Have a judgment against someone? Be careful of a new California case law that left a judgment creditor empty handed after the debtor's home was foreclosed on and there was extra money after the mortgage was paid off. If you're smart, there's something you can do.
So, you've got a judgment against someone who owns a home, recorded your judgment with the county recorder, and think that's good enough -- eventually, the "judgment debtor" will try to refinance or sell the home, and you'll get paid. Right? WRONG!!!! If that's all you've done, you may never recover. A recent California appellate decision held that you may get nothing if the judgment debtor's home is sold in a non-judicial foreclosure sale, even if it is sold for more than the mortgage being foreclosed upon! With foreclosures on the rise, be careful!
So, imagine this -- you have a $100,000 judgment against a home owner. The home has a $500,000 mortgage. You timely file your judgment lien (called an "Abstract of Judgment) with the county recorder's office. The home owner / judgment debtor fails to pay the mortgage, and the mortgage holder initiates a foreclosure sale. This does not have to go through the Court system. Rather, the mortgage holder hires a "trustee" to sell the property. The trustee simply records a "notice of default", sends the notice to the homeowner (your judgment debtor), waits three months, records a "notice of sale", and 20 days later sells the property. Most significantly, the trustee has no obligation to inform you, the lienholder, of the sale!
Back to the example -- the home is sold to the highest bidder at public auction. Let's say it is sold for $600,000. In the crazy California real estate market, you never know what will happen at the sale. So, the trustee pays the mortgage holder $500,000, and that leaves an extra $100,000. Remember, this new California appellate decision states that the trustee has no legal obligation to notify the other lienholders of the foreclosure sale, and has no legal obligation to pay off the "junior" liens (your judgment). So, what does the trustee do with the money? He pays it to your judgment debtor! (Who immediately proceeds to take a nice vacation, maybe to Las Vegas).
So, what can you do? Well, if you get lucky, you can try to get money from the judgment debtor -- after all, he now has a $100,000 in his bank (well, maybe less after the Vegas trip). But, is there a better way? Well, fortunately there is -- in addition to recording an "Abstract of Judgment" with the county recorder, you can record a request that the mortgage holder send you notice of the judgment debtor's property is going to be foreclosed upon. When you find out about the sale, you formally request the trustee to pay you out of the excess proceeds, and the trustee is obligated to do so. But be wary -- this case came out in January 2010, and it is not typical that a judgment creditor would record, in addition to the Abstract of Judgment, a request for notice from the trustee. If you have a judgment lien, talk to lawyer soon to make sure you are protected.
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