If a creditor, or collection agency, cannot compel you to bring your account current through letters and telephone calls, and it believes that you have available assets to pay your debt, it may decide to sue you for the debt you owe. If you cannot prove that you have already paid the debt, the court will typically grant a legal judgment to the creditor. After issuing a judgment, the court places a lien on your real estate property, including your primary home.
Public Record
When a creditor places a judgment lien on your home, the lien is documented in the county or parish recorder's office. Once recorded, the documentation becomes public record. This means that anyone, including an employer, family member or complete stranger, can discover the lien by reviewing records at the recorder's office.
Credit Damage
In addition to reporting the lien to the county or parish's recorder's office, the court permits the judgment creditor to report the lien to credit bureaus. Like other public records, such as bankruptcies, liens can severely impact your credit score. This can make it difficult to obtain future loans, credit cards or lines of credit.
Prevention of Transfer
A lien on your home creates a financial interest in the property for the judgment creditor. This financial interest must be eliminated by satisfying the judgment debt before a transfer of ownership in the property can occur. This means that you must pay the judgment before you can sell or transfer the property. If you cannot satisfy the judgment, either from your income or from the capital gains you earn from the sale of the home, a sale or transfer cannot take place.
Foreclosure
A judgment lien on your home gives the lienholder the option of forcing the foreclosure of your property to satisfy the judgment debt. In a judgment foreclosure, the court orders the sale of the home through an auction, and uses the proceeds to pay your creditor. The judgment creditor may opt for foreclosure if it discovers you have enough equity in your home to pay the debt. However, the mortgage lender's interest in the property takes precedence over the judgment creditor's interest, which means that if you have little or no equity in your home, the creditor stands to gain little by forcing a foreclosure.
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