Issues Regarding Real Property Judgment Liens

Two issues commonly appear regarding real property judgment liens (i.e., recorded Abstracts of Judgment):  (1) what happens when the debtor transfers the real property?, and (2) how is lienholder order of priority determined?

Impact of Transfer of Real Property

Real property encumbered by a judgment creditor’s Abstract of Judgment that is transferred or encumbered without satisfaction of the creditor’s lien remains subject to the lien – as if no transfer had occurred.  See Code of Civil Procedure § 697.390(a); see Dieden v. Schmidt, 104 Cal. App. 4th 645, 651-652 (2002).

However, if the debtor voluntarily transfers a declared homestead in which there is no equity above the total of all liens and encumbrances and the amount of the debtor’s exemption, the property is no longer subject to the judgment lien.  See Teaman v. Wilkinson, 59 Cal.App.4th 1259, 1267-1269 (1997) (judgment debtors sold homestead property to third parties for net profit that did not exceed debtor’s homestead exemption amount).

Also, transfer of the real property may prevent the creditor’s judgment lien from attaching as to future installments due under some installment judgments.  See Code of Civil Procedure § 697.390(b).

Priority Among Real Property Judgment Liens

Basically, the rule is “first in time,” meaning priority goes to the first-recorded Abstract of Judgment.  See Code of Civil Procedure § 697.380(c), (d).

With respect to installment judgments, the rule is slightly different.  An installment judgment lien is a lien only for installments as they mature.  See Code of Civil Procedure § 697.350(c).  Thus, where the first abstract or certified copy of the judgment, notice of support judgment, or 42 USCA § 652(a)(11) interstate lien form, is on an installment judgment, it has priority over later lump-sum or installment judgment liens only as to installments that have matured, plus accrued interest and costs added to the judgment before the later judgment was recorded.  See Code of Civil Procedure § 697.380(e),(f).

Important Exception

There is a key exception to the “first in time” rule regarding priority of Abstracts of Judgment.  Purchase money deeds of trust (i.e., loans made to allow the debtor to purchase the real property) and federal tax liens recorded before the debtor acquires the real property generally have priority over previously-recorded judgment liens.  See Code of Civil Procedure § 2898.  Also, judgment liens generally are subordinate to an unrecorded deed of trust executed and delivered before recordation of the Abstract of Judgment.  See Livingston v. Rice, 131 Cal.App.2d 1, 2-4 (1955).

To understand this important exception, first recognize that Abstracts of Judgment automatically create a lien against real property acquired by the debtor in the future.  This is very helpful to judgment creditors.  It can often catch debtors by surprise years later.  But if/when the debtor acquires real property in the future, the Abstract of Judgment will be junior to any deeds of trust given in connection with the debtor’s purchase of the property.

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