It’s A Judgment Call – A Continuing Dialogue On The Impact Of A Money Judgment On Real Property

In a prior Blog entry, I offered a “Question & Answer” format with regard to the impact of a money judgment on a real estate transaction.  At this time, I would like to continue the dialogue, with some additional entries.  Thank you.

  1. How long is a money judgment enforceable against a judgment debtor?

A money judgment is enforceable against a judgment debtor for a period of twenty (20) years.  This enforcement period pertains to the personal liability of the judgment debtor.  This is separate and apart from the time line that is applicable to the lien of a money judgment on real property.

 

2.   How long is a money judgment a lien on real property?

A docketed money judgment is a lien on real property for a period of ten (10) years from the date of perfection of the judgment, unless renewed or extended.  As to the mention of docketing and perfection in my within response, please refer to my earlier blog entry that discussed the distinction between docketing and perfection.

 

Please look for further Blog entries on this topic.  In the interim, your comments and/or questions are welcome.

TITLE “WOLF PITS” IN THE BANKRUPTCY LANDSCAPE

A “wolf pit” is a conical hole, concealed under a layer of soil, with a sharpened stake hammered at the bottom. It is best avoided. Bankruptcy poses certain pitfalls to the title insurer, also best avoided.  Learn to Identify and steer clear.

The most common pitfalls are 1. an open bankruptcy, 2. a violation of the automatic stay, 3. a prior fraudulent and/or preferential transfer, 4. failure to record a mortgage within 30 days, and 5. the assumption that a discharge in bankruptcy removes liens and judgments from the debtor’s real property.

A bankruptcy is generally commenced with the debtor filing a petition listing all assets and creditors.  Filing puts all debtor’s property, whether or not listed, under the control of the Trustee in Bankruptcy. After filing, neither the debtor, nor her creditors, can reach her property.

Open Bankruptcy

Title may not be insured until the case is closed (a discharge is not sufficient), or there is a court order to sell. However, even with an order, you must wait until the appeal period has expired, without an appeal having been filed. (Consult with underwriting counsel when the bankruptcy is a Chapter 13). This applies even where only one spouse has filed and title is held as tenants by the entirety. It also applies to property that the debtor did not schedule as an asset, or property inherited during the pendency of the bankruptcy.

Violation of Automatic Stay

Filing a petition triggers an automatic stay, which bars creditors from enforcing their liens against debtor’s property until the case is closed or the automatic stay lifted. In a foreclosure, actions taken in violation of the automatic stay are generally void ab initio. Therefore title coming through a foreclosure, where proceedings were had in violation of the automatic stay, may not be insurable.

Gift transfers, Fraudulent Conveyances, Preferential Transfers

A fraudulent transfer is one made for inadequate or no consideration, either with the intent to defraud (actual fraud), or which rendered the grantor insolvent (constructive fraud). A preferential transfer is made by a debtor, prior to filing for bankruptcy, which gave a preference to one creditor over another.  A deed by a settlor to his living trust, a deed given to one’s children, reserving a life estate, a deed between spouses, all are vulnerable to being avoided by the trustee as fraudulent transfers.  Deeds in lieu are an example of transfers which can be both preferential and fraudulent and which also can be avoided by the trustee. In New York, a trustee can challenge a fraudulent conveyance for six years from the transfer, and a preferential transfer made 90 days prior to filing, unless the transferee was an insider, in which case there is a one year statute of limitations.

Failure to record a mortgage within 30 days

A trustee can avoid a mortgage which was not timely recorded.

Judgments

Judgments are not automatically removed as liens against real property as a result of debtor’s discharge. The debtor will no longer have personal liability for the judgment, but the creditor will retain a lien against her real property, except in those rare instances where there is an order returning the bankruptcy estate to the debtor “free and clear”.  In such a case, only those debts which were scheduled will be removed as liens. Always discuss “free and clear’ orders with underwriting counsel, and notwithstanding the court order, never omit open real property taxes

IT’S A JUDGMENT CALL

As title professionals, we frequently deal with money judgments, and the impact that they have on a real estate transaction.  On a go forward basis, I will share with you some of the “Judgment 101” issues that arise, in the form of a “Question & Answer” scenario.  Apropos to this segment, please consider the following:

Question:   The abstract of title indicates the date when a judgment was “perfected”, and the date when a judgment was “docketed”.  What does this mean?

Answer:     The “perfection” date, is the date that the creditor is awarded the judgment by the Court.  The “docketing” date, is the date that the judgment is entered in the judgment roll/book of the respective County Clerk’s Office.

 

Question:    When is a judgment an actual lien against real property?

Answer:       The docketing of a judgment in a county where the debtor owns real property, or later acquires real property, paves the way for the docketed judgment to become a lien against real property in that county.

 

Please look for future blog entries on this topic.  In the interim, your questions and/or comments are welcome.  Thank you…