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Collecting Debts Through Judgment Liens on Real Estate

For a creditor collecting on an overdue debt, winning a court judgment is only half the battle. The other half is enforcing the judgment. Debtors frequently employ underhanded tactics to avoid paying, which requires the creditor to take countermeasures. Among the methods that Illinois law allows for enforcing a judgment is placing a lien on the debtor’s real estate.

A lien on the debtor’s real estate can encumber up to the value of an outstanding judgment plus interest. However, it does not take effect automatically. To place a judgment lien, a creditor must file certain documents with the recorder’s or county clerk’s office in the county where the property is located. Once the lien is in effect, the creditor may be able to force the debtor to sell the property and use the proceeds to satisfy the judgment.

Forcing a sale is not always possible. Illinois law permits a homestead exemption when the debtor is using the property as their primary residence. The exemption amount is $15,000 for single people and $30,000 for a married couple. If the equity in the home is less than the exemption amount, then the home cannot be forcibly sold.

If your debtor’s real property has enough equity for you to recover value, you should consider other variables. For one, judgment liens often come behind other types of liens, such as mortgages. Thus, if you do force a sale and the debtor owes money to other secured creditors, they may get paid before you do, depending on your lien priority. For example, if the debtor had a mortgage that was recorded before you acquire a judgment lien, the mortgage lender would have a right to receive payment first. Then, if there are any proceeds left over, you would need to pay the debtor the exemption amount of $15,000 or $30,000.

A forced sale also requires the outlay of costs, such as a lien search, a property appraisal and a title report. There is also the expense of advertising the sale and the commission due to the sheriff or auctioneer. Further, since forced sales are auctions, the sale price often falls below market value, which leaves open the possibility that after you pay off the secured creditors, the homestead exemption and the other costs, there may not be enough to cover the debt you are owed.

The judgment lien is powerful tool. However, depending on your situation as a creditor, you may be better off waiting for the debtor to refinance or sell the home. Your judgment lien must be paid off as part of refinancing or sale in order for the debtor to close that transaction.

At Schwartz Law Group, LLC in Chicago, our attorneys help creditors use Illinois real estate liens as part of carefully devised debt collection strategies. To discuss your situation, please call our office at 312-436-1442 or contact us online at your convenience.

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