for cash upfront. With a $30K judgment, a $40K tax lien, and a $300K property value, there is plenty of equity for a win-win deal. Everything depends on how you can negotiate and structure the deal with your debtor, and then subsequently with the prior lien holders, and the new investor.
Presuming you are able to structure a win-win deal that is mutually acceptable, you will get a note or a similar obligation that is transferable. Then you can attempt to find a buyer that is willing to buy it. Unlike most judgments where there are usually no guaranteed assets available to pay them; senior-position notes secured by property with plenty of equity, can sometimes be sold for considerable cash upfront.