A judgment creditor with a final money judgment can create a judicial lien on any real property owned by the judgment debtor by recording the abstract of judgment issued by the court with the county recorder where the property is located.
I. Creation of Judicial Lien:
Thus, a judicial lien is created by the recording of an abstract of judgment, pursuant to California Code of Civil Procedure, §§697.310-697.410, which puts a “cloud on title” on any real property owned by the judgment debtor in the county in which the abstract of judgment is recorded.
Indeed, a money judicial lien is notice in particular to any prospective lender or buyer that the judgment debtor owes money to the judgment creditor stated in the abstract of judgment.
Moreover, a money judicial lien puts any lender or buyer on notice that: (1) if the money judgment is not paid, the particular real property is taken subject to the judicial lien; or (2) the money judgment must be paid or satisfied in order to obtain clear title over the particular real property.
II. Extinguishment of Judicial Lien:
A. Satisfaction of Judgment:
Outside of bankruptcy, a judicial lien is extinguished by the satisfaction of judgment through payment. Thus, the closing of the sale of a real property subject to a judicial lien normally includes payment of the money judgment of the judgment creditor.
In California, once a money judgment is paid or satisfied, the judgment debtor, the owner of the real property subject to the judgment (or judicial) lien, or anyone with a security interest in or lien on the property can serve a written demand on the judgment creditor that an acknowledgment of full satisfaction of judgment be filed with the court, or delivered to the person or entity making the demand, or both, pursuant to Code of Civil Procedure §724.050(a).
Indeed, once a money judgment is satisfied, the California Code of Civil Procedure §§724.030-724.040 require the judgment creditor to: (1) immediately file with the court an acknowledgment of satisfaction of judgment; and (2) if an abstract of money judgment has been recorded with the recorder of any county and the judgment is satisfied, the judgment creditor shall immediately do both of the following: (a) file an acknowledgement of satisfaction of judgment with the court: and (b) serve personally or by mail an acknowledgment of satisfaction of judgment on the judgment debtor. Since the judgment creditor is not required to record an acknowledgement of satisfaction of judgment with the county recorder, the judgment debtor should do so to give notice.
B. Expiration of Judgment:
An abstract of judgment expires ten (10) years from the date the judgment was entered by the court. So, a judicial lien based on the recording of the abstract of judgment likewise expires in 10 years, no matter when the abstract of judgment was recorded.
But if the judgment creditor renews the judgment by another ten (10) years, the duration of the judgment lien is extended for another 10 years after the filing date of the application for renewal, provided that a certified copy of the renewal application is recorded with the county recorder before the judgment lien expires.
If the judgment lien has expired, the judgment creditor can record an abstract of judgment of the renewed judgment for a new judgment lien.
III. Avoiding of Judicial Lien in Bankruptcy:
A judgment creditor’s judicial lien may be avoided or extinguished in bankruptcy under the United States Bankruptcy Code, 11 U.S.C of 522(§)(2.), even though it is senior to a consensual lien, such as a deed of trust in support of a promissory note.
A. Impairment of Homestead Exception:
In Moldo v. Charnock (In re Charnock) (BAP 9th Cir. 2004) 318 BR 720, debtor Charnock filed for Chapter 7 bankruptcy protection, and then filed a motion to avoid judgment creditor Moldo’s judicial lien on February 3, 2004 under 11 U.S.C. §522(§)(2), due to impairment of her homestead exemption. Creditor Moldo had recorded in 1996 an abstract of judgment for $56,072.40 in receivership fees and costs in the dissolution proceedings of debtor Paula Charnock.
She refinanced her residence in 2002, and paid Moldo the sum of $28,000 from proceeds of the loan. The lender of the refinancing recorded a deed of trust, resulting in a consensual lien on the residence. Charnock filed her Chapter 7 bankruptcy petition on November 13, 2003.
B. Formula for Impairment of Homestead
The Bankruptcy Court granted the debtor’s motion to avoid Moldo’s judgment lien under 11 U.S.C. §522(§)(2) because the sum of: (1) the judicial lien of $68,293.00 by 2004; plus (2) all other liens on the property: deed of trust balance of $371,055.97; and (3) the amount of homestead exemption the debtor could claim if there were no liens on the property: $75,000 or a total of $514,348.97, exceeded the fair market value that debtor’s interest in the property would have in the absence of any liens: $435,000, by $79,348.97.
So, the judgment lien of $68,293.00 was considered by the Bankruptcy Court to have impaired the homestead exemption of $75,000.00. Indeed, the equity of $4,348.97 ($435,000 minus $68,293.00 minus $371,055.97) on the residence was insufficient to cover the homestead exemption of $75,000.
The Bankruptcy Appellate Panel of the 9th Circuit affirmed the decision of the Bankruptcy Court in Moldo v. Chernock, supra, even as a judicial lien of Moldo was senior (in time) to the consensual “deed of trust” lien of the lender. It held that Congress had chosen to favor consensual lienholders over judicial lienholders.
C. No Time Limit For Motion to Avoid Lien:
It has been ruled by the 9th Circuit that as long as the debtor has an interest in the property at that time the judicial lien was fixed on the property, the debtor can file a motion to avoid the judicial lien, even though the motion is filed after the bankruptcy case was closed, and even after the property had been sold. See Culver, LLC v. Kai-Ming Chiu (In re Kai-Ming Chiu), 304 F.3d 905 (9th Cir. 2002).
The delay in filing a motion to avoid the judicial lien, coupled with other extrinsic factors that prejudice the judgment creditor may, however, defeat the motion to avoid.
*** This article does not constitute legal advice on any specific facts or circumstances. Its contents are intended as general information only. The reader is urged to consult his/her own attorney concerning his/her specific legal issues.)