Lis Pendens & Judgment Liens: Definition & Purpose

Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

The U.S. legal system can affect real estate in many different ways. In this lesson, you'll learn about lis pendens and judgment liens. Take a short quiz following the lesson to test your knowledge.

Lis Pendens Defined

Tessa recently put her property on the market. The next day her neighbor sued her, disputing the boundary line between her property and his. Her neighbor also recorded a lis pendens against the property with the county recorder's office. A lis pendens is a notice that a lawsuit has been filed regarding either a dispute in ownership of real estate or some other claim of interest in the property. Once a lis pendens is recorded, anyone who buys Tessa's property will be subject to whatever the court determines in regard to the suit. (This may significantly reduce the market value of the property; in fact, it may deter anyone from buying the property at all.)

Tessa's attorney commissioned a survey that demonstrated that her neighbor's claim was without merit. The neighbor was convinced to drop the lawsuit. The neighbor also recorded a release of lis pendens, which is a legal document canceling the notice due to the voluntary dismissal of the lawsuit. (It's important to note that lis pendens shouldn't be filed with reckless abandon. People that file them when they shouldn't may be hit with costs and attorneys fees related to their removal.) If Tessa's neighbor had not canceled the lawsuit, she could have filed an action in court to have the lis pendens removed.

Judgment Lien Defined

Just when Tessa extricated herself from one lawsuit, she ended up in a new one. A few years ago she agreed to personally guarantee a business loan for her son to start a hip new restaurant. Unfortunately the business failed, her son defaulted on the loan and the bank turned to her for money since she personally guaranteed the payment. Tessa didn't have the money to pay the bank back so the bank sued her as well as her son. The trial concluded with a win for the bank, and to make matters worse for Tessa, the bank was able to place a judgment lien on her house.

A judgment lien is an involuntary lien imposed on property including real estate. Remember that a lien is a type of right or claim on the real estate owned by another. A judgment lien is created when one person wins a lawsuit for money damages and has not been paid yet. In other words, the judgment creditor has a right to be paid from the proceeds of the sale of Tessa's house. The lien will not be removed until the judgment is paid. Keep in mind that the judgment does not have to relate in any way to the real estate subject to the lien. Tessa's debt is due to her personally guaranteeing the payment of her son's business loan; the judgment lien was filed as an attempt to collect on that debt.

Removing the Lien

What if Tessa pays the judgment before selling her property? Once the money awarded in the court's judgment has been paid, the creditor must sign a satisfaction of judgment. A satisfaction of judgment is a document that certifies that the money has been fully paid to the creditor. In most states, Tessa also has a right to have the creditor record the satisfaction of judgment at the county recorder of deeds to remove the lien from the property.

However, what happens if Tessa can't pay out of pocket, but she can sell her property for more than the value of the judgment lien? In this case, the judgment will be paid with the home sale proceeds and Tessa will only get what's left over. Of course, if the judgment is paid in full, a satisfaction of judgment should be given to Tessa and recorded at the county recorder's office as in the previous scenario. If only part of the judgment is paid, she should receive a partial satisfaction of judgment, which will reduce the value of the judgment lien recorded on the property.

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