civil-law finance
Under what circumstances can a debt lien on real property be satisfied by foreclosure?
<p>Under what circumstances can a debt lien on real property be satisfied by foreclosure?</p>

<p>For example, let's imagine a debtor fails to pay a debt, say a car loan on a vehicle that is now missing or destroyed and $25,000 remains on the note. The lender takes the debtor to court and gets a judgement. Then, judgement in hand, the lender places a lien on the debtor's $300,000 house which the debtor has mortgaged and on which the debtor still owes $140,000.</p>

<p>Is there any way for the auto loan owner to force the property into foreclosure so he can collect his $25,000 or will the lien just sit there?</p>

<p>The answer depends on state law, which differs from state to state. What the auto lender has is generally known as a judgment lien. A judgment lien arises when a creditor goes to court and gets a judgment against the debtor. The creditor (generally depending on the state statute) then records this judgment in the property records as a lien. The creditor (most likely through a judicial proceeding) could go back to court and foreclose on the property. Note, that the mortgage would be paid first from the proceeds of the foreclose sale (since it is first in line) and then the judgment creditor's lien would be paid off. Any leftovers would get distributed to the homeowner. </p>

<p>However, the judgment creditor may not foreclose, rather the judgment creditor could just allow the lien to sit there and (depending on state law) collect interest (which depending on the state post-judgment interest can be steep). In that case, you would be unable to sell the home or refinance until the judgment lien is paid off. </p>

<p>Note, must states have something called a homestead exemption in which a fixed amount of value in the real property of a debtor that is the debtor's primary residence is untouchable. </p>
