Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Judgment Lien

What it is:

A judgment lien allows a creditor to take possession of a piece of a debtor's property if the debtor does not pay his or her debts.

How it works (Example):

Let's say John Doe owns a pit bull breeding company that borrows $1 million from Bank XYZ. Sales aren't going so well, and John falls behind in the payments to Bank XYZ. Bank XYZ obtains a judgment lien, which allows it to seize his house, car and any other assets necessary to get the $987,465 outstanding balance repaid in full if John does not start making regular payments again. If John does not comply, Bank XYZ simply repossesses and sells the assets.

Judgment liens are also common in cases where a person's insurance doesn't cover the full amount of a judgment resulting from damages in a car accident or other situation.

There are different kinds of judgments. A default judgment, for example, occurs in favor of the plaintiff when the defendant fails to appear in court to defend himself or does not respond to a summons. A deficiency judgment occurs when the sale of a seized piece of property does not generate enough cash to pay the judgment and the court has to place a lien on more property.

Why it Matters:

The laws on judgment liens vary by state and by jurisdiction. However, the intent of most judgment liens is to compel the borrower to repay the creditor.