Judgement liens (Small Cliams) and their impact on a loan

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Judgement liens (Small Cliams) and their impact on a loan

Gil Ganz
Real Estate Investor · Austin, TX · Member since 2018 · 136 posts · 50 votes

Hi

I intend to purchase a performing loan in IN, after ordering a title search I saw that there are a couple of judgment liens (exact phrasing is Small Claims, Credit card judgment)  on the property (on the borrower name).  There are few things are that I'm curious about.

1 - Note is a seller finance note, and the date of the liens is 2-3 years before the note was created. How is possible? 

2 - if I understand correctly the mortgage should be superior to these liens. The House is worth 70k, current debt is 45 and total liens are 5. As far as I see even if the lien holders choose to pursue foreclosure I should still be able to get my share back (not to mention the fact that the borrower has enough equity in the house to perhaps fight it and not let the house go to auction). Is this logic correct?

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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
7y

Judgments liens like that are against the person and any real estate they own  Or acquire.  Here, since those judgment liens existed Before the first mtg was originated, they would be superior.......first it time, first in line.  This is why you can’t get a traditional mtg with preexisting judgment/irs liens, unless they are paid off first.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    Judgments liens like that are against the person and any real estate they own  Or acquire.  Here, since those judgment liens existed Before the first mtg was originated, they would be superior.......first it time, first in line.  This is why you can’t get a traditional mtg with preexisting judgment/irs liens, unless they are paid off first.

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  • Gil Ganz
    OP
    Real Estate Investor · Austin, TX · Member since 2018 · 136 posts · 50 votes
    7y
    Originally posted by @Wayne Brooks:

    Judgments liens like that are against the person and any real estate they own  Or acquire.  Here, since those judgment liens existed Before the first mtg was originated, they would be superior.......first it time, first in line.  This is why you can’t get a traditional mtg with preexisting judgment/irs liens, unless they are paid off first.

     Would you see this debt the same way as you would see a tax debt? i.e automatically ask the seller to reduce the price by this amount? How common is it for credit card lien holders to pursue foreclosures in case their debt is 1-2k (its 3 different creditors)?

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  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    7y
    Originally posted by @Wayne Brooks:

    Judgments liens like that are against the person and any real estate they own  Or acquire.  Here, since those judgment liens existed Before the first mtg was originated, they would be superior.......first it time, first in line.  This is why you can’t get a traditional mtg with preexisting judgment/irs liens, unless they are paid off first.

     Around here a basic money judgment against a would-be purchaser (i.e. the judgment is not yet a lien) would attach AFTER the new purchase money mortgage. The judgment would be identified as a subordinate matter on the title commitment. 

    The size and age of the judgment and the type of lender would dictate whether the lender would require the item to be paid in order to originate the loan. 

    No small claims judgment creditor in their right mind is going to levy a property with a first mortgage in order to satisfy a small debt. If they tried you would just make the payoff.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    @Tom Gimer Thanks for pointing that out. Yeah I agree, I’ve never seen a credit card judgment foreclosed on, they just wait out. 

    Also I forgot, in FL, a judgment like that doesn't attach to a properly declared homestead property. 

    2Reply
  • Chad U.
    Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes
    7y

    @Gil Ganz

    Judgement liens generally have a lifespan of 10 years, depending on the state and can be extended another 10 years if they are re-recorded within the 10 years.

    And as mentioned above, no creditor with a $1-2K judgement in their right mind would foreclose to recoup their debt, as it would be $3K - $5K in legal fees in order to do so.  

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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    7y

    @Gil Ganz if a small creditor is ahead of a larger creditor he has two options; he can wait while his lien accumulated interest at the default wait and get paid off if and when a financing, refinancing, or property sale occur if the new lender or buyer either demands clear title or the title is insured by a title company. Or he can turn the lien into a judgement via court action, assuming he hasn’t already, and then file foreclosure. If the title holder or mortgage note holder, or any creditor in an inferior position thinks it warranted and has the means necessary, they can pay off the superior foreclosing lien. In which case the smaller superior lien holder is paid off. Or, if nobody pay him off for whatever reason, and he is not stopped from foreclosing judicially, he has ownership of a property probably worth many times the amount of his lien. He can then take steps for possession, subject to any state law regarding reinstatement.

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  • Gil Ganz
    OP
    Real Estate Investor · Austin, TX · Member since 2018 · 136 posts · 50 votes
    7y

    Thank you guys, currently checking the matter with a local attorney, trying to get a clear picture as to lien order. If the lien will be superior probably another discount will be needed.

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