Can a Collector Take My Home or My Kids’ Inheritance with a Judgment Lien?

Eric Olsen, Executive Director of HELPS Nonprofit Law Firm, answers…

Seniors often worry that if they are sued that a judgment could become a lien on their home. They fear that a judgment creditor could take their home. I will explain why this is almost never the case.

Many income sources for seniors are protected

First, seniors often don’t realize that federal and state laws protect their Social Security, almost all pensions, disability, and VA benefits from debt collectors. This income cannot be garnished or taken from them. Thus, it doesn’t need to be used to pay a debt a senior can’t afford to pay.

Homestead exemptions can help protect your most important asset

For many seniors, their home is their main asset, and they would like their children to have that equity when they pass away. I will explain why — if they are sued — a judgment lien might not be a problem, ways to remove a judgment lien, and how seniors can protect their home equity for their children.

  • Some states like Texas and Oklahoma have unlimited exemptions
  • Other states, like California and Florida, have large exemption amounts
  • Then other states have very small or no exemptions, like Virginia and Pennsylvania
  • Some states also have increased homestead exemptions for seniors

Foreclosure from a judgment lien is extremely unlikely

Before founding HELPS Nonprofit Law Firm I filed around 40,000 bankruptcies. I cannot recall a single instance in nearly 40 years, where a consumer judgment creditor, such as a credit card company, ever attempted to foreclose on a judgment lien.

  • The judgment holder would incur significant attorney fees with no guarantee of a positive result.
  • There is always the question of how much equity there is in the home. Any prior mortgage, property taxes, or tax liens would have to be paid first from foreclosure sale proceeds.
  • Then a state homestead exemption would have to be paid to the homeowner before a judgment creditor would get anything.
  • If a judgment is against only one spouse, a home owned by both husband and wife can prevent a foreclosure.
  • Different forms of bankruptcy can stop a judgment lien foreclosure.

How can a judgment lien be removed if one is in place?

Seniors often stop worrying about a judgment lien when they realize it won’t cause them to lose their home. And there are several ways that a judgment lien could be dropped:

1. The lien does not apply to the surviving spouse

Most often, a married couple will own a home together with survivorship rights. If a judgment is against only one spouse, the house automatically goes to the surviving spouse without the judgment lien when that spouse passes away. Some couples calculate one spouse is more likely to pass away first, and the judgment will disappear.

2. Homestead exemption could prevent a lien or remove it

Some states provide that a judgment cannot become a lien on the home unless there is equity over the state’s homestead exemption. Other states have laws to legally remove a judgment lien if the net proceeds upon sale of the home are less than the homestead exemption.

3. The homeowner files bankruptcy

In other states filing bankruptcy can remove a judgment lien.

Adding children to a property deed as joint owners

In most states, a senior or senior couple could consider adding their children to the home’s deed as joint owners together with them, with survivorship rights. The parents are not giving the property to their children. They are merely adding a child or children’s name with them as joint owners for estate purposes. The parents still own the home. When the parents pass away, the home passes to the surviving joint tenants — the children — automatically, without probate or the need for past debt to be paid, except for an outstanding mortgage.

What if a senior has a low income with a house payment and debts that they have difficulty paying, but they have significant equity in a home?

In this situation, if the senior homeowner wants to stay in the home, they could consider getting a reverse mortgage.

How a judgment lien could affect a reverse mortgage

Waiting to get a reverse mortgage after a judgment might prevent a senior from getting a reverse mortgage, require a judgment to be paid, or decrease the amount of money a reverse could provide the senior. Finally, seniors could then investigate their options to add children to the deed after obtaining a reverse mortgage as joint owners.

The bottom line

There are many reasons why a senior doesn’t need to fear a judgment lien. And options to prevent a problem a judgment lien could cause. HELPS is a national charitable nonprofit law firm. We represent lower-income and poor seniors to stop debt collector harassment. We also educate seniors on how to maintain their financial independence. HELPS turns no senior away that that needs the help we provide. Seniors can call HELPS with their questions at (971) 239–5701.

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