Judgement placed a lien on the property

[Wizrulz101]

Hoping someone might know anything about this situation.

Few years ago, we got a chapter 7 and received the discharge after a few months. Prior to the bankruptcy, a credit card company placed a lien on the house via a judgement. This debt was discharged in the bankruptcy. As part of the bankruptcy, we allowed the house to go into foreclosure and it was sold back to the bank.

Looking to purchase another home in next year, I found out that the judgement for the lien is still on my record. The house sold many years ago. How do I go about getting that judgement removed from record ?

Thank you in advanced

Thanks
Jason

[justbroke]

Bankruptcy Rule #1: all liens survive bankruptcy (*)
Bankruptcy Rule #2: after you discharge your personal liability, see rule #1.

Although you discharged the "personal" responsibility to pay, the lien survived the bankruptcy. Did you list the judgement lien in your schedules? Did you take any action to avoid the lien? You may be able to re-open the old Chapter 7 and file the Motion to Avoid Judicial Lien. I don't know if this has temporal (time) restrictions or not (there don't appear to be any restriction on when the case can be reopened to remove the lien).

If you did not actual file a Motion to Avoid Lien, then I would get the paperwork in order to file a Motion to Avoid Lien, or contact your attorney if you used an attorney.

References: Virginia Southern - Motion to Avoid Judicial Lien

Notes: (*) unless an action is taken to avoid the lien

[flashoflight]

JB's rule that all liens survive bankruptcy is what you need to know. The creditor can't ask you to pay or file another lien thanks to the BK. But they don't have to do anything else either like get rid of the lien.

Prior to the bankruptcy, a credit card company placed a lien on the house via a judgement. This debt was discharged in the bankruptcy. As part of the bankruptcy, we allowed the house to go into foreclosure and it was sold back to the bank.

Let me correct this. The judgment creditor placed a lien on any and all real property into the future you may own in the county where the lien was recorded. Think of it this way - there is a huge list of debtor names with liens at the county recorder office. Whenever a house in the county is sold, the giant list of liens is searched to find you. Your lien is still on the huge list so the judgment creditor has to be paid off before you get any net proceeds.

Looking to purchase another home in next year, I found out that the judgement for the lien is still on my record. The house sold many years ago. How do I go about getting that judgement removed from record ?

You don't get a "Get Out of Jail Free" card on the lien just because your house was foreclosed upon many years ago. The lien is still alive and well. You need to open your wallet (this will cost you attorney fees and court fees) and hire an attorney to reopen your BK and file the motion to avoid judicial lien.

[despritfreya]

Let’s resolve this issue correctly. . .

In re Johnson, 466 B.R. 67 (Bankr. E.D. Va. 2012)

THIS CASE is before the court on the debtor's “Motion to Discharge Debt/Lien”. The motion is essentially a contempt proceeding seeking relief against Cadles of Grassy Meadows, II, LLC for violating the discharge stay. Cadles obtained and docketed a judgment against the debtor prior to her filing her petition in this case, but has not caused it to reflect the debtor's discharge.

Cadles obtained a judgment against the debtor and docketed it in the Clerk's Office of the Circuit Court for Loudoun County, Virginia, before she filed her petition in bankruptcy. The docketing of a judgment in the clerk's office of a circuit court in Virginia creates a lien on all real property owned by the judgment debtor in that city or county. Va.Code (1950) § 8.01–458; Ryan v. Kanawha Val. Bank, 71 F. 912 (4th Cir.1895); Hill v. Rixey, 67 Va. (26 Gratt.) 72 (1875).

The discharge granted in this case discharged the debtor's personal liability on Cadles' judgment. Cadles may not take any action to enforce the judgment against her personally. 11 U.S.C. § 524(a). However, the discharge does not release any lien that arose before she filed her petition. Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 582–3(1935) (“unless the mortgagee released his security ... a mortgage even of exempt property was not disturbed by bankruptcy proceedings”); Dewsnup v. Timm, 502 U.S. 410, 418, (1992); Johnson v. Home State Bank, 501 U.S. 78, 83 (1991) ( “[A] bankruptcy discharge extinguishes only one mode of enforcing a claim—namely, an action against the debtor in personam—while leaving intact another —namely, an action against the debtor in rem.”); Farrey v. Sanderfoot, 500 U.S. 291, 297 (1991) ( “Ordinarily, liens and other secured interests survive bankruptcy.”); Cen–Pen Corp. v. Hanson, 58 F.3d 89, 92 (4th Cir.1995).

A judgment creditor must take action to evidence the effect of a bankruptcy discharge on its judgment. An open judgment is a representation that there is an outstanding personal obligation due from the debtor to the creditor and that there is a lien on all real estate owned by the debtor, if any, in the city or county. It will be picked up in public records searches by credit bureaus and reported as an outstanding obligation when, in fact, the discharge “voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged under ... this title.” 11 U.S.C. § 524(a). Without a notation on the judgment lien docket, the judgment inhibits the fresh start to which a debtor is entitled and pressures a debtor to pay it. Doing nothing is effectively an action to collect the debt as the personal liability of the debtor and violates 11 U.S.C. § 524(a)(2).1 The judgment creditor must take some action to remedy this situation and should mark the judgment as “discharged in bankruptcy”. See Va.Code (1950) § 8.01–455. This notation gives a credit bureau or title examiner notice that the judgment has been discharged as the personal liability of the debtor but that it remains a lien on any real property within that jurisdiction to the extent that the lien existed when the petition was filed and was not avoided in the bankruptcy case. . .

A creditor's responsibility to mark a docketed judgment as “discharged in bankruptcy” arises independently under both the Code of Virginia and the Bankruptcy Code. The Bankruptcy Code does not permit a judgment credit to stand idly by when he knows that his debt has been discharged.3 In re Williams–Nobles, 459 B.R. 242 (Bankr.E.D.Va.2011). To do so violates the discharge stay under 11 U.S.C. § 524(a). The debtor is entitled to the public acknowledgment that her personal liability has been discharged; but she is not entitled to a release of the judgment and, therefore, the prepetition lien against any property that she may own or have owned in the county. The notation “discharged in bankruptcy” achieves these objectives.

Conclusion

A creditor is enjoined by the Bankruptcy Code from taking any act to collect a discharged debt as the personal liability of the debtor. A judgment creditor must take appropriate action to mark a docketed judgment as “discharged in bankruptcy” when it becomes aware of the discharge. Failure to do so violates 11 U.S.C. § 524(a)(2). The creditor will mark the judgment “discharged in bankruptcy” within 30 days after the entry of the order in this case.

Give this cite to your attny for further review.

Des.

[Wizrulz101]

Appreciate all the information from the members on this board. I contacted the bankruptcy attorney today, and they were looking into it. Des, I will pass the information you provided onto him. Thank You

[bcohen]

I am struggling to see the problem here. Like you, I had a judgment from a credit card when I declared Chapter 7 bankruptcy. I did not own any real estate at the time, and as the underlying debt was discharged in my bankruptcy, and the discharge injunction prevents the creditor from attempting to enforce its judgment anyways, I did not take any special action regarding this debt. Several years later, I purchased a home, and the discharged judgment was not an issue.

Since you did own real estate at the time this judgment was granted, the creditor recorded a junior lien against the property, which would have been extinguished when the mortgage lienholder foreclosed. However, because the discharge injunction prevents the judgment creditor from attempting to enforce its judgment, they cannot place a lien on any property which you purchase in the future! The judgment itself might continue to show up on credit reports, or on the county court's website, but this should be a non-issue since the underlying debt has been discharged!

[flashoflight]

The prepetition lien is on ALL real estate in the county owned presently or in the future. Think of it as the creditor adding to a giant list of judgement liens in that county that needs to be satisfied before the property changes hands.

[Wizrulz101]

I contacted the bankrupcty lawyer office. They had a note that the house was listed as "Tenants by the Entirety" (spouse and myself), which means the lien should of not of allowed to be placed on the house since the debt was against one of us and not both of our names. Basically this lawyer representing the creditor should not of been able to place lien on the property.

However, the main lawyer has been out of town, so I won't hear anything until next week. I asked them what we should do, should I ask the circuit court reopen the judgement case to see if I can get judgement lien thrown out, or do they need to reopen the BK case to get the lien avoidance sent to the trustee for approval.

In all, its confusing to me ... the debt has been discharged, creditor cannot renew the lien judgement, it cannot be collected, however it just follows if nothing is done with it. With that being said, if I bought property and sold it, from my understanding the creditor would somehow get proceedings from the sale.

Thanks
Jason

[bcohen]

The prepetition lien is on ALL real estate in the county owned presently or in the future. Think of it as the creditor adding to a giant list of judgement liens in that county that needs to be satisfied before the property changes hands.

I do not think this is correct, and if this were true, would defeat the purpose of bankruptcy. It is certainly true that liens are not automatically removed in bankruptcy, and that if one is planning to keep their house, it would be necessary to file a motion to avoid any judgment lien(s) which impede their exemptions. However, since the OP did not plan to keep his house, and instead surrendered it to the mortgage lender, the judgment lien was removed from this property when the lender foreclosed.

If the OP had owned other properties prior to declaring bankruptcy, no doubt the judgment lien would have been recorded against those properties as well. However, he did not, and the underlying debt has been discharged. The judgment itself is unenforceable as a matter of law (attempting to collect against the OP would violate the discharge injunction). Attempting to place a lien against any property which he purchases or acquires in the future would also be a clear violation.

[justbroke]

Liens can always cause issues with bankruptcy; especially the status of the lien (especially a judgement lien by consent) after discharge. The best way to handle these is to file a motion to avoid judicial lien while the case is open so have finality. Sometimes, these escape and the public record still shows an open lien.

Since Wizrulz101 is represented, their attorney should contact the judgement creditor's attorney to have it removed. Wizruiz may also try by contacting the judgement creditors attorney and telling them of the discharge and that the underlying debt was not only discharged, the property to which the judgement attached was sold years in the past.

I would follow Des' advice. I would sent a VIOLATION OF PERMANENT DISCHARGE letter demanding that the lien be marked as satisfied/discharged through bankruptcy. I would give them 7 days to comply or else... back to the bankruptcy court for sanctions. Sanctions though would need to be proven (actual damages). I think that your bankruptcy attorney office should send the judgement creditor's attorney such a notice to see if they'll take action, before resorting to the bankruptcy court for sanctions and an order.

[despritfreya]

The prepetition lien is on ALL real estate in the county owned presently or in the future. Think of it as the creditor adding to a giant list of judgement liens in that county that needs to be satisfied before the property changes hands.

I need to put this issue to rest which I attempted to do very politely.

bcohen is absolutely correct. . . Judgment liens. . . even in California. . . do not attach to after acquired property. Now, there may be a jurisdiction or two that state otherwise but here is the view of the vast majority. If you have Case Law that states otherwise, please supply it:

In re Kenney (Bankr. C.D. Cal. 2018) Case No.: 1:10-bk-11635-GM

UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA SAN FERNANDO VALLEY DIVISION

November 16, 2018

CHAPTER 7

ORDER DENYING MOTION TO AVOID LIEN UNDER 11 USC §522(f) WITH AMERICAN EXPRESS BANK, FSB IN THAT NO LIEN CAN ATTACH

Larissa Kenney ("Debtor") filed this voluntary chapter 7 bankruptcy on February 15, 2010. A discharge was entered on June 7, 2010 and the case was closed on June 15, 2010. Debtor brought a motion to reopen this case on September 14, 2018 for purposes of filing a lien avoidance motion against American Express ("Creditor"). The motion to reopen was granted on October 1, 2018. Debtor then filed the instant Motion to Avoid Lien under 11 U.S.C. § 522(f) (the "Motion"). . .

Debtor attached as Exhibit 1 to the Motion an Abstract of Judgment—Civil and Small Claims by Omni Bank against Debtor on December 7, 2012. The abstract of judgment was recorded in Los Angeles County (pre petition) on September 9, 2009.

Under California law, recordation of an abstract of money judgment with a county recorder's office creates a lien against any property in the county in which the abstract of judgment is recorded. C.C.P. 397.340(a). The lien also attaches to any property in the county in which the abstract of judgment was recorded acquired after the judgment lien was created. C.C.P. 397.340(b). Such a lien continues for 10 years from the date of the entry of judgment.

Debtor at no point owned property to which the abstract of judgment could attach, but now appears to be seeking financing to purchase a home. This case raises the issue of whether an abstract of judgment recorded before debtor filed bankruptcy, which never attached to any property, could become a lien on any property acquired after the debt is discharged in bankruptcy. The issue has been considered previously by a bankruptcy court in the Eastern District of California. In re Thomas, 102 B.R. 199 (Bankr. E.D. Cal. 1989). The facts in Thomas are very similar to the facts here.

In Thomas, the creditor obtained a judgment against the debtors and recorded an abstract of judgment thereon in Sutter County. The debtors subsequently filed chapter 7 bankruptcy and received a discharge. The debtors never owned any property in Sutter County prior to the bankruptcy, and the judgment was discharged. Post-bankruptcy, debtors purchased a home in Sutter County. The Thomas court was faced with the question of whether creditor had a valid lien against the proceeds of a sale of the property. The creditor argued that it had a valid lien on debtors' after acquired property which had neither been discharged nor avoided under the bankruptcy code. The creditor argued further that, while it was enjoined by the discharge injunction from enforcing the lien, it was not required to release the debtors from the lien absent an order of the bankruptcy court. The Thomas court rejected creditor's argument, stating that the argument was "based upon the false premise that a 'lien' actually exists.".

The California courts have long recognized the maxim that a lien cannot survive (much less be created in the first place) absent the existence of an enforceable underlying obligation. (Gostin v. State Farm Insurance Co., 224 Cal.App.2d 319, 325, 36 Cal.Rptr. 596 (citing East Bay Municipal Utility District v. Garrision, 191 Cal. 680, 692, 218 P. 43; Pacific Finance Corporation v. Hendley, 119 Cal.App. 697, 704, 7 P.2d 391)). Furthermore, as was noted above, a lien cannot exist in the absence of an underlying attachable "res". Based upon its analysis, the court ordered that the lien was void and expunged of the record. The Thomas court noted that this result is consistent with the definition of "lien" under the California Code of Civil Procedure: "[a] lien is a charge imposed upon specific property, by which it is made security for the performance of an act." C.C.P. § 1180 (emphasis added).

The conclusion reached by the Thomas court has been cited favorably in similar situations:

‘The parties do not dispute that IFS owned no real property in Los Angeles County on the date of recordation. IFS still owns no real property. Moreover, under California law a lien cannot exist absent attachable property. . . . Here, IFS did not own any real property in Los Angeles County on the date of recordation or at any time from that date through the petition date. IFS still owns no real property. Thus, DC Media's recordation of the abstract of judgment did not create or perfect a lien, or otherwise affect IFS' property or an interest in IFS' real property—because IFS owned no real property.’ In re Imagine Fulfillment Servs., LLC, 489 B.R. 136, 152-53 (Bankr. C.D. Cal. 2013). See In re Baker, 217 B.R. 609, 613 (Bankr. N.D. Cal. 1998) ("This Court views the Thomas court's logic as unassailable. . . . For a lien to exist, both the property and the obligation must exist at the same time. A lien may not 'survive' bankruptcy unless it first exists.")

A debtor may avoid a lien under 522(f)(1)(A) if: "(1) there was a fixing of a lien on an interest of the debtor in property; (2) such lien impairs an exemption to which the debtor would have been entitled; and (3) such lien is a judicial lien." In re Pederson, 230 B.R. 158, 160 (B.A.P. 9th Cir. 1999).

Because there is no valid lien to be avoided, Debtor is not entitled to the protections of 522(f). The Court recognizes that Debtor is trying to ensure that no encumbrance results from a pre-petition recorded abstract of judgment; such a result would have the absurd consequence of creating an unenforceable lien on property acquired post-petition, but only in the specific counties which the creditor recorded the abstract of judgment. Addressing a similar dilemma, an Idaho bankruptcy court offered the following:

‘Thus, while the Code provides no mechanism for the Court to preemptively order that no lien for a prepetition debt ever attach to Debtors' after-acquired property, such an order appears unnecessary. In this case, there are no judgment liens because there is no real property; Debtors' personal liability has been discharged, and future efforts to collect on the judgments are prohibited by the discharge injunction. Should a creditor make such collection efforts against after-acquired property, that creditor could be subject to sanctions. In re Zilog, Inc., 450 F.3d 996, 1007 (9th Cir.2006).

For the foregoing reasons, the Motion is DENIED.

Date: November 16, 2018

/s/_________
Geraldine Mund
United States Bankruptcy Judge

(Emphasis added.)

I trust this puts the issue to bed, unless you give us Case Law that is contrary.

Des.

[justbroke]

despritfreya that means that a debtor's recourse, for the failure of the creditor to mark the lien as satisfied/discharged, would be to seek relief form the bankruptcy court. That relief would be a cause of action for a discharge injunction violation?

[despritfreya]

despritfreya that means that a debtor's recourse, for the failure of the creditor to mark the lien as satisfied/discharged, would be to seek relief form the bankruptcy court. That relief would be a cause of action for a discharge injunction violation?

I do not believe that a creditor, absent some state statute (or case law in the district) has an affirmative duty to release the judgment lien. Here in Arizona, since judgment liens do not attach to homestead property there is no need to do a 522f motion. If you wish to sell your homestead post discharge and your title company balks, you move the escrow to FAT- problem solved.

The issue of the recorded judgment lien comes to a head if and when the debtor wishes to finance a new home. (OP's situation). This is not a title company issue. It is an issue for the lender who mistakenly thinks the mortgage will be subordinate to the judgment lien. I came across this issue with a neighbor who was attempting to purchase a home with a VA loan. He had done his bk about 3 years before but there was a recorded judgment lien. I sent a long letter to the loan officer explaining the impact of the discharge and that was that. Deal closed and prior neighbor now lives in his "dream home".

Des.

[justbroke]

Pretty cool Des.

[despritfreya]

Not sure if this will work. If it does, this post attaches the actual Order issued in Kenney that I reference above.

Edt to add: Wow, it worked - now I know I don't have to copy and paste. Also, this decision was not appealed.

justbroke If the attachment is TMI regarding personal information for the debtor involved, please feel free to delete.

Des.