By Lydia Blair
Judgment Day in the title business is when the title search comes in and the skeletons in the closet come out. These types of skeletons often come in the form of an Abstract of Judgment. Most law abiding folks aren’t familiar with an abstract of judgment or how it affects real estate. But we see it in the title business regularly.
In Texas, an Abstract of Judgement (AJ) is basically a lien that is filed on a property for an unpaid debt. First a judgment for debt is rendered and then the creditor may file an Abstract of Judgment on the debtor’s property. It is designed to prevent the transfer of that property until the judgment has been paid.
In Texas, your homestead is protected from seizure by most creditors (except taxing authorities). So an AJ doesn’t hinder the peaceful enjoyment of your home – until you try to sell it. Apparently, this makes it easy for homeowners to ‘forget’ about the debt.
But an Abstract of Judgment can exist on a property for a long time with no action. The initial AJ is valid for 10 years and can be renewed by the creditor for another 10 years. An AJ from a governing body is good for 20 years. When the homeowners (or their heirs) eventually try to sell the property, the judgment is there.
Unlike a Texas homestead property, non-exempt real estate is not as protected. If you own non-exempt property, like a rental house, the Abstract of Judgment can allow the creditor to force the sale of the property at auction to pay the judgement. Section 52.001 of the Texas Property Code explains the AJ process.
The abstract of judgment is discovered when doing a title search. Title companies specifically search in detail for these types of encumbrances. The AJ typically contains all of the relevant information, such as the amount of the judgment, court costs, attorney’s fees and any post judgment interest that was awarded. It is a cloud on the title that won’t be overlooked or reduced by the title company.
The title company will require a release of the AJ before closing the transaction and issuing title insurance. Either the seller pays the judgment or often it can be deducted from the seller’s proceeds at closing. Regardless of how it is done, the judgment must be resolved.
Never underestimate the power of an Abstract of Judgment. Unlike the ghouls in the closet, it can haunt you for a very long time.
The opinions expressed are of the individual author for informational purposes only and not for the purpose of providing legal advice. Contact an attorney to obtain advice for any particular issue or problem.