Judgment Liens. Michael H.R. Buckles Buckles & Buckles P.L.C. I. Judgment Liens

Transcription

1 Judgment Liens Michael H.R. Buckles Buckles & Buckles P.L.C. I. Judgment Liens A. Introduction Michigan s judgment lien law, P.A. 136, became effective on September 1, Ten new sections were added to Chapter 28 of the Revised Judicature Act, i.e. MCL A copy of the statute is attached to this manuscript. The ten provisions govern the following: Issuance of notices of judgment liens by courts of record only Filing of judgment liens Recording judgment liens Methods of service depending on judgment amount Attachment and priority Equity limitation Expiration and extinguishment Discharge of judgment liens Judgment liens allow a judgment creditor from a court of record to file a notice of judgment lien with the court that issued the judgment and record it in the land title records of the county register of deeds. The lien is effective for five years (subject to the life of the judgment), may be renewed, and must be paid by the judgment debtor upon conveyance, sale or refinance of the property. It requires no legal description, but must include the last four digits of the debtor s social security number for identification purposes. The law does not allow foreclosure of this lien. B. Today s program will focus on five aspects of judgment liens. 1. Comparison with Orders for Seizure of Property (formerly known as writs of execution.) 2. Forms (Notices of Judgment Liens, discharges and Orders for Seizure of Property) 3. Procedure for filing with the court and recording with the Register of Deeds 4. Renewal of judgment liens 5. Practical effect of judgment liens 1-1 Institute of Continuing Legal Education

2 II. Comparison with Orders for Seizure of Property. A. In General Although both Judgment Liens and Orders for Seizure of Property are post judgment remedies, the former is a simpler and less expensive process. Orders for Seizure of Property require involvement of a court officer or other person authorized under MCR 3.106, i.e. court officers, bailiffs, sheriffs and deputy sheriffs, and police officers (collectively referred to below as officers.) Judgment liens may be filed with the court and recorded with the register of deeds by an attorney or the judgment creditor. B. Orders for Seizure require personal property first be levied upon. Judgment liens do not have this requirement. An Order for Seizure of Property may be issued by the court clerk 21 days after entry of a judgment. It is also known as a writ of execution and is authorized pursuant to MCL This statute provides for execution and levy upon the debtor s property to enforce judgments, however it requires that the officer first seize and sell personal property. Real property may only be levied upon if the personal property is insufficient to meet the sum of money and costs for which the judgment was rendered. Judgment liens do not permit or require seizure and sale of personal property. They may be filed with the court that issued the judgment, certified by the clerk and then recorded with the register of deeds. C. Officer Involvement required for Orders for Seizure, but not for Judgment liens. MCR sets forth procedures for officers serving Orders for Seizure of Property. It requires inventory, receipts, disposition of personalty, payment into a court trust account, retention of bills and receipts by the officer, and a report by the officer summarizing collection activities and accounting of all money or property collected. These procedures are mandated because writs of execution require the taking and selling of personal property. Accordingly, there is a need to track the disposition of the personalty and the proceeds from sale. Equally important, since an officer may personally confront the judgment debtor, demand payment and confiscate personal property, there is a need to insure professionalism to avoid a breach of the peace. Judgment liens may simply be filed and recorded by an attorney. There is no personal confrontation with the defendant and no personal property is seized. Service of the judgment lien on the judgment debtor is by certified mail if the judgment is less than Institute of Continuing Legal Education 1-2

3 $25,000. If the judgment is more than $25,000, service must be personal, but it may be made by a process server and does not require service by an officer. D. Notices of Levy require legal description. Notices of Judgment Lien do not. If the officer cannot seize and sell sufficient personal property to pay the judgment, then the next step would be to file a Notice of Levy with the register of deeds pursuant to MCL This provision requires that the Notice of Levy contain a description of the premises, i.e. a legal description. If the judgment creditor does not know the exact legal description, this must be obtained by a title search, which costs money. The Notice of Levy is filed in the tract index of the register of deeds. A notice of judgment lien does not require a legal description, but it does require the last four digits of the social security or Tax I.D. number to confirm the judgment debtor. It is recorded in the land title records of the register of deeds, typically in the grantor/grantee index, and may be searched by name. Title companies have always searched by name for tax liens. Sections 2805 (a f) of the Judgment Lien Act set forth the information that must be included on the judgment lien. (This information is required on the SCAO approved Judgment Lien form attached.) Case caption and docket number Current name and address of the judgment creditor and attorney Name and LAST FOUR DIGITS of the social security number or Tax I.D. number, and last known address of the judgment debtor Current balance on the judgment (NOT the amount of damages on the judgment, but the amount due at the time of filing the Notice of Judgment Lien) Date judgment entered, expiration date of the judgment and expiration date of the judgment lien Signature of the judgment creditor or attorney E. Comparison of fees and taxable costs. 1. Costs and fees for Writs of Execution MCL (1) (h) provides that an authorized person be paid $32 plus mileage for service of an order to seize property, plus the actual and reasonable expense for seizing and keeping the property under the order. Section 2559 (2) increases this fee by $1.00 on October 1 of 2004, 2005 and Section 2559 (h) provides that if the judgment is satisfied prior to sale of the seized property by full payment of the judgment or settlement of the parties, the officer shall be paid 7% of the first $5,000 and 3% of the payment or settlement amount exceeding the first $5, Institute of Continuing Legal Education

4 These costs and fees are taxable to the judgment debtor pursuant to MCL Costs and fees for Notices of Judgment Liens Certification by the court clerk ( (1)). Cost: $10, plus $1 for copy fee. Service for judgments less than $25,000 need only be made by certified mail ( (3)). Service for judgments of $25,000 or more require personal service ( (4)). The service fee is not specifically addressed by , but it should be no more than the fee for service of a summons and complaint, i.e. $19 plus mileage, subject to future increases under 2559 (2). Cost for recording with the register of deeds: $17 - $19. F. Attachment and after-acquired property 1. A Levy from a Writ of Execution attaches when it is recorded with the register of deeds and only to the real property described on the Order A Judgment lien attaches to all property owned by the judgment debtor in the county where it is recorded. It attaches at the time it is recorded with the register of deeds, except for after-acquired property, when it attaches at the time it is acquired by the judgment debtor G. Priority versus other types of liens 1. MCL states that a levy is a lien from the time when the notice is deposited with the office of the register of deeds where the property is situated. It would have priority over all liens recorded afterwards. 2. Judgment liens have priority over liens recorded after a notice of judgment lien is recorded, with the following EXCEPTIONS set forth in section 2807 (2): Purchase money mortgages Mortgages TO THE EXTENT that proceeds are used to pay one or more of the following: Purchase money mortgage debt Refinance of purchase money mortgage debt Non-purchase money mortgage recorded BEFORE the attachment of the judgment lien. Institute of Continuing Legal Education 1-4

5 Example of this exception to priority where only the balance of a prior mortgage is refinanced. Assume: - $80,000 balance on a prior recorded mortgage - $10,000 judgment lien is later filed - Debtor wants to obtain a new mortgage and refinance ONLY the $80,000 balance due on the prior mortgage Result: NEW mortgage would take priority over the judgment lien because all of the proceeds were used to pay the prior recorded mortgage. Example where debtor refinances and gets extra money. Assume: - $80,000 balance on a prior recorded mortgage - $10,000 judgment lien is later recorded - Debtor wants to refinance and obtain $95,000 - New mortgage takes priority ONLY TO THE EXTENT that it refinances the prior mortgage, i.e. $80, The extra $15,000 would be JUNIOR to the recorded judgment lien - Result: Debtor is required to pay the judgment lien pursuant to Lender will cooperate to insure its lien is not JUNIOR to the extent of $15,000. A lien that secures an advance under a previously recorded future advance mortgage, i.e. home equity loan mortgage recorded prior to the judgment lien, but paid out after recording of the judgment lien. A lien that has priority by operation of law Construction liens under MCL Assessments due condominium, home owners and property owners associations State and federal tax liens H. Equity limitation for Judgment Liens do not apply to Levies 1. Judgment Liens are limited to the amount of equity in the property. The drafters of the Judgment Lien Act did not want the holder of a Judgment Lien to block the sale or refinance of property by demanding payment in full where the equity from the closing was less than the amount due on the lien. Accordingly, Section (3) provides that when property subject to a judgment lien is sold or refinanced: Proceeds due the judgment creditor are limited to the debtor s EQUITY in the property, AFTER all senior liens, property taxes and costs and fees NECESSARY to close are paid or extinguished. 1-5 Institute of Continuing Legal Education

6 The Michigan Creditors Bar Association (MCBA) has recommended as a Best Practice that costs and fees necessary to the sale include the following: Realtor fees Survey Credit report Appraisal Title insurance Document preparation fee and closing fee MCBA has also established a Best Practice for realtors and lenders, i.e. if the judgment lien is not going to be fully paid due to this equity limitation, there must be TIMELY AND FULL DISCLOSURE to the judgment creditor regarding all disbursements from the proceeds in order to accurately determine available equity. 2. Levy on execution does not have this equity limitation. However, historically, judgment creditors who have levied on real estate have accepted partial payment in an amount equal to the equity for practical reasons, i.e. it makes more sense to get some money than to block a closing and get no money. The new judgment lien law simply codifies this practice of taking only the equity. 3. Partial discharge. In the case of a judgment lien where the equity was insufficient to satisfy the judgment, the judgment creditor would issue a partial discharge of the lien, discharging it as to the specific piece of property. The judgment creditor would retain a judgment lien on any other property owned by the judgment debtor in the county in which the Notice of Judgment Lien was filed. It would also continue to apply to after-acquired property. In the case of a Levy, it would have to be released and the judgment creditor would have no existing judgment lien since a Levy is limited to a particular piece of property. I. Bankruptcy Discharge extinguishes a Judgment Lien; however a Levy may survive Bankruptcy. Section (5) (d) provides that a Notice of Judgment Lien may be extinguished if the debtor files bankruptcy and records a notice of discharge and a copy of the bankruptcy schedule listing the judgment debt with the register of deeds. The exception to this rule is where a judgment creditor obtains a ruling in the Bankruptcy Court that the debt was non-dischargeable and records this order with the register of deeds. A Levy from a writ of execution may survive the discharge in bankruptcy depending on whether the lien impairs the debtor s exemptions. To determine if the levy survives discharge, the attorney must analyze and compute facts and data, including the vale of the real property, the amount the debtor may exempt, and the amount of the lien. Each case is fact specific, but is possible for some levies to survive. Institute of Continuing Legal Education 1-6

7 J. Expiration and Extinguishment provides that judgment liens expire five years from the date of recording, unless: Re-recorded with the register of deeds. It may be renewed by re-recording the judgment lien (see below.) Its priority will continue from the date of the attachment of the original judgment lien. The underlying judgment expires Section 2809 also provides that judgment liens may be extinguished by recording any of the following with the register of deeds: Discharge signed by the judgment creditor or attorney Satisfaction of judgment Court order discharging the lien Bankruptcy discharge (see above) A Notice of Levy expires five years from the date of recording (2). If the judgment is still valid, a new Writ of Execution (Order for Seizure of Property) may be filed, however it will once again require levy and sale personal property, and compliance with MCR regarding inventory, receipts, disposition, etc. Moreover, the expiration of the Notice of Levy may impact on its priority. The filing of a second Levy and its priority does not relate back to the first levy. Accordingly, any liens filed by third parties after the first levy and before recording of the second will take priority. K. When to use an Order to Seize Property versus a Judgment Lien First, it should be noted that section 2817 of the Judgment Lien Act specifically states that a judgment lien is in addition to and separate from any other remedy including writs of execution. In fact, there may be times when Writs of Execution better serve the interest of the judgment creditor. Judgment liens may be the preferred remedy if the judgment creditor does not want a court officer to confront the debtor, demand money, and/or seize and sell personal property. The creditor may not want to risk a public relations issue in the event of an altercation. So, if there are no wages or banks to garnish, the creditor may be content to file a judgment lien and be paid upon voluntary sale or refinance. Other creditors may want to liquidate and enforce their judgment by using the unique quality of an Order for Seizure. Some debtors may cooperate and pay an officer that appears at the door with a Writ. Many debtors find money to pay a debt when their motor vehicle is about to be towed and sold. 1-7 Institute of Continuing Legal Education

8 In cases where the debtor has water craft, off road vehicles, aircraft, or commercial goods, the Order for Seizure is an effective remedy. A. SCOA MC III. Forms Section 2805 (1) of the Judgment Lien Act sets forth the information that must be included in Notice of Judgment Lien. (See section II, D above) This form is a multi-page document that provides for the certified original to be returned to the judgment creditor for recording with the register of deeds. The clerk also returns two signed copies, one for the judgment creditor s records and one to be served on the judgment debtor. The clerk retains one copy for the court records. The judgment creditor records the original with the register of deeds in the county in which the debtor may own property. Once recorded, it is assigned a liber and page number and returned to the judgment creditor. B. Discharge Section 2811 requires that a discharge must be recorded no more than 28 days after payment. No SCAO form has been created for a discharge of a judgment lien. The Michigan Creditors Bar Association has created a form and it is attached to this manuscript. If a judgment debtor sells or refinances real property, but has insufficient equity to pay the judgment lien in full, then the judgment creditor will have to fashion a partial discharge for the amount paid. The partial discharge should include the legal description of the property in question so that the judgment lien continues to encumber any other property of the judgment debtor until the judgment is paid in full. C. Penalties for the creditor and alternatives for the debtor 1. Penalties: If a creditor does not timely discharge a judgment lien after payment, the debtor may demand the creditor do so pursuant to Section If the creditor does not record the discharge within 14 days after written notice, the judgment creditor may be liable for $300 plus actual damages and costs sustained by the judgment debtor because of this failure. 2. Alternative: If the judgment creditor does not respond to the debtor s request for discharge or cannot be found, the debtor may file an affidavit claiming payment has been made and attach a copy of the written instrument that evidences payment. Institute of Continuing Legal Education 1-8

9 IV. Renewal of a Judgment Lien A. Re-recording a Notice of Judgment Lien Section 2809 provides that to renew a judgment lien, a second Notice of Judgment Lien must be filed and certified by the court that issued the judgment. It must be recorded with the register of deeds. A judgment lien can be renewed only once. It must be re-recorded with the register of deeds 120 days prior to its expiration. V. Practical effect of a Judgment Lien A. How is the lien discovered and paid? When property is sold or refinanced, title companies search the name index (sometimes referred to as grantor/grantee index ) for liens, especially tax liens which are filed by name only. The title company determines if the owner is the judgment debtor by cross checking the last four digits of the social security number or Tax I.D. number. The title company requests a payoff letter from the holder of the judgment lien. A check is exchanged for a recordable discharge. This practice has worked in 44 states for over 100 years. It is the same method that has been used in Michigan for discharge of levies. B. What if another person has the same name as the judgment debtor? In the unlikely event that two people in the same county have the same name and same last four digits of social security number or Tax I.D. number, section 2815 provides relief for a person who claims that there is a lien filed against him/her incorrectly because of the same or similar name. The person must provide reasonable proof that he/she is not the judgment debtor. He or she may demand from the judgment creditor a recordable document that discharges the lien as to property that is owned by that person. If appropriate, a judgment creditor must record a discharge within 14 days or face a penalty of $300 plus actual damages and costs. If the creditor does not record a discharge, the person may bring a motion in the court that entered the judgment for an order discharging the lien. The prevailing party shall be awarded attorney fees. 1-9 Institute of Continuing Legal Education

10 C. Tenancy by the Entireties Section 2807 (1) provides that a judgment lien does not attach to entireties property unless the judgment is entered against both husband and wife. D. Suggested Best Practices It took several years and a great deal of effort to pass the Judgment Lien Act. It required the cooperation and input from the Michigan Land Title Association, the consumer bar, the Real Property Section, judges, court clerks and registers of deeds. The Judgment Lien Act is an important, economical remedy to collect judgments. It should be employed in a professional manner and in compliance with the Michigan Collection Practices Act and the Fair Debt Collection Practices Act. Creditors attorneys should work cooperatively with realtors, title companies, the courts, the register of deeds and debtor s attorneys to insure that this valuable collection tool is used fairly by engaging in Best Practices that fulfill the intent and spirit of the law. The Michigan Creditors Bar Association recommends the following Best Practices: 1. Judgment creditors should promptly discharge (or partially discharge) the lien if the judgment is paid, or if the lien has been improperly filed/recorded, extinguished or limited by the entireties rule or the no equity rule. This should be done without making the debtor, realtor, lender or title company take unnecessary steps to obtain a discharge. 2. Judgment creditors should promptly respond to a request for a payoff letter and provide a ledger reflecting the current balance including credits for payments and charges for taxable court costs and judgment interest. 3. Title companies and lenders should promptly provide judgment creditors with a disbursement ledger if the seller claims that equity is insufficient to pay the judgment lien. 4. Judgment creditors should promptly respond to a person claiming that the lien has been wrongly placed on his/her property. Best Practices benefit everyone in the long run. \ Institute of Continuing Legal Education 1-10

11 1-11 Institute of Continuing Legal Education