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...

read more

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...

read more

Liquidated Damages – Not Always A Given

A recent ruling by the Fairfax County Circuit Court on a damages provision in a real estate contract could foreshadow an evolution on the interpretation of the Default clause on real estate and other contracts in Virginia. As reported in the July 24, 2014, edition of the Virginia Lawyers Weekly, Judge Charles Maxfield of the Fairfax County Circuit court sustained a demurrer to the complaint in Sagatov Builders, LLC v. Christian Hunt (CL2014-5735) ruling that an option clause in the damages provision in a real estate sales contract was unenforceable. A copy of the opinion can be found at our website. The clause in question provided that in the event of a purchaser default, the seller could choose either to seek liquidated damages (i.e., keep the purchaser’s deposit of $50,000.00) or to pursue actual damages. The seller in this case claimed a purchaser default and filed a breach of contract case seeking liquidated damages. The purchaser demurred to the complaint on the grounds that the liquidated damages clause is an unenforceable penalty. In an apparent case of first impression, Judge Maxfield agreed with the purchaser and sustained the demurrer. Judge Maxfield held that the contract option to pursue either actual damages or liquidated damages undermines the purpose of liquidated damages, which is to provide agreed compensation for loss or injury when actual damages may be uncertain. The judge further held that the optional clause acted as a penalty as the seller could choose the liquidated damages where the deposit exceeded the actual damages, thereby punishing the purchaser. The seller was given leave to amend its complaint to seek actual damages, which it has since done. The defendant has filed an answer, and the case is otherwise proceeding. Careful consideration should be given to the inclusion of such optional damages clauses. The ruling in this case, that damages clauses that provide an option to pursue either liquidated or actual damages in the event of default are unenforceable, has the potential to affect the drafting and interpretation of the customary language of such contracts that has otherwise escaped serious scrutiny for decades. Such clauses are often found in commercial purchase and sale agreements, as well as in standard residential contracts such as those published by the Northern Virginia Association of Realtors. While the Virginia Supreme Court has not ruled on the issue and the ruling is not binding statewide, the ruling does set some precedent for Fairfax County and may be viewed as persuasive authority by judges in neighboring jurisdictions. Careful consideration should be given to the inclusion of such optional damages clauses. We’ll keep you advised on any...

read more

Wow! That Can’t Happen to Me … Can It? Part 2

A number of recent real estate scams underscore the need for diligence on the part of all parties to a real estate transaction, including real estate agents and settlement companies. Part two. This is a three part series on real estate scams and fraud.  Check out Part One if you haven’t already done so. The nephew hired an older woman, also well into her eighties, to impersonate his aunt. Another real estate scam we’ve seen in recent years involves mortgage fraud. Several years ago we were involved in a case where an elderly out-of-state woman owned a piece of residential property located in Northern Virginia that she leased to third party tenants. The owner was well into her late eighties and owned the property free and clear. A nephew of the woman, recognizing the potential for money-making at his aunt’s expense, took out a home equity mortgage on the property in his aunt’s name. The daringness of the young nephew reached new levels. The nephew hired an older woman, also well into her eighties, to impersonate his aunt. In doing so he prepared various fraudulent documents and supplied her with a fake driver’s license. He then accompanied the woman to a bank to apply for a mortgage in the aunt’s name. When the loan was closed, the imposter forged the aunt’s name on the loan documents, and the nephew pocketed the proceeds and promptly vanished. The property owner did not learn of the mortgage until the loan fell into arrears and a notice of foreclosure was served on her tenants. The real owner only received notice of the pending foreclosure and the perpetrated fraud within a few days before the scheduled foreclosure, at which time she retained our firm to address and correct the situation.   The property owner incurred significant legal fees to stop the foreclosure and to work with the bank to establish that the loan had been obtained fraudulently. Because her identity was stolen, the property owner must now constantly monitor her credit. The bank now has claims against the title company that closed the loan and against its lender’s title insurance policy. Part Three of our three part series on real estate scams and fraud will offers more example and lessons learned. 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...

read more