Can a Creditor Force the Sale of My Home To Pay a Judgment?

When you fall behind on your credit card debt, you risk being sued by a creditor (also called a judgment creditor) or a debt collector. If they win the lawsuit, they get a court order called a judgment. This can be used to collect the money you owe via wage garnishment or a bank account levy. If you own property like a home, the debt collector may ask for a lien against your home instead.

If you own real estate, you may wonder if a creditor can force the sale of your home to use the sale proceeds to pay off a money judgment. It’s important to understand whether a judgment lien can allow creditors to force the sale of your home so that you, as a homeowner, can make an informed decision about your debt relief options.

Can a Judgment Creditor Sell My Home? 

Yes, but this is very rare. And the creditor must follow several steps before they can force the sale of your home. 

If you have an outstanding debt, the creditor must first sue you and win a court order for a judgment lien against your property. If this happens, it doesn’t give them an automatic right to sell your home. It does give the creditor a legal claim to your home as collateral against your debt. This means, if you sell your house, they (and any other lienholders) will get paid what they’re owed before you get paid.

The lender could pursue a forced sale, but it’s not usually cost-effective for them to do so. To force a sale of the property, the creditor would have to foreclose and pay off the mortgage company and other lienholders before paying themselves. This can be very costly which is why it’s very uncommon.

Let’s look into how money judgments work and what could happen if you find yourself in debt as a homeowner. 

How Does a Creditor Get a Court Judgment Against Me?

Generally, when you have outstanding debt that’s more than 90 days past due, your debt is sold to a third-party debt collection agency. Then, the debt collector will typically try to collect on this debt by sending you notices in the mail and calling. 

If you ignore these notices and phone calls, the creditor or debt collection agency may file a debt collection lawsuit against you to try to get the money from you more directly.

What Is a Debt Collection Lawsuit?

When a debt collector sues you, someone will deliver court documents to you in person or send them in the mail. These documents are called a summons and complaint. 

The summons will list the deadline or number of days you have to respond to the lawsuit by filing an answer form with the court. If you don’t respond to the lawsuit, the creditor will probably win by a default. This win comes with a default judgment, which is a court order.

Getting notice that you’ve been sued can be very stressful, especially if you don’t have the money to repay the full debt. The good news is that most people can respond to debt lawsuits without hiring a lawyer, and you may be able to settle your debt for less than what you owe outside of court.

What Is a Default Judgment? 

A default judgment is a court order awarding the creditor the amount they demanded in the complaint because a debtor fails to respond to the complaint or appear in court. This means you forfeited your opportunity to defend yourself against the lawsuit by not responding or appearing. 

Once a creditor has a default judgment, they can pursue other collection methods against you (the judgment debtor).

A Creditor Has a Judgment Against Me, What Happens Now?

Once a creditor has a judgment against you, they have access to new collection methods, including:

• Garnishing your wages

• Freezing (or levying) your bank accounts

• Placing a lien on your real or personal property. 

A lien gives a creditor a legal claim against a debtor's property as security for a debt. This claim doesn’t give the creditor immediate possession of the property, but it does allow them to ensure the debt is paid from the proceeds if the property is sold. In the meantime, you may be able to work out a payment plan or other plan to repay the outstanding debt. Essentially, a lien serves as a safeguard for creditors, ensuring they have a method to recover the owed amount if other payment arrangements fail.

How Do Liens on Real Estate Work?

If a judge awards a creditor a judgment lien, the creditor will go to the county clerk’s office with a copy of the court order and file it with the county records to get a lien on your real property. 

Once a creditor has a lien on your property, your property no longer has a clear title. If you plan to sell or refinance your home, you’ll have to pay off your debt to resolve the lien first.

One protection you may have against a lien is a homestead exception.   

How Does a Homestead Exemption Protect My House?

The homestead exemption protects a portion of a homeowner's equity in their primary residence from creditors. Exemption amounts vary by state and are set by state law.

In the rare case that a creditor does force the sale of your home to satisfy a debt, the law ensures you can keep an amount up to the state-specified exemption limit from the sale proceeds.

This safeguard doesn’t completely block the sale of the home, but prioritizes the homeowner's right to retain some equity over a creditor's claim on the sale proceeds. It strikes a balance, offering homeowners a layer of financial protection while still allowing creditors to recover debts beyond the exempted amount.

Can I File Bankruptcy to Cancel a Judgment Lien?

You may be able to use bankruptcy to resolve your financial challenges, even if you are dealing with judgment creditors. However, this process can be complicated. A judgment lien can survive a bankruptcy proceeding. If this happens, the lien remains attached to the real property even after the bankruptcy unless you can successfully petition the court to have it removed.

This process can be very legally complicated. It’s advisable to speak with an experienced bankruptcy attorney to get legal advice if you find yourself in this situation. Most bankruptcy attorneys offer free consultations.

What Happens if a Judgment Doesn’t Become a Lien?

If a creditor wins a lawsuit against you, but they haven’t requested a lien against your property, they’re considered an unsecured creditor in the  bankruptcy process. You can use Chapter 7 bankruptcy to discharge eligible unsecured debts.