Property liens

[late49er]

I own a house. I should say the bank and I own it.

I don`t understand why a creditor would try to file a property lien on an unpaid non-secured debt if the equity I have in the house is very small, and that equity is protected by a homestead exemption. Where I live the homestead exemption is over 500,000 and my house isn't worth 200,000. My equity maybe 35000.

Perhaps I am misunderstanding the law but it seems it would serve no purpose to file a property lien if the creditor had no chance of ever receiving anything for their trouble.

Appreciate any feedback.

[justbroke]

Why? Because you never know. What if they discover oil under your property or some other event causes home prices to skyrocket in your area. When you are a creditor and obtain a judgment, you may as well attach it to as much real and personal property as allowed by law. Equity is not their concern. When you go to sell that home, you'll have to deal with that lien and they hope they are paid the entire amount, or are able to negotiate some portion of it (such as in short sales).

(In many short sales where there are junior mortgages/lien, the junior lien holders will usually strong arm the superior lien holder to get a "taste". I have heard that $10,000 is normally what the second lien-holder would demand, and even more inferior lien holders would still demand "something" -- a taste. )

[late49er]

lien on property

Hello Just Broke,

Thanks for your reply,

I am wondering, if the likelihood of such events are pretty small why go to the trouble? I mean there really is not a lot they can really get considering the homestead exemption and total value of the home. Also if I file bankruptcy the lien will be stripped i believe.

Also once the judgment is granted I could file an exemption from execution that should stop their efforts in their tracks. That is if I am understanding the process.

Having said that I am new to all of this.

One thing for sure If a person is really judgment proof they should make filing a bankruptcy really a strategic decision and not a knee jerk reaction to collector nuttiness.

[justbroke]

Because you never know. Additionally, you must think about the typical "all liens must be satisfied" in order to receive a "Warranty Deed" outside a foreclosure. In other words, if you went to sell the house through a normal or even short sale, the lienholders will want to be paid and must be paid in a traditional sale. It may only cost them $1.00 per page to record a lien and it is certainly worth it. They could then sell the judgment to a junk debt buyer (JDB) and realize some money today while the JDB sits on it... waiting to pounce on a sale. This is just an investment strategy and there is some risk for the JDB and/or the original creditor, but it pays more than it loses.

The problem with saying "judgment proof" is that no one is really judgment proof. When we say "judgment proof" we really mean collection proof. Now, the creditor may not be able to collect, but they can bet the $15.00 to record a lien that it will pay "something" in the longer term. As I wrote, they can even hedge that bet by selling it to a JDB for 10% of the value of the judgment "today" and be done!

A homestead exemption protect a portion or all of "your" equity in a home if the home was to be sold to satisfy a judgment. However, it doesn't stop the judgment creditor from being paid if there is a traditional sale (and in most cases, they'll even realize something in a non-traditional sale).

At least, those are my thoughts on the subject.