Obtaining judgment liens against debtors’ real property is one of creditors’ most powerful tools in enforcing judgments in California. This entry discusses some of the key issues and procedures.
The proper recording of an Abstract of Judgment creates a “general” lien which attaches to virtually all of the judgment debtor’s real property interests in the county where the Abstract of Judgment is recorded. The Abstract does not need to identify any specific real property owned by the judgment debtor to be effective. Moreover, the judgment debtor does not need to be aware that the Abstract of Judgment has been recorded in order to be effective.
One benefit of recording an Abstract of Judgment is that the resulting judgment lien reaches both real property interests currently held by the judgment debtor and real property acquired by the debtor in the future, therefore giving the judgment creditor priority as to real property acquired by the debtor in the future. See CCP § 697.340(b).
When collecting judgments, a critical consideration is whether the creditor’s actions will cause the debtor to file bankruptcy. The recording of Abstracts of Judgment is usually helpful in this regard. The recording of an Abstract of Judgment does not impact the debtor’s ability to continue to occupy and use the real property. As a result, these judgment liens are less likely to cause debtors to file bankruptcy compared to other judgment enforcement methods (e.g., instructing the sheriff to levy on the real property).
Usually, if the debtor files bankruptcy within 90 days of the creditor’s recording of an Abstract of Judgment, the judgment lien can be “avoided” in debtor’s bankruptcy case, thereby preventing the creditor from having a secured claim in the debtor’s bankruptcy case. For this reason, creditors can often benefit by obtaining judgment liens more than 90 days before the debtor files bankruptcy. In other words, sometimes it is wise to record an Abstract of Judgment and then wait before taking further collection steps, in the hope that the Abstract will exist for at least 90 days before any bankruptcy filing by the debtor.
Another important advantage of recording an Abstract of Judgment is that doing so arguably “freezes” the judgment debtor’s homestead exemption amount such that any future increase in the homestead exemption amount does not apply to the judgment creditor. See CCP §§ 703.050, 703.100. This has recently been critical given the increase in the homestead exemption to up to $600,000 as of January 1, 2021. The result may be different when the judgment debtor has recorded a Declaration of Homestead for the subject real property. See CCP § 704.965. Also, the result may be different if the debtor files bankruptcy. A creditor’s pre-bankruptcy judgment lien against the debtor’s real property may be less important in determining whether the debtor is entitled to the California homestead exemption and, if so, the amount of the exemption. This is because the homestead exemption amount may (or may not) be determined as of the date of filing of bankruptcy. See In re Anderson (9th Cir. 2021) 988 F.3d 1210, 1214.