What happens to judgment liens during foreclosure?

If there is a judgment lien on your home or other real property, and that property is foreclosed, the judgment lien is typically wiped out, assuming that the lien does not have priority. 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 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 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 subsequently 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. Judgment liens are always junior to property taxes.) 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

When a mortgage lender forecloses, any judgment liens that were recorded after the mortgage will be wiped out in the foreclosure. 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.