Credit card companies typically write off old debts as uncollectable and transfer the outstanding balance the debtor owes to a collection agency. Once the collection agency purchases the debt, it becomes the legal creditor and enjoys the same privileges that the original creditor had--including pursuing a real estate lien for payment.
Facts
Collection agencies must follow legal procedure before placing a lien against your home. This includes filing a civil lawsuit against you for nonpayment and winning a court judgment. Once the company wins a court judgment, it files the certificate of judgment with your secretary of state's office, the county recorder's office or the land records office in your county. State regulations vary concerning the appropriate location for filing property liens.
Significance
A property lien changes the status of your unpaid debt. Whereas your debt was previously unsecured, after the collection agency files the lien, your home becomes collateral for the debt--giving the collector the right to foreclose on your home if you fail to repay your credit card debt.
If you refinance your home, you must pay off all liens the property carries. Although you can sell your home with the judgment lien still attached, most buyers won't purchase such a property.
Features
Before suing you and placing a lien on your home, the collection agency considers issues such as the value of your property and any other liens it carries. If your home carries multiple liens, the collection agency could foreclose on your home but may not receive any proceeds from the foreclosure sale. This is because liens must be paid off in the order that they were originally recorded. If the liens on your home exceed the property value, recording a lien isn't advantageous to the debt collector.
Time Frame
A judgment lien filed by a debt collector remains valid as long as the judgment itself is legally enforceable. State laws vary regarding how long a creditor can use its judgment to collect a debt, but most states allow judgment enforcement for an average of seven to 10 years. A collection agency can renew its judgment for your unpaid credit card debt, but it must refile any properly liens it holds after renewal.
Considerations
The Neighborhood Economic Development Advocacy Project notes that not everyone who owes a credit card debt to a collection agency is in danger of a property lien -- or even a lawsuit. You face greater danger of a lawsuit and subsequent property lien if your unpaid credit card debt exceeds $1,000. If you have cause to dispute the debt's validity and have a reasonable defense against the debt collector's claims, it is less likely to file a lawsuit against you.
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