What happens to judgment liens during foreclosure?
Find out what happens to judgment liens if your home is foreclosed on.
If there is a judgment lien on your home or other property, and that property is foreclosed, the judgment lien is wiped out. Whether the judgment lienholder will get paid anything depends on whether there is any money leftover after senior mortgage holders and priority liens are paid off.
What Is a Judgment Lien?
If you are sued in court for a sum of money and lose the case, the prevailing party will be granted a judgment. That party may then file a judgment lien, which is a lien that attaches to your real estate. (To learn more about judgment liens, see our article What is a Judgment Lien?)
Once a judgment lien is placed on a parcel of real estate, this acts as assurance that you will pay the amount owed to the creditor. In most cases, a judgment lien remains on title to the property until you decide to sell or refinance your house. Then when you sell or refinance, the lien will be paid off. Once the judgment lien is paid, a release (or satisfaction of judgment) is recorded in the land records which clears the title to the property.
How Judgment Liens Attach to Real Estate
A judgment lien is created when a copy of the judgment is recorded in the county land records. The judgment will typically be filed in the land records of the county where:
- you currently own real estate, or
- where you may acquire real estate in the future.
The judgment lien attaches to any real estate you currently own, and it will also attach to any real estate that you own in the future.
Judgment Lien Priority
Generally, the priority of a judgment lien is determined by its recording date. The priority of liens determines who gets paid first. Judgment liens are always junior to property taxes and are usually junior to a first mortgage and possibly a second mortgage, as well as perhaps other judgment liens previously filed by other creditors.
Mortgage Foreclosures and Judgment Liens
When a mortgage lender forecloses, any judgment liens that were recorded prior to the mortgage will be wiped out in the foreclosure. After the foreclosure sale, the buyer receives title that is free and clear of any liens that attached to the property.
If there are any surplus funds after the foreclosing lender’s debt has been paid off, the remaining funds will be distributed to other creditors holding junior liens such as second mortgages and judgment lienholders.
Example. Say the total debt owed on the first mortgage is $200,000. There is a second mortgage for $40,000 and a $15,000 judgment lien. The home then sells for $250,000 at the foreclosure sale. The first mortgage holder will be paid in full ($200,000). The second mortgage will be paid in full as well ($40,000). The judgment lien holder will be paid whatever is left ($10,000). However, if the property had only sold for $200,000 at the foreclosure sale, the total amount would go to the foreclosing lender. The second mortgage and the judgment lien would receive nothing and would be wiped out.
Foreclosing on Judgment Liens
A judgment lienholder can also foreclose on your home in order to get paid. However, judgment lienholders rarely do this. This is because it takes time and money to foreclose, and often they wouldn't get anything anyway because of senior mortgages or other liens that have priority.