Judgment Liens After Bankruptcy: Are They Threatening Your Real Estate Transaction?

Did you know that a judgment “lien” against real property may survive a bankruptcy discharge? The survival of this lien may impair title to the real property and make it difficult to sell property at a short sale, or even at a non-short sale. A judgment lien is not ordinarily released until the judgment debt has been satisfied. When a money judgment is entered against a person by a court, two things happen: (1) a judgment debt is created, and (2) a judgment lien attaches to any real property the judgment debtor owns in that jurisdiction. A judgment creditor can also record the judgment in other jurisdictions where the debtor owns property, thus creating a lien against that property as well. A judgment lien is not ordinarily released until the judgment debt has been satisfied. When a person files for bankruptcy, all of that person’s, or the debtor’s debts, including any judgment debts must be listed in the bankruptcy petition. If the debtor owns real property, any judgment liens must also be listed. When a discharge is entered, the underlying debt associated with the judgment is wiped out. HOWEVER, the judgment lien that attached to any real property survives unless the debtor takes steps to remove or “avoid” the lien through a motion filed with the bankruptcy court. The debtor may not even realize the lien survived until he or she tries to sell the real property after the discharge has been entered. Sometimes judgment liens are missed or the debtor may not understand that the lien has not been released when the debt is discharged because the necessary steps to avoid the lien in the bankruptcy were not taken. The debtor may not even realize the lien survived until he or she tries to sell the real property after the discharge has been entered. The survival of the lien against the real property creates a cloud on the title that must be removed in most circumstances if the debtor is to sell the property. Release of the lien usually requires the consent of the judgment creditor or the lien holder. Most judgment creditors will not voluntarily release a judgment lien without some payment of the judgment debt, which may not be feasible depending on the creditor’s demands and/or the availability of the debtor’s funds. There may be times when a closing date is approaching, and the judgment creditor’s cooperation is not forthcoming, placing the transaction in jeopardy. What can the debtor/seller do if payment of this debt is not possible? We recently assisted a seller with this very problem. Fortunately, there is a procedure in bankruptcy to remove or avoid the lien so that the sale can proceed. Here are the steps we followed: File a motion with the bankruptcy court to re-open the seller’s bankruptcy for the limited purpose of filing a motion to avoid the judgment lien. Once the case is re-opened, file a motion to avoid the judgment lien. The motion must be supported with copies of the following documents: deed to the real property an appraisal showing the value of the property at the time the original bankruptcy petition was filed an appraisal showing the current market value evidence of the balance of any mortgages when the original bankruptcy petition was filed, and evidence...

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Debt Collector Beware!

The collection of consumer debts is governed in part by a federal law known as the Fair Debt Collection Practices Act (15 U.S.C. §1692 et seq.) (the “FDCPA”). As demonstrated in a recent decision by the Richmond Division of the U.S. District Court for the Eastern District of Virginia, failure to adhere carefully to the FDCPA’s requirements can cause a debt collector to run afoul of the statute and give consumer debtors an opportunity to seek damages against the debt collector. In DeCapri v. Law Offices of Shapiro Brown & Ali, LLP (Civil Action No. 3:14cv201-HEH), a consumer filed a lawsuit seeking monetary damages against a debt collection law firm located in Virginia Beach, Virginia alleging multiple violations of the FDCPA arising from a collection letter sent by the law firm. As reported in the September 29, 2014 edition of the Virginia Lawyers Weekly, Judge Henry E. Hudson denied the law firm’s motion to dismiss the complaint finding that the complaint stated plausible claims for violations of the FDCPA. The notice must state that unless the consumer disputes the validity of the debt within thirty (30) days after receipt of the notice the debt may be assumed to be valid by the debt collector. The FDCPA was enacted by Congress with the purpose of eliminating abusive debt collection practices by debt collectors and applies only to consumer debts. Amongst the statute’s protections for consumers is a requirement that debt collectors provide a written validation of debt notice to consumers. This written notice to the consumer must set forth certain statements regarding the consumer’s rights to dispute the debt and to seek verification of the debt. The notice must state that unless the consumer disputes the validity of the debt within thirty (30) days after receipt of the notice the debt may be assumed to be valid by the debt collector. 15 U.S.C. §1692g(a)(3). The notice must also state that if the consumer notifies the debt collector in writing within that 30-day period that the debt is disputed, the debt collector will obtain verification of the debt and mail it to the consumer, and that until such verification is obtained and mailed, the debt collector must cease its collection efforts against the consumer. 15 U.S.C. §1692g(a)(4). The consumer loses these rights if the proper written notice is not given. In the DeCapri case, the court found that the §1692g(a)(3) notice in the collection letter in question did not include the words “by the debt collector” and simply said that unless the debt was disputed within thirty (30) days the debt would be assumed valid. The omission of the words “by the debt collector” made it unclear to the consumer about the entity making the assumption of the validity of the debt and for what purpose. Judge Hudson ruled that this omission stated a claim for violation of the FDCPA. It was further noted that the collection letter could also mislead the consumer to believe that if the debt was not disputed within the 30-day period, the right to dispute the debt at all was forfeited. Dispute of the debt under the FDCPA is optional, but may be done at anytime. Judge Hudson also found that the complaint stated a claim for violation of 15 U.S.C. §1692g(a)(4) because the collection letter...

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Welcome to our blog!

First blog post!  Please check back from time to time to see what interesting and informative news we have to share.  Also, please feel free to comment or reach out to us on the Contact Us page and check out our firm’s website at www.Chung-Press.com for more information about who we are, what we do, and how we can help serve you. Chung & Press, P.C. handles a diverse array of legal matters, including residential and commercial real estate transactions and closings, corporate and business transactions, bankruptcy, litigation, and intellectual property. Our experienced attorneys and staff provide  streamlined, cost efficient legal representation with a high-level of personal attention to all of our clients, from individuals, to entrepreneurs and small businesses, to large companies. We serve clients in Virginia, Maryland, and Washington, D.C., as well as handle matters throughout the United States and abroad. Please do not hesitate to contact us at (703) 734-3800 to discuss your legal...

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