What Is the Difference Between a Property Lien and a Judgment Lien?

Learn the differences between property liens and judgment liens.

For the most part, whether you define a lien as a property lien or a judgment lien depends primarily on how the creditor obtained the lien. Creditors typically acquire property liens through your voluntary consent. On the other hand, creditors obtain judgment liens as a result of a lawsuit against you for a debt that you owe.

Property Liens

When you take out a loan to buy a house, for example, you sign a contract promising to repay that debt. Because the amount of money you borrow is so large, the creditor requires something to help minimize the financial risk it takes when it lends you this money.

You voluntarily give the creditor rights to your property in the event of a default. The creditor accomplishes this by making the offer to finance the purchase of the property conditional on you giving it a lien on that property. If the creditor has a lien, if you default on the terms of the agreement (for example, don't pay your mortgage), the creditor may take action to foreclose on the property you pledged as a security interest.

The creditor must perfect the property lien. State law typically requires the creditor to "perfect" the property lien by recording it, like in the county records in the case of a mortgage. The purpose behind this requirement is twofold: it gives other parties of interest notice of the lien and it establishes a catalog of liens in case a party contests a lien’s validity. The creditor must remove this lien once you pay the corresponding debt in full.

Judgment Liens

A creditor obtains a judgment lien by winning a lawsuit against you.

While creditors have numerous options to collect on a debt, creditors use judgment liens as the main way to ensure you actually pay the debt off. The creditor first obtains a judgment against you. The creditor records the lien in the county where you or the property resides and attaches the judgment as proof of the creditor’s entitlement to the lien. For more information about how creditors collect on debts, visit our area on Debt Collection: Repossessions, Wage Garnishments, Property Levies, and More.

Generally, you must get the lien removed or released before you can transfer property into another person’s name.

Ways to Get a Lien Released or Extinguished

There are several ways to remove a lien from your property, including:

Paying off the debt.

If you pay off the underlying debt, the creditor will agree to release the judgment lien. The creditor then files this release with the same authority with which it recorded the original lien. Once the creditor releases the lien, you may sell, trade or otherwise transfer the property as you please.

Asking the court to remove the judgment lien.

Most states provide a process by which you can ask the court to remove a judgment lien. However, whether the court will approve your request depends on the nature of the property burdened by the lien.

Filing for bankruptcy.

Unless you have other debts that necessitate filing bankruptcy, you should only use this option as a last resort. By filing bankruptcy, you can use the power of federal law to remove the judgment lien in the bankruptcy court. This act supersedes whatever occurs in the state court and can act to fast track your request to remove the judicial lien. For more information about removing liens through bankruptcy, visit our Getting Rid of Liens in Chapter 7 Bankruptcy area.

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