In a previous post, we discussed the advantages and disadvantages of a memorandum of lien foreclosure.
In this post, we will focus on the process of enforcing an Association’s judgment lien.
When an Association sues a delinquent owner, the Association seeks a monetary damages award (plus attorney’s fees and costs usually) from a court. If the Association wins, the court awards the Association a monetary judgment.
What’s a Judgment?
A judgment is merely a piece of paper that states that the delinquent owner owes the Association the delinquent amounts. A judgment is not a court order to pay. With the exception of child support or tax debts, delinquent debtors are generally not court-ordered to pay debts.
There are several legal tools, however, that Associations may use to try and collect on their judgment. This post will analyze the judgment creditor’s suit.
Potential Drawbacks of a Memorandum of Lien Foreclosure
Why might an Association want to purse a judgment creditor’s suit instead of a memorandum of lien foreclosure?
Recall that one potentially big drawback for the memorandum of lien foreclosure is that since the first mortgage is a superior lien to an Association’s memorandum of lien, the memorandum of lien foreclosure will not wipe away the first mortgage lender’s lien. Consequently any buyer will buy the property subject to the first mortgage. Since the property may be worth less than the first mortgage’s outstanding balance, there may be serious difficulty finding a buyer.
Additionally, a delinquent owner may stop the memorandum of lien foreclosure at any time by simply paying the total amount included in the memorandum of lien (plus reasonable attorney’s fees and advertising costs). Note that this may not be the entire amount owed to the Association. This right of redemption is especially problematic for condominium associations as memoranda of lien for condominiums, by statute, may only capture 90 days’ worth of delinquent assessments.
Judgment Creditor’s Suit Basics
The judgment creditor’s suit is more time-consuming and more expensive than the memorandum of lien foreclosure. A judgment creditor (the Association in this case) may request a copy of the abstract of judgment from the Clerk’s Office. The abstract of judgment is a piece of paper that simply states the details of the judgment. An abstract of judgment may be recorded in the Circuit Court land records where the debtor owns real property. Upon recordation, the abstract of judgment operates as a lien on all real property owned by the debtor within the jurisdiction of the court where the abstract of judgment is recorded.
The judgment creditor’s suit requires the filing of a lawsuit in a Circuit Court. Any and all lienholders must be named as parties and given notice of the suit. As it is a Circuit Court case, the parties may conduct written discovery or file motions. If the court determines that the rents and profits of the real estate subject to the lien will not satisfy the judgment in five years, the court has the power to order the sale of the real estate. After the procedural requirements are followed, the special commissioner (a person appointed by the court to oversee the sale) conveys title to the property, distributes the money to the lienholders, and the court confirms the sale.
One major benefit of the judgment creditor’s suit is that it allows the Association to pursue the full amount of the judgment(s) it holds against the owners (not just the limited amount of assessments captured by the memorandum of lien). Additionally, a successful judgment creditor’s suit may also result in the conveyance of full title to the property to a third party buyer. In other words, the court’s order of sale could wipe away even the first mortgage lien on the property. This is a critical advantage over the memorandum of lien foreclosure, where any potential buyer would buy the subject property subject to the first mortgage. This difference could make a subject property much more marketable in a judgment creditor’s suit.
The judgment creditor’s suit is no guarantee to payment, however. Depending on the amount and types of other liens encumbering the property, a judgment creditor’s suit does not necessarily mean that the Association will be paid. However, a successful judgment creditor’s suit could transfer ownership of the property to a new (hopefully assessments-paying) owner. The procedure and substance involved in a judgment creditor’s suit is rather complicated, and accordingly requires the assistance of an experienced community associations attorney.