Judgment Liens

My name is Dave Phillips, Chief Title Examiner at Reputation First Title Agency. This article concerns Judgment Liens affecting land within the borders of the great state of Michigan. It is very important for Michigan real estate practitioners to understand the basics of this statute.

Michigan Compiled Laws Sections 600.2801 through 600.2819 sets forth the legal creation and termination of judgment liens.

When someone is sued in a civil cause of action, a final judgment will render the judgment debtor liable to the judgment creditor in an amount specified in the judgment. At this point, the judgment creditor only has a claim “in personam” against the judgment debtor. In personam simply means against the “person,” not that person’s property.

The judgment creditor, and the judgment creditor’s attorney, will pursue all angles in collecting the award. Most notably, the attorney will attempt to locate the county, or counties, in which the judgment debtor owns an interest in real property. If such interest is found, the attorney will file a “Judgment Lien” against the judgment debtor in the county where the real property is located. If the debtor owns property in multiple counties, the Judgment Lien will be filed in such additional counties. The Judgment Lien must be filed in the county where the real property is located for the lien to be properly created.

The filing of the lien gives the creditor an “in rem” claim. In rem can be defined as “against or about a thing.” So, by the proper filing of the lien, the creditor now has an in rem interest in the debtor’s property. For a creditor to obtain an in rem interest in debtor’s property, it must follow legal procedures in doing so. Just because someone says they have a lien doesn’t make it so.

Section 600.2803 dictates that the lien attaches the moment the Judgment Lien is recorded. There is no “relation back” concerning judgment liens. For example, a judgment in personam may have been rendered on March 1, 2010, with the Judgment Lien being filed June 1, 2010. The lien will be effective against blackacre on June 1, 2010, the date of recording, not March 1, the date of the rendered judgment.

Section 600.2807 makes clear that a Judgment Lien, filed against only one spouse, will not attach to property titled in tenancy by the entirety. For example, let’s say that title to blackacre is held by Bob Jones and Mary Jones, husband and wife. A subsequent Judgment Lien is filed against Bob Jones, individually. This lien will not attach to blackacre, as it is protected under the statute.

Additionally, Section 600.2807 sets forth a number of liens that trump a Judgment Lien. A purchase money mortgage trumps a previously filed Judgment Lien. The refinance of the purchase money mortgage will trump a recorded Judgment Lien. Construction liens, state and federal tax liens also trump a recorded Judgment Lien. Some of these are a bit peculiar but, nonetheless, it is the law.

Section 600.2809 states that a Judgment Lien will expire 5 years after the date it is recorded. Note: a judgment “in personam” expires 10 years after it is rendered. Analytically, you must separate a judgment “in personam” from a judgment “lien,” as they are distinct from one another. Take this example: A judgment “in personam” is entered on March 1, 2005. The Judgment Lien is not recorded until March 1, 2011. This particular Judgment Lien will expire on March 1, 2015, not March 1, 2016. The statute states that a judgment lien will expire at the earlier of 1) the termination of the judgment in personam, or 2) 5 years after the Judgment Lien is recorded, whichever occurs first. In this example, the judgment in personam expires March 1, 2015, thereby destroying the Judgment Lien.

A judgment lien may be rerecorded; but only once. And the rerecording must occur within 120 days prior to the expiration of the original filing.

Section 600.2819 states that a Judgment Lien creates no right to foreclose. The judgment creditor will typically have to wait for a sale of the subject property in hopes of receiving any of the proceeds.

In closing, I would like to discuss a unique situation concerning the tenancy by the entirety. When an initial title search is performed, it is possible that the applicants are in fact husband and wife. It is easy for the abstractor to ignore judgment liens filed against only one spouse, as these liens do not currently attach to the subject property. However, the concern lies between the date of the original search and the closing of the contemplated transaction. If, for whatever reason, the tenancy by the entireties is destroyed, all judgment liens filed against the husband or wife, individually, will now attach. It is possible that such liens could sneak by the closing department and ultimately end up a claim on the underwriter’s desk. A little paranoid? Maybe. But I have recently heard of scenarios in which abstractors are ignoring judgment liens filed against only one spouse when the current deed discloses that they hold as tenants by the entireties.

The easiest and safest approach is for the abstractor to forward all judgment liens to the examiner. The examiner can then place these liens in the file and inform the escrow department. If the closing occurs with no change in the tenancy, these liens will be ignored. Simple stuff.

Check out my blog @ http://davidphillipsmichigan.blogspot.com/ for similar articles.

dave

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