Can a Credit Card Debt Be Held on a Lien Against Your Home?
Credit card collectors often take the full range of options available under state and federal law to obtain repayment of outstanding debts — including, in extreme cases, placing a lien against a debtor's home. Although creditors cannot place liens on their own, if they obtain a court judgment for the debt, they can place a lien under the court's general authority.
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Purpose of Liens
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A lien is a claim against some asset held by another that encumbers the sale or transfer of that asset until the lien is resolved. Mortgage companies, for example, hold a lien against the property until the mortgage is paid in full; when the asset is sold, the title company routes the funds to the lienholder, with the property owner receiving the remaining proceeds. In most states, anyone — including debt collectors — can file a lien against another person's real property with a simple court judgment.
Obtaining a Lien
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A credit card collector must first obtain a court judgment affirming the validity of a debt before any encumbrance of the debtor's assets may proceed. Typically, after unsuccessful attempts to work out a payment plan, the collector will sue the debtor. If a judge agrees that the debt is valid, then the court will issue a judgment. That judgment allows the debtor a larger range of court-enforced collection activity, including wage garnishment and bank account levies. Some debtors may also use the judgment to file a lien against a person's home or major assets (including cars and boats).
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Lien Precedence
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When an asset with an attached lien is sold, all liens must be discharged before the state government will transfer title ownership. The first proceeds go to the government for any outstanding tax liens, then to the primary lienholder (typically, a mortgage company). Then, all other liens are paid and any remaining funds return to the property owner. If any lien remains unresolved, the property's title cannot transfer — thus precluding a sale of the asset.
Suggestions
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Liens indicate a serious escalation of the collection cycle. Some debtors refuse to acknowledge a collection agency, even going so far as avoiding service on the court notice to appear for the judgment hearing. If you receive notice from a court that you are being sued for a debt, retain a lawyer and work with the court and the creditor to avoid court-sanctioned collection activity that could include liens against your home.
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References
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