Judgment creditors have many options when enforcing a judgment. They can freeze bank accounts, garnish wages, and sell property, to name a few. In some cases, they can even sell a judgment debtor’s house and use the proceeds to satisfy the judgment.
But foreclosing on a debtor’s house isn’t always an option, and even when it is, the process may not be fruitful or worthwhile for the creditor. Before you attempt to sell a judgment debtor’s real property in order to satisfy a judgment, consider the following:
1. Transcribe the judgment: If the debtor owns property in a different county than the one in which the judgment was entered, make sure to transcribe the judgment in the county in which the debtor’s property sits by filing a transcript of judgment with the county clerk for the county in which the debtor’s property is located.
For example, a plaintiff files suit in Manhattan against a debtor who owns property in Queens. Once the judgment is entered in Manhattan, the creditor must transcribe the judgment with the Queens County Clerk. Only then will the judgment act as a lien on the Queen’s property, which will both protect the creditor if the debtor attempts to sell the property on his or her own, and allow the creditor to attempt to force the sale of the property to satisfy the judgment.
Judgments entered in federal court must always be transcribed in the county where the property is situated. For instance, if you obtain a judgment in the Southern District of New York in Manhattan, and the debtor’s property is in Manhattan, you would need to transcribe the judgment with the New York County Clerk.
2. Co-Owners: Properties owned jointly by a debtor and one or more non-debtors may present issues in the foreclosure process. For example, if a husband (debtor) and wife (non-debtor) own property as tenants by the entirety (which is commonplace), the Court may not want to infringe upon the non-debtor spouse’s rights to the property. Even then, the debtor’s rights to the property are subject to the rights of the non-debtor spouse, which may result in a limited market in which to sell the debtor’s rights to the property. If instead the property is owned by tenants in common, the Court is more likely to permit the sale of the debtor’s interest in the property, from which the creditor can recover the proceeds, while leaving the non-debtor tenant’s rights to the property intact.
3. Other Liens: You should also consider whether other creditors have claims to the property, whether in the form of liens, judgments, or mortgages. If other creditors have ‘priority’ over your judgment, then the proceeds from the sale may go to satisfy other claims before any proceeds are used to satisfy your judgment. Banks are almost always the first priority creditor, so they are paid first and any leftover money is then distributed among any remaining judgments or liens on the property. Therefore, if the debtor’s property has a substantial mortgage, it may not be worth the creditor’s time to try and sell the property because the creditor may receive little or no proceeds from the sale.
4. Primary Residence or Investment Property: Another important consideration is whether or not the debtor uses the subject property as his or her primary residence. After the mortgage is repaid, the “homestead exemption” provides that the next $75,000 to $150,000 from the proceeds of the sale goes back to the debtor, depending on where the property is located. The homestead exemption further reduces the chances that the creditor will receive enough proceeds from the sale to make the foreclosure process worthwhile.
On the other hand, if the debtor has an investment property or a rental property; the debtor does not reside in said property; and there is no mortgage, no other creditors, and no tax liens on the property, then the creditor would be wise to initiate foreclosure proceedings on that property rather than the debtor’s primary residence or a property subject to other claims.
The above list represents four important concerns that any creditor should consider when contemplating selling a debtor’s real property in order to satisfy a judgment. However, this is not an exhaustive list, and should not replace a consultation with a qualified attorney to address the unique circumstances of your case.
To learn more about how Katz Melinger can help you collect, contact us today.
Adam J. Sackowitz
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