If you own real property in Michigan, you won’t be able to sell it or refinance unless you have a clean title. If you are a judgment creditor in Michigan, you can interfere with a debtor’s ability to engage in such transactions through the use of a judgment lien. This collection mechanism has only been available in Michigan for a few years, but in the right circumstances, a judgment lien can produce significant results.
What Is a Judgment Lien?
A Michigan judgment lien is a document filed with a county recorder or registrar of deeds that attaches to real property in that county owned by the debtor identified in the lien. The lien is an encumbrance on such property, much like a mortgage, tax lien, or home equity line of credit.
Though the lien operates much like a mortgage on real estate owned by the debtor, a judgment creditor cannot foreclose on this lien and sell the property to satisfy the judgment. However, if and when the debtor attempts to sell or refinance the property, he or she will not be able to do so unless the lien is paid and subsequently released.
How Judgment Liens Work
A judgment creditor can file a lien with the court 22 days after the judgment is entered against the debtor, provided that the debtor has not appealed or moved to set the judgment aside. The lien is then sent to the register of deeds for recording in the county where the debtor lives.
The judgment lien takes priority over subsequently recorded liens, except tax liens and purchase-money mortgages.
Of course, a judgment lien is only effective if the debtor actually owns real estate in the county where the lien is on file. Many creditors require debtors to divulge whether they own or rent their homes when filling out credit applications, so creditors can refer to this information during their collection efforts. Creditors may also glean this information by pulling a debtor’s credit report to see if there are any outstanding mortgages listed.
A unique and useful feature of judgment liens is that they will attach to real estate that the debtor acquires after the recording of the lien. For example, if the debtor does not own any real estate at the time the lien is recorded, but later buys land or a home in the county where the lien is filed, the lien automatically attaches to the subsequently purchased real estate. As a result, counsel for creditors should always file a judgment lien after obtaining a judgment so that they are well-positioned if the debtor acquires property in the future.
Limitations on Judgment Liens
As stated above, a creditor may not foreclose on a judgment lien so there is nothing that a creditor can do to “force” the debtor to satisfy the lien. Another limitation on judgment liens is that they only last for five years, though they may be renewed for one additional five-year period.
If the debtor owns property with his or her spouse as “tenants by the entireties,” a judgment lien won’t attach to the property unless the underlying judgment is against both spouses.
Frequently, creditors will inherit real estate from a deceased relative and give no thought as to the judgment lien recorded several years earlier. Once the real estate is in the debtor’s name, however, the lien attaches. This writer will often receive phone calls from title companies seeking a payoff on a judgment lien recorded many years earlier in order to close a sale or refinancing transaction. The effect of these liens is well worth the nominal filing and recording fees incurred to put them in place.
Aggressive and Effective Collections for Michigan Creditors
If you have questions about judgment liens or other ways to collect upon a judgment or other monies you are owed, please contact Ray Schultz today at RSchultz@kehb.com or call him at (616) 254-8400 to discuss your situation and the rights and remedies available to you as a creditor.