It's Hard To Sell A Judgment Debtor's House

I am not a lawyer, I am a judgment and debt referral expert (Judgment and Collection Agency Broker). This article is my opinion, based on my experience in California, and laws vary in each state. If you need a strategy to use or legal advice, you should contact an attorney.

What if the judgment debtor will not repay the money judgment they owe you, yet they live in, or have, a comfortable house they own. Does it make sense, and is it possible, to have the sheriff sell a judgment debtor's property to satisfy your judgment? In theory, yes. However due to laws (especially in California), the answer is most often, no.

There are two factors that may stop a creditor from selling a debtor's primary residence. One factor is equity; if the property is underwater and the judgment debtor has no equity, it makes little financial sense to auction off their property. The other factor is the laws that can impair a judgment creditor's ability to sell a judgment debtor's primary residence, especially in California.

Any auction of real property to satisfy a judgment debt, is performed by the county sheriff at an auction, at the county where the property is located. Before this occurs, an abstract of judgment (or the equivalent in your state) must be recorded against the real property interests of the judgment debtor in the county where the property is located. The abstract of judgment creates a judgment lien on the real property interests of the debtor.

Judgment creditor-initiated sales of debtor real property is not a foreclosure, it is a "Sheriff's Execution Sale of Real Property". A Sheriff's sale of real property has its own schedule of timetables and events, which is not identical to foreclosure timetables. Unless one has a lot of experience in selling judgment debtor's properties, they should always hire a lawyer before trying this type of levy.

As with every levy, the creditor must complete a "Notice of Levy" form, and provide an instruction letter to the Sheriff, in the county where the real property is located. In many counties, the sheriff will have a template available for the required steps. Many states have sheriff's manuals, and they are good to review prior any complex levy attempts.

Because the sheriff is the levying officer, a writ of execution must be issued first by the clerk of the court where the judgment originated. As with all levies, writs are used to open a sheriff's levying officer file.

If the debtor's real property is located at a different county from where the judgment was obtained, then a new case number must be obtained in the superior court in the county where the real property is located.

To get a new case number, one brings the original copy of the writ for the county where the property is located, and a certified copy of an abstract of judgment, recorded in that county. The court charges a small fee, then assign a new case number for their court. The new case number will be used for all paperwork needed to attempt to levy and sell a judgment debtor's property.

The levy of a judgment debtor's property requires many steps, and if the creditor or the sheriff makes one mistake or skips a single step, the sale cannot proceed. Selling a judgment debtor's property requires the judgment creditor to pay the sheriff at least $1,000 to begin, sometimes much more, ask the sheriff.

What if the debtor owns more than 1 property? It is much easier to sell a judgment debtor's home when it is not their primary residence. Even then, this is a task for an attorney, so please consult with one whenever you are planning to sell any real property of a debtor.

If the real property is the principal residence of the debtor, then an order from a court is needed to authorize the sale. The court order will specify the minimum auction bid for what the sheriff can sell the property for. The court order also specifies the amount of the homestead exemption to be paid to the debtor and other parties of the homestead, and other additional requirements or issues.

To auction off a principal residence of a judgment debtor, a real estate appraisal must be done, and an application is required. A litigation report is also required, which identifies the order of priority for all liens on the property. The minimum auction sale price must cover all senior liens, the sheriff costs, the homestead exemption, and possibly other costs.

In California, there is also a requirement that the starting price needs to be, at a minimum, 90 percent of the fair market value of the real property on the levy date. In the current economy, this may be very difficult to achieve.

If an opening bid covers all of the costs, liens, and exemptions, but is not at least ninety percent of the fair market value of the real property, then you can obtain a court order permitting the sheriff to sell the real property. However, if the opening bid does not cover all the costs listed above, the court will deny a sale of the debtor's home.

Even though newspapers are almost obsolete now, the sheriff needs to publish in a newspaper of general circulation, the date, time, and location of the sale. Everyone is welcome to try to find potential buyers to attend the auction.

When the debtor's primary residence is to be auctioned, it is scheduled to happen 120 days after the court's order to sell the property. If the property sale is not the primary residence of the debtor, then the auction takes place 120 days after the date of the recordation of the levy, or the date of the first publication of the notice of the auction.

Selling a judgment debtor's real property is difficult and expensive, but the good news is that often one gets results by starting the process, if they show they intend to, and are able to finish the process. Often when the debtor and their other family members are served with notice of the pending sheriff's sale procedure, the judgment debtor finds or borrows funds to settle or pay off the judgment.

Should the judgment debtor fail to actually pay you after their settlement offer, the levy lien is "in rem", and should be good for 2 years. The real property auction can be easily restarted. And the lien could make you a secured creditor, and maybe get you a partial satisfaction, if the judgment debtor applies for bankruptcy protection.


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