What Happens to Judgment Liens During Foreclosure?

If a judgment lien has attached to your home or other real property, and that property goes through a foreclosure, the judgment lien is typically wiped out, assuming that the lien doesn't have priority.

Whether the judgment lienholder will get paid anything after a foreclosure depends on whether there is any money left over after senior mortgage holders and priority liens are paid off.

What Is a Judgment Lien?

If you're sued in court for a sum of money and lose the case, the prevailing party will get a judgment. That party may then file a judgment lien, which is a lien that attaches to your real estate.

Once a judgment lien is placed on a parcel of real estate, the lien acts as an assurance that you'll 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 usually 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 might acquire real estate in the future.

So, the judgment lien attaches to any real estate you currently own, and it will also attach to any real estate that you later acquire.

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 after a foreclosure. Sometimes the recording date doesn't matter though; for example, judgment liens are always junior to property tax liens.

Judgment liens 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

In a mortgage foreclosure, any judgment liens that were recorded after the mortgage will be wiped out by the foreclosure. Any surplus funds after the foreclosing lender’s debt has been paid off will be distributed to other creditors holding junior liens, like second mortgages and judgment lienholders.

Example. Say the total debt owed on your first mortgage is $200,000. You also have 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). But 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.

Will the Lienholder Foreclosure a Judgment Lien?

A judgment lienholder can also foreclose on your home to get paid. But judgment lienholders rarely foreclose because of the time and money needed to complete the process, and often they wouldn't get anything anyway because senior mortgages or other liens have priority and get paid first.