What Is a Judgment Lien?

Judgment liens are a legal instrument used to ensure that consumers pay their debts properly. When a consumer fails to pay a debt, a creditor may take that individual to court to recover the amount of the debt. Debtors are given a chance to pay the debt themselves. If this doesn't occur, a judgment lien is placed against the home of that individual.

Function

A judgment lien is ordered by the court and placed against a home or property when an owner fails to pay a debt. Judgment liens can be placed for any number of debts, such as failure to pay credit cards, utility bills and department store bills. Any bill that can be used to take an individual to court can result in a judgment lien.

Effects

When a property has a judgment lien placed against it, it can't legally be sold without that lien being paid. This is the primary enforcement mechanism of the lien. A debt-holder can't demand payment or force sale of the property at her will, and has to wait for the sale of the property to collect.

Interest

Many judgment liens are also assigned an interest rate to compensate the lien holder for his wait. This means that as a lien is held against a property for a longer period, the amount of the lien increases substantially.

Considerations

Multiple judgment liens can be held against a single property, meaning they all have to be paid in order to sell the property. The law says that liens must be paid off in the order that they were attached to a property. This is not usually an issue, except in property foreclosure. If the cost of liens against the property is higher than the price obtained for the property, they are paid in this order, and any unpaid liens can't be collected.

Foreclosed Homes

When a home is foreclosed upon and sold at auction, judgment liens are paid after any trusts, such as mortgages and home equity loans. This means that lien holders often obtain nothing in compensation for their lien, as the mortgages on a home can wipe out all proceeds associated with the property sale.

Prevention/Solution

To ensure that a judgment lien isn't placed on your home, try to pay all debts on time. If this isn't possible, call your creditors to make a deal to pay the debts over a longer period. A judgment lien takes time and creates expenses for creditors, so they may be more interested in setting up a reasonable payment plan than attempting to place a lien against your home. Don't let your debt go to court, or you will have a difficult time dealing with it.