In the last few years record numbers of people have faced the threat
of losing their home or other real estate to foreclosure. If your
judgment debtor becomes one of the unfortunate persons who could lose
property to foreclosure, what effect does that have on you? Believe
it or not, it is possible that the foreclosure action against your
legal adversary could be good for you. Sometimes it enhances the possibility
of your judgment being paid.
“How is this possible?” you ask. There
are several ways. Let’s assume that you have a judgment lien
on the real estate being foreclosed on. If your judgment lien was
recorded prior to the recording of the mortgage or deed of trust,
your lien has a superior position to the mortgage or trust deed.
That means that if the judgment debtor’s property does indeed
go to sale in a foreclosure auction, any superior lien must be paid
off from the proceeds of the sale first. Only after superior liens
are paid, can the foreclosing mortgagee get any money from the auction
of the property. This means you will be paid for your court judgment.
Now let’s assume that your judgment lien was
not recorded until after the mortgage or trust deed was recorded.
What could happen? First of all, it is necessary to remind you that
the overwhelming majority of real estate property that goes into
the foreclosure process, never actually ends up being sold at a
foreclosure auction. Sometimes the debtor is able to borrow money
from a conventional lending source. This not only allows the foreclosure
to stop, it probably will get your judgment paid and satisfied.
The reason is that most banks or other conventional lenders will
require that any prior liens get paid off, so that the new money
loan they fund will not be in an inferior position vis-a-vis other
Sometimes a debtor will be able to totally refinance
the entire debt on their property. When this happens, all prior
loans and liens that exist at that time will be paid off. In this
case, your court judgment will be paid.
Frequently the mortgagor (your judgment debtor)
will be able to find enough money from friends, family, or by liquidating
some assets to bring the real estate loan current and thereby stop
the foreclosure. If this happens, you won’t lose your judgment
or lien position, but you are not likely to get your judgment paid
through this process of bring the loan current. Be patient, you
are no worse off, you just have to keep trying.
If your judgment lien is in a junior position and
the property actually sells at auction, what can happen? First,
if the sale price is sufficient for all liens superior to yours
to be more than satisfied, any additional funds from the sale will
be applied to your judgment lien. Once again, you will be paid.
What if the sale price is not sufficient to cover
all property liens superior to your and yours also? In that case
your judgment lien on the property is said to be wiped out at the
sale. This means the lien will expire. However, it does not mean
that your judgment expires. Your judgment still exists and can be
collected through whatever legal means you can employ. It only means
that you no longer have a lien against the particular property that
sold at the foreclosure auction. You still can have judgment liens
against any other real estate that the judgment debtor owns.
Please note, in some states and jurisdictions you
may still possess a right of redemption to buy the foreclosed real
estate after the sale, up until the right of redemption runs out.
In my state this right of redemption lasts for a full year after
the sale. In this case if the sale price is insufficient for me
to get paid from the sale proceeds, I have a right to buy the property
for the same price as it sold for at the courthouse auction. Of
course I would only exercise my right of redemption if there would
be substantial enough instant equity in the property if I bought
it at that price. If buying the property makes sense, I can buy
it with sufficient equity and the virtual effect of doing so is
that my judgment gets paid!
You can see by these examples that when your judgment
debtor’s property is in foreclosure, there are real concrete
possibilities of getting your judgment paid in full. Basically there
are no judgment collecting activities for you to have to perform
to make it happen. It is pretty much automatic when you get paid
this way. You don’t want to delay in getting a judgment lien
put in place on any real estate that your debtor owns. You don’t
want to miss this opportunity to get paid because of the debtor’s
mortgage difficulties. Getting your judgment satisfied in these
situations is easier than taking candy from a baby!