Jump to content

Renting with lien?


StrongDefense
 Share

Recommended Posts

I don't have a judgment against me yet, but there is a good chance I will within a year. Once they get a judgment they will probably put a lien on my house as it has equity and I have nothing else good (no income). There could be multiple creditors who get liens.

I'm trying hard to downsize and avoid losing everything. What happens if I have the house rented out? Can I continue to rent it for years with the lien on it? I read that they can only collect on the lien if I refinance or sell. I hope that means I could keep it for decades if I needed to.

Will my tenants find out when the lien is placed, or would anyone be knocking on the door looking for me? Some tenants could do research before moving in, and find there's a lien?

If they placed a lien on the house, can they still try to collect in other ways, for example, if I started to have income years later?

Thanks for your help.

Link to comment
Share on other sites

You can rent the house for as long as you own it. It is yours. The lien means nothing regarding the business relationship. Show me a tenant that does a lien search on a property before renting it and I'll show you bigfoot. It doesn't exist. No issues there.

The concern is that how big are these judgments? And how much equity do you have in the rental property? These judgment creditors can foreclose on the home just like a mortgage lienholder can. But it costs about $3000 just to initiate a foreclsoure action, so you'd have to have significant equity and a large enough judgment for any creditor to actually force a sale.

Link to comment
Share on other sites

You are better off staying in the house and living there than renting it out. If you rent it out you would lose the homestead exemption available in your state (which should be the same amount as for filing bankruptcy).

If you rent it out it would be considered investment property, not your home, and as such would be fair game to creditors.

What influences whether a judgment creditor would foreclose: the size of the judgment; how much equity you have; what the property is worth (which may be much less than you think, given the housing decline); any superior liens (such as a mortgage);

and the state's homestead exemption.

The type of creditor also seems to be a factor. The banks and JDBs (talking unsecured debt here), from what I have seen, rarely foreclose. They just let the lien sit there. They probably consider them a portfolio, a certain percentage of which will yield a profit from natural turnover every year.

I see, from sheriff's sales in the local paper, that an individual judgment creditor, meaning a real person, is much more likely to foreclose on a judgment lien. Think, John Smith v. Mary Jones.

Edited by nobk4me
Link to comment
Share on other sites

Thanks for your input. I am in a complicated situation. Sort of a catch-22. I want to sell but the market is bad. I might have to stay and let them foreclose, but there is actually a lot of equity and judgments might be a small percentage of it. So I am thinking I might be better off trying to keep this and even if I eventually had to pay one or two judgments (get a settlement), it might work out. If I can live in a much smaller place and rent this, I might be able to support myself and not be in bad conditions. Maybe not at first. I guess I cannot beat the judgments so within a year I could have 1 or 2, and I could have more after that. However, I thought the worst thing an OC could do is put a lien on the house, and I could keep renting it for decades. However I know they would accumulate interest on the judgments too. I understand about homestead exemptions if I filed BK. How does homestead exemption work if I don't file BK? In terms of what else I have to worry about (what else they could do to me if it is considered an investment property). I'm just trying to figure out how I can pay basic expenses and not live in a bad place. I'm trying to avoid filing BK. I may have to, if I can't make this work out, but I'd rather wait a while before I do.

Edited by StrongDefense
Link to comment
Share on other sites

My understanding of how a homestead exemption works, in a foreclosure, not a BK:

It acts as a superior lien, second in line to the mortgage. So, in a foreclosure by a judgment creditor, this is the order of payment: mortgage holder; you, for the homestead exemption; 1st judgment lien, 2nd judgment lien (in order of being placed, the early bird gets the worm with judgments), etc.

So if there's nothing left for the judgment creditors after the first two are paid, it's obviously not worth foreclosing. Now, in a voluntary sale of the property, by you, not a foreclosure, the homestead exemption does not come into play, nor are there any legal costs to initiate a foreclosure. They just get their money from the sale, before you do.

In a foreclosure, you are second in line to get paid, first, if there is no mortgate. In a voluntary sale, you are the last one to get paid.

Are you sure you can't beat the lawsuits? Who is suing you? If it's a JDB, KY has a great law which prevents JDBs from getting more in a judgment that what they paid for the debt.

Also, look into the arbitration strategy.

Link to comment
Share on other sites

Ok, very interesting about being 2nd in line or last. I am quite confused. So many factors to weigh. It seems like I'm not able to downsize without taking a huge loss. Just want to downsize greatly so I can start getting back on my feet a little, and eventually be able to pay the IRS and other judgments that come up.

I'll try to beat the lawsuits, just trying to plan for "worst case". So far, two OCs (credit cards) are hoping to get judgments, but more could try. Out of the two, hopefully one or both give up. Good to know that I could fight off JDBs. If I had an attorney fighting for me, I would feel more confident about keeping judgments away, and I don't have one.

I'll look into arbitration too. Right now I'm struggling a lot even without paying anything toward old debts.

Link to comment
Share on other sites

My examples above were assuming the presence of one or more judgment liens. If you sell before they get a judgment, they get nothing.

But, if the sale results in your getting a large sum of money, the creditors may smell blood and go after you. You may have to prove that the money was (legally) converted to an exempt asset. Such as buying another residence that is your homestead.

If the IRS is involved (having a lien), they may be first in line after the mortgage. I'm not sure how it works, but I suspect they may have priority.

A word about attorneys: most will want you to file BK, or maybe get into a debt settlement program with them acting on your behalf. If either option will work for you, then consider it.

But, if your best option is fighting the creditors because you have nothing to settle with, or you would lose too much in a BK, be aware that it will be very hard to find an attorney who will agressively fight creditors.

You are better off learning from this site and doing it yourself.

Link to comment
Share on other sites

Yeah I believe IRS/gov't debts get to be first before the mortgage! Which is more than ok with me.

Yeah I agree with the rest. If I got equity out, it would go toward paying certain debts and homestead like you said.

I had a very good BK attorney tell me that I definitely should not do BK (unless I sell the house or decide to let it get foreclosed), so I am left with fighting judgments and possibly renting. It's complicated.

As I learn more, most information makes my situation more complicated and limits my options.

Link to comment
Share on other sites

I think the advice you got on this thread was accurate. It is complicated. And the reason you were told not to file BK was that the home would be sold and the equity in the home would be divided up and sent to creditors as part of the BK estate.

You'd be better off selling the home at market price (the price where someone will actually buy it NOW) than going through foreclosure. It'll sell at a foreclsoure sale at a much steeper discount, eliminate your equity, and potentially leave you with a deficiency. That's not good.

But back to judgment creditors. They likely will not foreclose because it is expensive. They DO add the $3000 plus any other costs to the amount you owe them. However, it is unlikely unless it makes business sense. That means a slam dunk without risk of you filing a bk. The priority of payment for an involuntary lienholder (judgment creditor) would be mortgage lienholder, you as homestead exemption holder (if not rented), then if anything leftover, judgment creditors in order of lien placement. So in other words, it would be a minority of situations where a corporate judgment creditor would spend the time and effort to foreclose to get paid, because they don't want to risk throwing good money after bad. But beware it is an option. So 10 years from now when the place is worth 50% more and you've paid the mortgage down another 25%, you'll have a much larger amount of equity. And these judgment creditors will be lurking...with liens that grow every year by the statutory rate (assuming they properly renew the judgments).

Link to comment
Share on other sites

Guest
This topic is now closed to further replies.
 Share

×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.. For more information, please see our Privacy Policy and Terms of Use.