MCBA FAQS BANKRUPTCY Answer: i. LAW: ii. BEST PRACTICE:

Transcription

1 MCBA FAQS BANKRUPTCY 1. If an account is discharged in bankruptcy, is it necessary to file a release of lien, or does the mere fact of the discharge extinguish the lien? Answer: Sec 2809(6)(d) states that a judgment lien is extinguished when a copy of the judgment debtor s discharge of bankruptcy issued by the United States Bankruptcy Court and a copy of the bankruptcy schedule listing the judgment debt is recorded in the office of the Registered of Deeds where the judgment lien is recorded. i. LAW: Please note that there is no requirement to file a discharge of the judgment lien upon the filing or discharge of bankruptcy. The law empowers the debtor or the debtor s attorney to file the bankruptcy discharge along with the schedule with the Register of Deeds. In short, judgment liens do not survive bankruptcy because they can be extinguished by the simple filing of the bankruptcy discharge with the Register of Deeds. The reason that the law requires the copy of the schedule to also be attached is to show that the debt has been properly listed by the debtor in bankruptcy. Note also that the law further states that this discharge will not apply if the creditor who owns the judgment lien files an action pursuant to the bankruptcy code namely, 11 U.S.C If a creditor files this 523 action and receives an order from the court determining that the debt is non- dischargeable, the creditor may record that order with the Register of Deeds which would nullify any bankruptcy discharge recorded by the debtor or the debtor s attorney.. ii. BEST PRACTICE: MCBA would recommend that the best practice is for the creditor s attorney, upon receipt of discharge by the debtor, to prepare and record a discharge of the judgment lien and provide it to the bankruptcy attorney unless, of course, there is potential for a 523 action for non-dischargablility of the debt. This Practice would ensure the extinguishment of the lien and avoid future problems for the debtor. 2. If the clerk of the court is apprised of the fact that there is a stay due to bankruptcy may the court clerk refuse to certify the notice of judgment lien? 1

2 Answer: Yes, if the court has written confirmation in the form of a bankruptcy notice. However, it would be best if the court would issue an order for administrative closing based upon the stay of bankruptcy. Once the stay of bankruptcy is issued, no further action can be taken to collect the debt, including notices of judgment lien. 3. Can a reaffirmation agreement in bankruptcy qualify as a judgment for the purposes of filing a judgment lien pursuant to Sec 2801 (a) iii? Answer: No, reaffirmation is not a judgment; it is simply an enforceable agreement for the debtor to pay the debt after discharge, subject to rules of bankruptcy. A reaffirmation would have to be sued upon in state or federal court to become a judgment. A judgment lien could then be filed. 4. Is a judgment in bankruptcy court determining a debt is nondischargeable a judgment for the purposes of a judgment lien under Sec 2801 (a) iii? Answer: Yes, if the bankruptcy court renders not only a determination of non-dischargablility, but also a true judgment in favor of the plaintiff against the defendant. 5. What happens if bankruptcy is dismissed before a discharge is granted? Answer: still valid. If no discharge is granted, then the judgment lien is CERTIFICATION ISSUES 1. Do you have to file a motion with the court to certify a judgment? Answer: Typically no. Most courts will certify judgment upon a payment of the fee. Some courts will charge $10 and some will charge $ I have been asked to send $11 for a filing fee and some courts only ask for $10. What is the correct amount of the filing fee? Answer: The statutory fee is $10, however, there can a fee for a copy for $1 making it a total of $11. Courts will differ on this. 2

3 CREDITOR CANNOT BE LOCATED 1. What happens if the creditor cannot be found for payment of the judgment lien? Answer: The amount of the judgment lien can be paid in escrow to a closing company or it can be paid to the clerk of the court. Sec 2813(2) provides that the lien can be discharged upon the recording of an affidavit and attaching a copy of the written instrument that evidences payment of the judgment and a copy of the receipt for the certified mailing of the request to the judgment creditor to discharge the judgment. DEFINITIONS 1. Can small claims plaintiff/judgment creditor record a judgment lien? Answer: No. A judgment means a final judgment of a court of record in this state see 2801(a)(i). A small claims court is not a court of record. 2. Can a court in the State of Michigan record a judgment lien upon a filling of a civil infraction default entered by the court? Answer: It depends on whether or not this civil infraction default is considered a judgment from a court of record. 3. If an administrative agency decision/order is equivalent of a court judgment under the Revised Judicature Act, can a judgment lien notice form be used once certified by a court? Answer: If the judgment was rendered in a court of record, it can be certified by the court clerk then a notice of judgment lien can be filed with the court and recorded with the Register of Deeds. DISCHARGE OF JUDGMENT LIEN 1. What if the payment made by the defendant bounces after a discharge of the judgment lien has been recorded? Can you rescind the discharge or must you start over and file and record a new judgment lien? Answer: There is no provision for rescinding a discharge. Whether a Judge would entertain such a motion for a bounced check is unknown. If someone errs in filing a discharge and the judgment is not paid, the plaintiff could file an action in civil court to reinstate the judgment lien based upon fraud. The order of the court would then allow a judgment lien to be re-recorded. 3

4 Best Practice: The best practice would be to take only a cashier check, certified check or cash. If a payment has been made by personal check or money order, wait until those documents are cleared before discharging the judgment lien. 2. Regarding a partial discharge, is it required that the partial discharge include the legal description of the property being discharged? Answer: Yes. Partial discharges would be granted if the payment from the sale or refinance of the debtor s property were insufficient to pay off the full balance of the judgment lien. The seller or Title Company would certainly want to discharge it as to that particular parcel of property. The judgment creditor would still have a judgment lien against any other property of the judgment debtor for the balance due on the judgment. EFFECTIVE DATE 1. Are judgments entered by the courts prior to November 1, 2004 valid for the purpose filing a judgment lien? Answer: Yes, assuming that the judgment has not expired. In short, any judgment that is still a valid judgment as of November 1, 2004 can be used to record a judgment lien provided it is not expired and the appropriate information is included on the notice of judgment lien per the statute. ENTIRETIES 1. If the judgment creditor has a judgment against husband and wife who own property as tenants by the entireties, does the judgment creditor have to file two separate liens as to each or can the notice of judgment lien have one name on one form? Answer: The statute does not directly address this issue, however, Sec 28051(C) indicates that the judgment asks for the last four digits of the social security number and asks for the address of the judgment debtor (singular). Recommendation is to file two notice judgment liens. 2. Understanding that a lien does not attach to entireties property, what about jointly owned property? Does a judgment lien attach to jointly owed property? 4

5 Answer: Yes. Michigan law allows a judgment lien to attach to jointly owned property such as tenants in common or joint tenants with rights to survivorship. 3. Does the judgment lien survive destruction of tenancies by the entireties? i.e. if the debtors get divorced, to what does the judgment lien attach? Answer: There can be different scenarios in this instance. If the judgment lien was recorded with the Register of Deeds against one of the two judgment debtors prior to their marriage, then the judgment lien attached (SEC 2803) to the property before it was owned as entireties. Therefore it is valid. If the judgment lien is recorded after the parties are married and the parties subsequently become divorced, at that juncture the property loses its entireties status by operation of law. The owners of the property become subject to the lien individually as after acquired property (Sec. 2803) 4. If a judgment lien is recorded when the parties own property as husband and wife and those parties are subsequently divorced, would the judgment lien attach to the ex-spouse against whom no judgment had been entered? Answer: No. A judgment lien attached only to the debtor s interest in real property. If the ex-spouse receives the property after the divorce, the judgment lien never attached during the entireties (2807 (1)) period nor did it attach as after acquired property. The only time where this would be different is if the property was owned by the judgment debtor prior to the divorce and attached at that time. EQUITY DISCHARGE: 1. How do you determine equity under Sec 2807(3)? Answer: Equity is the money available from the sale or refinance after all senior liens, property taxes, and cost and fees necessary to the closing of the sale or refinance are paid or extinguished. 2. What happens if the judgment creditor believes that the purchase price for the real property being sold is not reflective of the true value of the property? Answer: Demand a copy of the most recent appraisal or latest tax bill. This will confirm the value of the property. 3. What rights does the judgment creditor have and what procedures should be used to resolve a dispute over evaluation? 5

6 Answer: Reasonable negotiation with the seller/realtor should resolve this issue since the creditor is in the driver s seat with the judgment lien. If there is an indication of a fraudulent transfer of property to avoid creditors, resolution in the courts may be necessary. 4. Does it make a difference if the parties to the sale are related or less than arms length? Answer: In this instance, this statute does not have a direct solution, however, any remedy would have to be pursued in a state court. Certainly any attempt to sell the property for less than its full value, particularly if it is less than arms length transaction, could be deemed a fraudulent transfer. Remedies for such fraud are well established. EXECUTION 1. How does the new judgment lien law effect execution liens? Do we have to follow these new rules? Answer: The judgment lien law specifically provides in Sec 2817 that a judgment lien is in addition to and separate from any other remedy or interest created by law or contract. Executions are still valid. Any prior levy would be valid under prior law and future executions could issue even if judgment liens are being used. An execution is a separate remedy that allows a judgment creditor to seize and sell personal property and to place a notice of levy on real estate. Moreover, notices of levy by way of execution can be foreclosed upon, unlike judgment liens, and they may survive bankruptcy depending on whether or not they impair the exemption of the debtor. REMEDIES FOR FAILURE TO PAY 1. What are the sanctions for a debtor s failure to pay upon sale as required under Sec 2819? Answer: The true benefit of the judgment lien is that it impairs the marketability of title. The lender or buyer will not consummate the sale until a judgment lien is paid. 2. Does the judgment creditor have any remedies if a judgment debtor does not pay upon the sale or refinance? Answer: The Act does not provide for remedies if the debtor fails to pay upon sale or refinance. If this is a transaction handled by a title company, as most of them are, the title company will ensure that the lien is honored, just as they do now for other liens. If this were a 6

7 private transaction, then a remedy for fraud would have to be pursued under the existing execution statute. FORMS 1. Are there any forms for discharge of a judgment lien or are there any forms for a rerecording for a judgment lien? INSTALLMENT PAYMENTS Answer: Currently there are no forms. MCBA will work with the State Court Administrative Office to create such forms. 1. If an installment payment plan is in effect, does it bar judgment liens? MISCELLANEOUS Answer: No. Installment payments only bar garnishments for money earned from work and labor. 1. Can a pro-per debtor file a judgment lien? Answer: Yes, the law does not restrict a pro-per judgment creditor from filing a judgment lien, however, judgment liens do not include judgments from small claims court They only include judgments from the court of record and a small claims court is not a court of record. See 2801(a)i. 7

8 2. What if the Debtor if deceased? Answer: It depends on when the judgment debtor died. Pursuant to Sec 2803, a judgment lien attaches to a judgment debtor s interest in property if the notice of judgment lien is recorded in accordance with the law in the land title records of Register of Deeds in the county where the property is located. The judgment attaches to any property owned by the debtor at the time the notice of judgment lien is recorded. If the judgment debtor is deceased prior to the recording of the judgment lien and the estate has been probated and closed, the judgment debtor would no longer have an interest in any real property and therefore, no judgment lien would attach. If, however, the debtor was alive at the time of the recording of the judgment lien or the estate was open (the estate stands in the place of the judgment debtor) it could be argued that the judgment lien attached at that time because the judgment debtor (or his estate) had an interest in the real property. Accordingly, if the judgment debtor dies after the judgment lien is recorded or the judgment lien is recorded at the time when the estate is still open, the judgment lien is valid. NOTICE OF JUDGMENT LIEN 1. Notice of judgment lien requires that the judgment creditor include the date of the expiration of judgment. However, the statute of limitations can be tolled and may be longer than ten years from the date of the judgment. What should be done in this instance? Answer: The plaintiff can insert the exact date and then inset unless statue of limitations are tolled. PENALTIES 1. Does an attorney have a duty to locate a missing creditor or former client regarding getting a discharge? Answer: This more of an ethical and practical question than a legal question. The judgment lien law does not require an attorney to contact the judgment creditor. However, the rules of professional responsibility would dictate that an attorney should make an effort to contact his/her own client. 8

9 It may be that the decision the attorney must make is whether he or she still represents the judgment creditor. If there is no representation there may be no authority for the attorney to accept payment and or file a discharge. In that situation, it would be appropriate for the debtor to pay the judgment amount into the court. If the attorney believes the representation still exists relative to the judgment lien, the attorney could accept the money on behalf of the creditor and place it in the client trust account until the client can be located. If the attorney accepts the payment, it would then be necessary to record the discharge and satisfaction. Since there is no statutory guidance, the analysis will have to be on a case-by-case basis. 2. What happens if the judgment lien creditor does not respond to the debtor s request for a payoff letter? Answer: See the provisions of (2). This provision specifically provides that a judgment debtor may make written demand for release of the judgment lien, and upon failure of the judgment creditor to release it, the judgment debtor may record an affidavit with a copy of the written instrument evidencing payment of the judgment and the copy of the receipt of certified mail and record this with the register of deeds. Payment many be made into escrow or to the court and the filing of such affidavit and attached documents constitutes a discharge of the judgment lien. PRIORITY 1. Does a child support order take priority over a judgment lien? Answer: Sec 2807(2)(d) lists the exceptions to the priority of a judgment lien. One of those exceptions is a lien that has or requires priority by operation of law. If a child support statute provides for priority by operation of law, then it would have priority regardless of the timing of the recording of the judgment lien. RECORDING 1. Once a judgment lien has been recorded with the Register of Deeds, does the judgment creditor have to send anything more to the defendant? Answer: Not necessarily. After the notice of judgment lien has been served on the debtor, either by mail or personal service (See 2805 (3) 9

10 (4)), there is no requirement that another copy be sent after recording with the register of deeds. However, serving a recorded judgment lien on a debtor may be a good practice because it would remind the judgment debtor that the judgment lien has been recorded with the register of deeds. 2. How long does it typically take the Register of Deeds to return or record a judgment lien? Answer: This varies with the different volume of workloads of each Register of Deeds in each county. 3. What is the filing fee for a notice of judgment lien with the Register of Deeds? Answer: Go to the Register of Deeds website in the county where you intend to file the judgment lien. Fees are per page and are subject to change. Fees can be found on the websites of the individual counties. One way of finding these web sites is to go to and on the list located on the right side of the page under More State Web Sites click Local Government. Under Local Government click Michigan Counties List. Clicking on the county where the judgment lien is filed will take you to the county website. The Register of Deed is usually listed somewhere on the site. 4. Do you have to know whether the debtor has real property before recording a judgment lien? Answer: No. The judgment debtor can own property in the future and it could be subject to a judgment lien under the after-acquired property clause. 5. Can you record a notice of judgment lien if you know judgment debtor has no real property, but you think he or she might have some in the future? Answer: Yes, for the same reason stated above. 6. Can a judgment lien be recorded in more than one county? RENEWAL Answer: Yes. If the creditor thinks the debtor may have property in several different counties, the judgment creditor can file in those counties. 1. If a judgment lien has been recorded once and rerecorded, may it be recorded again if the judgment is renewed? 10

11 Answer: Qualified yes, if a judgment is renewed pursuant to MCL it actually becomes a new judgment with another ten years statute of limitations. Since it is a new judgment and not the old judgment (i.e. a new filing fee has been paid and it has the new statute of limitations) MCBA would take the position that this is a new judgment and a new judgment lien can be recorded and rerecorded. However, there is nothing in the statute that specifically deals with this issue and as yet there is no case law. If a judgment is renewed by motion and does not become a new judgment, it is clear that the lien cannot be renewed a third time.. 2. If a judgment creditor renews the judgment prior to the expiration of the tenyear statute of limitations, can a new judgment lien be recorded pursuant to the statute? Answer: It is dependant upon the method of renewal. See above. 3. What if a judgment is about to expire but the judgment lien does not expire until a date beyond the expiration of the judgment, does a new judgment lien have to be recorded if the judgment is renewed? SERVICE Answer: Yes. The original judgment lien expired when the original judgment expired pursuant to Sec 2809(3), however, since the new judgment has been entered by the court under MCL , a new judgment lien may be recorded upon that and may be rerecorded pursuant to the statute. 1. Is a judgment creditor required to serve the judgment debtor with a rerecorded lien? Answer: This is not specifically covered in the statute, however, Sec 2805(3) & (4) require service of a judgment lien either by certified mail or personal service. Although this does not say re-recorded lien, a good practice would be to serve the debtor with the rerecorded notice of judgment lien on the debtor pursuant to the statute. 2. Does the judgment creditor have to serve the debtor with a certified copy of the notice of judgment lien before it is recorded with the register of deeds? Answer: No, the statute does not require this, however, a good practice would be to timely serve the defendant promptly after the judgment lien has been certified by the court. 11

12 3. If a judgment is $25, or more and a judgment debtor cannot be served personally is alternate service available? Answer: Yes, use the court rules. 4. If a judgment debtor s attorney has not withdrawn from the case, is it acceptable to serve the notice of judgment lien on the debtor s attorney as personal service? Answer: No, the law requires personal service on the debtor if the judgment is $25, or more. 5. What is the effect of the inability to serve a judgment debtor personally in cases where the judgment is $25, or more? Do you still have a valid judgment lien? Answer: The statute does not disqualify a judgment lien for lack of service, however, it does require service and therefore this could be an arguable point. The best practice is to always ensure service is consummated. 6. What does the creditor do about filing a proof of service with the court? Answer: The statute specifically requires proof of service be filed with the court that issued the judgment. 7. What if the balance of the judgment is less than $25, and the debtor refuses to sign the certified mail receipt; must you use alternate service? What if the letter comes back unclaimed? Answer: The answer is that the law does not require that the debtor sign for the letter. It only requires that it be sent by certified mail. If the debtor refuses to accept service of the letter by certified mail, there is no requirement that the creditor takes any further action. The creditor can simply file a proof of service with the court indicating that it was sent to the debtor via certified mail and attach the certified mail receipt. 8. What purpose is served by having the return of service returned to the issuing court? Is any follow up anticipated by the court? Answer: Proof of service filing with the court establishes to the court that the lien was in fact served upon the debtor in case there is any question about this in a later proceeding in the court. 9. Does the dollar balance in Sec 2805(3) i.e. less or greater than $25, refer to the balance at the time the judgment was entered or at the time the notice of judgment lien is filed with the court? 12

13 Answer: The law specifically refers to the amount of the judgment, not the amount of the judgment lien. If the amount of the judgment is $25, or more the judgment lien must be served personally. If the amount of the judgment is less than $25, then service by certified mail is sufficient. If the total amount on the face of the judgment was less than $25,000.00, but has increased to more than that due to judgment interest and post judgment costs, certified mail is still the appropriate method because the amount was less than $25, at the time or the entry of the judgment. SOCIAL SECURITY NUMBER 1. Can a judgment creditor file a notice of judgment lien with the court without the social security number or the tax id number? Answer: No. Sec 2805(1) (c) specifically requires the last four digits of the social security number. The purpose is to be able to verify the identification of the judgment debtor. 2. What if the judgment creditor is unable to determine the social security number? Answer: The creditor has ample remedies under the Michigan Court Rules for supplementary proceedings by way of subpoena to determine the social security number of the debtor. Moreover, under the Fair Credit Reporting Act, the judgment creditor is entitled to a copy of a consumer/judgment debtor s credit bureau report and can determine the social security number from that document. 13