Winning a civil lawsuit is exciting. A court judgment gives you the right to collect money or property from the opposing party. But this is often the start of another battle to collect on the judgment.
In Minnesota, a civil judgment that is docketed becomes a lien against “non-exempt” real estate owned by the debtor in that county. Foreclosing a judgment lien can be an excellent way to collect a large judgment. However, judgment liens don't apply to all real estate and can be tricky to foreclose.
This article looks at the key issues involving civil judgment liens in Minnesota. If you understand them, you have a much better chance of collecting on a judgment (or protecting your land).
What is a Judgment Lien?
A “lien” is a security interest or right that a creditor has in another person's property. A “judgment lien” is simply a court-created interest in a judgment debtor's land or personal property.
A judgment lien commonly arises from civil litigation, but it can also arise from a divorce, child support, or tax matter. While some liens are considered consensual (i.e., owner agrees to put a mortgage on the land), judgment liens are considered non-consensual. That is, the debtor does not want the lien on his or her land.
While a judgment lien is simple in theory, it raises challenging issues in practice.
Does a Judgment Lien Affect Title to Land?
Yes, like a mortgage or mechanic's lien, a judgment lien is a defect on title to land that generally must be resolved before a sale or refinance. If not addressed, the interest of the new buyer or lender may be affected by the judgment lien.
Because judgment liens are title defects, you must do your homework before buying land. Before a real estate closing, the title company or lawyer must check for judgments against the seller. While the judgment search is routine, it serves an important purpose. If the examiner finds a judgment lien against the property, the lienholder is generally paid off through closing proceeds.
The Minnesota Title Standards (the “Bible” for real estate title issues in Minnesota) require judgment searches when examining title for a property. For example, one of the standards states in relevant part:
Standard No. 82
The following searches shall be required in the examination of title, and shall also be made for the same period as to each person, firm or corporation from whom a conveyance should be requested to clear title:
82.1 Judgment Searches
82.1.1 State Court Judgments
Except as to registered land, there shall be judgment searches in the office of the court administrator of the county in which the land is located. The searches shall cover the period commencing 10 years preceding examination and extending through the date any party held an interest of record.
The takeaway is that a judgment lien can present a problem if you are buying or selling land in Minnesota. A diligent search will determine if any judgment liens must be resolved prior to closing.
What Laws Govern Civil Judgment Liens in Minnesota?
Potentially, there are many laws that impact the creation, collection, and satisfaction of civil judgment liens. These are in addition to other laws for other kinds of judgment liens (child support, spousal support, medical assistance, and tax liens).
Minn. Stat. § 548.09 is a starting point for understanding how civil judgment liens arise. It states in relevant part:
LIEN OF JUDGMENT.
Subdivision 1.Entry and docketing; survival of judgment.
Except as provided in section 548.091, every judgment requiring the payment of money shall be entered by the court administrator when ordered by the court and will be docketed by the court administrator upon the filing of an affidavit as provided in subdivision 2. Upon a transcript of the docket being filed with the court administrator in any other county, the court administrator shall also docket it. From the time of docketing the judgment is a lien, in the amount unpaid, upon all real property in the county then or thereafter owned by the judgment debtor, but it is not a lien upon registered land unless it is also recorded pursuant to sections 508.63 and 508A.63. The judgment survives, and the lien continues, for ten years after its entry. Child support judgments may be renewed pursuant to section 548.091.
Subd. 2.Judgment creditor's affidavit.
No judgment, except for taxes, shall be docketed until the judgment creditor, or the creditor's agent or attorney, has filed with the court administrator an affidavit, stating the full name, occupation, place of residence, and post office address of the judgment debtor, to the best of affiant's information and belief. If the residence is within an incorporated place having more than 5,000 inhabitants, the street number of both the judgment debtor's place of residence and place of business, if the debtor has one, shall be stated.
As the statute says, the judgment becomes a lien once it is docketed and it is valid for 10 years.
Note that while the judgment lien automatically applies to “abstract” property, a judgment lien does not automatically attach to “Torrens” property (you must make an extra filing under Minn. Stat. § 508.63 and Minn. Stat. § 508A.63). The difference between “abstract” and “Torrens” property is how the real estate documents are recorded and organized. Torrens property is a slightly more formal recording method. See Ch. 508 and 508A for Registered (“Torrens”) Land. Most land in Minnesota is abstract property, but there is a trend toward registering land as Torrens property (especially in the Twin Cities). The point is that the judgment holder should check the status of the debtor's land and, if it is Torrens property, record the judgment with the County Registrar of Titles.
How is a Judgment Lien Created?
While Minn. Stat. § 548.09 is the general rule on creating a judgment lien, it is helpful to understand the context in which it arises. Here are some basic steps in the process:
- Get the Judgment: Usually, this means winning the civil litigation and getting a court order stating that the opposing party owes you money or property. In other situations, it could arise from unpaid child support, spousal support, property taxes, or other unpaid taxes.
- Docket the Judgment: An Order from a judge may say you are entitled to $20,000. But you cannot try to collect that money unless you “docket” the judgment under Minn. Stat. § 548.09. That means paying the court administrator a docketing fee (about $40) and filing a Judgment Creditor's Affidavit. The court administrator will then put your judgment on the “judgment rolls”, which means the judgment shows up on searches by creditors. The court administrator will also send you a document confirming the judgment and total amount owed. This is also the way to docket a federal judgment. See Minn. Stat. § 548.11.
- Transcribe the Judgment (sometimes): In some situations, you must “transcribe” the judgment into a county where the debtor has non-exempt land. For example, say you get a judgment in Scott County, Minnesota. But the judgment debtor has land in Meeker County. You must transfer, or “transcribe”, the judgment into Meeker County. This often costs ~ $40. Basically, the court where the judgment was obtained (Scott County) must send judgment information to the court where the creditor also wants it to be docketed (Meeker County). The Meeker County court will then reflect the judgment on its judgment rolls. If a creditor does this correctly, the creditor should have a judgment lien on any non-exempt land of the debtor in both Scott County and Meeker County. If the creditor wants to put a lien on land in other counties, the creditor must transcribe the judgment into those other counties.
These are the basic steps for a Final Court Order to become a judgment lien. However, as discussed in other sections below, there can be tricky questions about whether a judgment lien “attaches” to a piece of land. The debtor must own land in that county for a judgment lien to attach. “[W]here there is no title or estate, there is nothing to which the lien of the judgment can attach—no tangible subject for the action of the lien.” Lowe v. Reierson, 201 Minn. 280, 283, 276 N.W. 224, 225 (1937) (quotation omitted). Additionally, the judgment lien does not attach to “exempt” land, such as a debtor's “homestead.” Litigation over this issue is not uncommon.
While these steps are necessary to giving your judgment a chance to “attach” as a lien, there are further actions a creditor must take in order to get paid.
How Long Does a Judgment Lien Last?
Once a judgment is docketed, a judgment lien in Minnesota generally lasts for 10 years. Basically, the lien is good for the duration of the judgment. See Minn. Stat. § 541.01 (“No action shall be maintained upon a judgment or decree of a court of the United States, or of any state or territory thereof, unless begun within ten years after the entry of such judgment.”).
Creditors generally try to collect as soon as possible. However, if they discover that the debtor is “judgment proof” (meaning there are no non-exempt assets to go after), then they hold off until they can find assets. For this reason, there are thousands of pending judgments sitting dormant on judgment rolls in Minnesota.
Sometimes, a judgment sits there for many years. The creditor can take action to keep it active. A judgment can be renewed for another 10 years by starting a new action within a ten-year period. Amica Mut. Ins. Co. v. Wartman, 841 N.W.2d 637, 640-41 (Minn. Ct. App. 2014), review denied (Minn. Mar. 18, 2014). “If no renewal action is brought within that ten-year period, the original judgment lapses, and becomes unenforceable.” Id. at 641 (quotation omitted). If a renewal action is brought within the ten-year period, the judgment remains valid for an additional ten years. Id. The judgment lien will track with the judgment.
The point is that a judgment can be active for 10-20+ years. For a diligent creditor, this means that there could be future chances to collect on the judgment if the debtor's financial state improves (i.e., the debtor accumulates non-exempt property or assets). It is also a reason for a creditor to evaluate its chances of collection before starting litigation. For a judgment debtor, this means that he or she may have to confront the issue at some point and this can chance the person's strategy in the litigation.
It is helpful to remember that interest accrues on the judgment. While the interest rates sometimes change, the general rule is that interest accrues at 4% for judgments under $50,000 and 10% for judgments over $50,000. See Minn. Stat. § 549.09.
How Do I Satisfy a Judgment Lien?
A judgment lien stems from a judgment, and a judgment is satisfied when the creditor is paid off. The debtor might satisfy the judgment by making a voluntary payment to the creditor. Also, the creditor may satisfy the judgment by executing on the land (see following section) or recovering money through some other collection method.
If the judgment debtor makes a voluntary payment to the creditor, it is best to make a written record of the payment. The debtor may want to get a Release of Claims signed by the creditor. Often times, the creditor is willing to take a discount to resolve the issue. If so, it is important for the debtor to get a written Release for the entire judgment and claim (as well as a Satisfaction).
Filing of Satisfaction
If there is a voluntary payment by the debtor, the creditor must provide the court with a Satisfaction of Judgment. The creditor must generally do this within 10 days after the Satisfaction, or within 30 days if the debtor paid by check or noncertified funds.
Under Minn. Stat. § 548.15, a judgment is satisfied when one of the following things is filed with the court administrator:
(1) an execution satisfied, to the extent stated in the sheriff's return on it;
(2) a certificate of satisfaction signed and acknowledged by the judgment creditor;
(3) a like certificate signed and acknowledged by the attorney of the creditor, unless that attorney's authority as attorney has previously been revoked and an entry of the revocation made upon the register; the authority of an attorney to satisfy a judgment ceases at the end of six years from its entry;
(4) an order of the court, made on motion, requiring the execution of a certificate of satisfaction, or directing satisfaction to be entered without it;
(5) where a judgment is docketed on transcript, a copy of either of the foregoing documents, certified by the court administrator in which the judgment was originally entered and in which the originals were filed.
Effect of Satisfaction
A filed Satisfaction that removes a judgment lien has an important impact on the debtor. A judgment lien could impact a debtor's real estate transaction, or the judgment could continue to show up on the debtor's credit report. Likewise, it could impact a debtor's ability to rent housing. If the creditor refuses to provide a Satisfaction once paid off in full, the debtor will be harmed. If so, the debtor can make a motion to the court for a judge to order the judgment satisfied. Potentially, the debtor could ask for some attorney's fees or penalties if the creditor's refusal was in bad faith or frivolous.
The point is that the creditor and debtor must formally document the satisfaction to avoid any future issues.
How Do I Collect on a Judgment Lien in Minnesota?
Generally, a creditor (a/k/a, the judgment holder or lienholder) must collect on a judgment lien through “execution”. This can be an involved process, and the judgment holder may need an attorney to properly execute on the land.
If the creditor has already done the research and located the debtor's property, then the creditor can proceed to execution. Most of the time, however, a judgment holder will need information on the debtor's assets and land. The creditor can ask for formal discovery under Minn. R. Civ. P. 69, or the creditor could request a “Judgment Debtor Disclosure” under Minn. Stat. § 550.011 (once 30 days have passed since the judgment was docketed). The creditor should then be able to find land on which to execute to get paid.
“Execution” is a general term in Minnesota for seizure and collection of assets. Execution is used for collecting judgment liens on land, among other assets. Minn. Stat. § 550.02 provides a general description:
JUDGMENTS; METHODS OF ENFORCEMENT
Where a judgment requires the payment of money, or the delivery of real or personal property, it may be enforced in those respects by execution. Where it requires the performance of any other act, a certified copy of the judgment may be served upon the party against whom it is given, or the person or officer who is required thereby or by law to obey the same. A person so served who refuses may be punished by the court as for contempt, and the individual's obedience thereto enforced.
Generally, the judgment holder must get a “Writ of Execution” from the court and then bring it to the County Sheriff for execution. See Minn. Stat. § 550.04. The Sheriff generally must look for personal property to satisfy the judgment. If the Sheriff does not locate any personal property to seize (which is often the case), the Sheriff can then target land to satisfy the Writ of Execution.
Once the Sheriff locates non-exempt property (the creditor gives the Sheriff info on the land), that land can then be sold. The Sheriff must give proper notice of the sale as required by Minn. Stat. § 550.18 and there must be service upon the debtor (who would have the right to bid at the sale). The sale is essentially an auction (just like a foreclosure sale) where the judgment lienholder makes a “credit bid” of the amount owed by the debtor. Other persons, including the debtor, can then bid on the land if they have cash or certified funds.
The winning bidder will get a Certificate of Sale under Minn. Stat. § 550.22. If the judgment holder's “credit bid” was the only bid, then he won't get any cash at that time (unless he sells the Sheriff's Certificate to someone). If another bidder made a higher cash bid at the sale, then the judgment holder will get paid out of the proceeds from the Sheriff. That purchaser at the sale will receive, “'upon expiration of the time for redemption, . . . all the right, title, and interest' of the debtor's real property ‘at the date of the lien upon which the same was sold.'”
While there are more details and issues with execution, these are the basics. The judgment holder sometimes gets paid via the sale. Other times, he or she will have to wait until the redemption period expires to get paid.
Just like a mortgage foreclosure, the debtor in an execution action has a right to “redeem” the property (pay off the creditor to avoid losing the land). Generally, the debtor has one year to redeem under Minn. Stat. § 550.24 (unless the debtor “abandons” the property, in which case the redemption period can be reduced to 5 weeks).
If the debtor redeems, the creditor is paid off and the judgment lien is satisfied. The debtor retains the property.
If the debtor does not redeem the property, then other lienholders of the property can try to redeem the property. Basically, they pay off senior lienholders that have redeemed (see the following section on priorities for more detail). The judgment holder will get paid off. In this situation, the debtor loses the property but should get his or her equity in the property (after the judgment and execution costs are paid).
If there is no redemption by the debtor or any other lienholders, then the creditor is essentially the titleholder of the property at the end of the redemption period. As in mortgage foreclosures, the creditor generally sells the property in order to get paid.
What is the “Priority” of a Judgment Lien?
The priority of a person's lien becomes important when there are multiple liens, mortgages, or other “encumbrances” on the land. If your judgment lien has priority over other liens, you have a better chance of getting paid. If your judgment lien is behind other liens in priority, you have a lesser chance of getting paid.
A lien with higher priority is called a “senior” lien, while one with lesser priority is called a “junior” lien.
How is priority determined?
Generally, lien priority on land depends on when the lien was “perfected”. For judgment liens, they are generally perfected when they “attach” to the land. A creditor with a judgment lien that attaches first in time will have priority over a judgment lien that attaches later.
In most situations, the judgment lien “attaches” to the land when the creditor dockets the judgment in that county. However, in some cases, it may not “attach” until the debtor acquires an interest in land (or the debtor abandons homestead property). In those cases, the judgment lien will attach when the debtor acquires an interest in the land.
Once the judgment lien attaches to the debtor's land, it generally has higher priority than later-recorded liens or mortgages. However, there are some limited situations where a later-recorded lien could “jump ahead” of a judgment lien in terms of priority. For example, a federal tax lien sometimes can take priority to the date of the IRS assessment (even if recorded at a later time). Another example is a mechanic's lien, which generally relates back to the “actual and visible beginning of the improvement on the ground” under Minn. Stat. § 514.05 (not the recording date). This can be surprising, as your lien may lose priority to another lien that has not yet been recorded.
The lesson is to do your homework to find out where your lien fits in the priority chain.
Why does priority matter?
When property is sold, the senior lienholders often get paid first. If there is not enough equity in the land to pay off junior lienholders, those lienholders will not get paid.
For instance, in a mortgage foreclosure when a senior lienholder forecloses on the property, the junior lienholders have a right to “redeem” the property (or else their lien will be extinguished). This generally means that the junior lienholders record notice of their intent to redeem and then redeem by paying off senior lienholders. If there are even more junior lienholders behind, those other lienholders may also redeem. If they do redeem, the lienholders ahead of them will get paid off. Generally, for redemption purposes, there are 7-day windows for each successive junior lienholder to redeem.
Additionally, the importance of priority is shown when a senior lienholder forecloses his or her interest on the property. If junior lienholders do not redeem, their lien is extinguished. In contrast, a senior lienholder is generally not extinguished when a junior lienholder forecloses on the property. Therefore, it is important to have a higher priority lien. In the case of a judgment lien, it means docketing and/or transcribing the judgment as soon as you can.
Note that these priority situations are complicated, so it can be important to get title work on the property and speak with an attorney. A small mistake, such as failing to record an Intent to Redeem, can cost the creditor a collectable lien.
Do Judgment Liens Attach to Homesteads in Minnesota?
No, judgment liens only attach to “non-exempt” land, so your homestead should not be impacted. However, under some circumstances (i.e., land exceeds the “homestead” limit or otherwise fails to meet the definition), a judgment lien could impact your land or the proceeds from a sale of it.
Whether a creditor can attach a lien to land is an important issue. For a creditor, it can mean the difference between a successful collection or being shut out. If the land is homestead, the creditor cannot touch it. If the land is not homestead, the creditor may target it to get paid.
Minnesota, and many other states, the homestead exemption reflects a moral value. The homestead exemption contrasts a creditor's right to be paid with a debtor's protection of his or her home. However, the “policy of giving the debtor `sanctuary' from just claims in his `homestead' has prevailed with significant uniformity.” Denzer v. Prendergast, 267 Minn. 212, 216, 126 N.W.2d 440, 443 (1964). Therefore, the homestead exemption is to be liberally construed by Minnesota courts. Torgelson v. Real Prop. Known as 17138 880th Ave., Renville Cty., 749 N.W.2d 24, 26 (Minn. 2008). That means close cases are resolved in favor of the homestead owner, not the creditor.
“Homesteads” are defined in Minn. Stat. § 510.01:
HOMESTEAD DEFINED; EXEMPT; EXCEPTION
The house owned and occupied by a debtor as the debtor's dwelling place, together with the land upon which it is situated to the amount of area and value hereinafter limited and defined, shall constitute the homestead of such debtor and the debtor's family, and be exempt from seizure or sale under legal process on account of any debt not lawfully charged thereon in writing, except such as are incurred for work or materials furnished in the construction, repair, or improvement of such homestead, or for services performed by laborers or servants and as is provided in section 550.175.
The amount of the homestead exemption is set by statute. If the land exceeds these limits, then the judgment holder could try to execute on the “excess” (the unprotected part). The judgment holder would have to get a court order and comply with the procedures in Minn. Stat. § 550.175 (“Execution On Real Property That Includes Homestead”) to collect on the “excess”.
Here are the Minnesota homestead limits from Minn. Stat. § 510.02:
AREA AND VALUE; HOW LIMITED.
Subdivision 1.Exemption. The homestead may include any quantity of land not exceeding 160 acres. The exemption per homestead, whether the exemption is claimed by one or more debtors, may not exceed $420,000 or, if the homestead is used primarily for agricultural purposes, $1,050,000, exclusive of the limitations set forth in section 510.05.
Subd. 2.Adjustment of dollar amounts. The dollar amounts in subdivision 1 must change periodically in the manner provided for under section 550.37, subdivision 4a. The commissioner of commerce shall include the changes in the dollar amounts as part of the announcement and publication made under those provisions.
Does the exemption still protect you if you sell the homestead? Yes, it should generally protect you for one year after a sale. It's important for the person to keep residing there and claiming it as homestead. Minn. Stat. § 510.07 discusses these issues as follows:
SALE OR REMOVAL PERMITTED; INSURANCE PROCEEDS; NOTICE.
The owner may sell and convey the homestead without subjecting it, or the proceeds of such sale for the period of one year after sale, to any judgment or debt from which it was exempt in the owner's hands, except that the proceeds of the sale are not exempt from a judgment or debt for a court ordered child support or maintenance obligation in arrears. The proceeds of an insurance claim for an exempt homestead are exempt for one year. The owner may remove therefrom without affecting such exemption, if the owner does not thereby abandon the same as the place of abode. If the owner shall cease to occupy such homestead for more than six consecutive months the owner shall be deemed to have abandoned the same unless, within such period, the owner shall file with the county recorder of the county in which it is situated a notice, executed, witnessed, and acknowledged as in the case of a deed, describing the premises and claiming the same as the owner's homestead. In no case shall the exemption continue more than five years after such filing, unless during some part of the term the premises shall have been occupied as the actual dwelling place of the debtor or the debtor's family.
Exemption After Death
Sometimes there are disputes between a creditor and the decedent's heirs about whether the property is protected as “homestead” after the owner's death. If the land was “homestead” property at the time of the person's death, the person's heirs should also get the benefit of the exemption. As such, the holder of a judgment lien likely cannot go after the property.
Minnesota law limits post-death claims against the decedent's homestead to state hospital care and medical assistance claims. Judgment liens are not listed under Minn. Stat. § 524.2-402(c), which states:
(c) If the homestead passes by descent or will to the spouse or decedent's descendants or to a trustee of a trust of which the spouse or the decedent's descendants are the sole current beneficiaries, it is exempt from all debts which were not valid charges on it at the time of decedent's death except that the homestead is subject to a claim filed pursuant to section 246.53 for state hospital care or 256B.15 for medical assistance benefits. If the homestead passes to a person other than a spouse or decedent's descendants or to a trustee of a trust of which the spouse or the decedent's descendants are the sole current beneficiaries, it is subject to the payment of expenses of administration, funeral expenses, expenses of last illness, taxes, and debts. The claimant may seek to enforce a lien or other charge against a homestead so exempted by an appropriate action in the district court.
What Other Situations Impact Judgment Liens?
There are many other circumstances that can affect a judgment lien. Real estate laws can be complex and tricky.
Here is a list of other issues that might impact a judgment lien:
- Registered or Torrens Property: Be aware that there can be added requirements for attaching the judgment lien to Registered (a/k/a, “Torrens) property and potential issues when collecting on it.
- Agricultural Property: If the debtor owns farm property, you will likely have to go through Farmer-Lender Mediation before trying to collect on the land. See Ch. 583 of Minnesota Statutes. There is a broad category of property, so the creditor must understand the nature of it before commencing any litigation or collection action.
- Bankruptcy: When the debtor files bankruptcy, there is an “automatic stay” which generally prevents creditors from taking any collection action on the debtor's assets. Also, a completed bankruptcy generally “discharges” the person's debts, so creditors may receive a portion or none of the debt. The judgment should also be wiped out (generally, upon a proper motion with the state district court). As such, the judgment lien will be extinguished.
- Assignments: The creditor sometimes assigns its rights in the judgment or lien to another creditor. If so, the “assignee” of the judgment has the right to collect, but generally needs to make a filing with the district court. While the debtor may assign his or her debts to another person (such as when a company sells assets and debts to another company), it often has little impact on the creditor's ability to collect on the judgment.
- Mistakes: The creditor must avoid making any mistakes when docketing the judgment or executing on land. If so, the debtor can ask the court to set aside an execution sale. There can also be an issue with the debtor's name. If you have the same name as someone with a judgment, you might be confused for that person (i.e., the creditor might target your assets for collection). The creditor must be careful to collect against the right person. If you close on real estate and someone with your name has a judgment, the closing company may have you record an Affidavit of Non-Identity or similar document. The real estate records will then show that you are not the debtor of the judgment and no judgment lien can attach to your land.
- Co-Ownership of Land: This can be a tricky issue. Be aware that when you co-own land with other people, their creditors could attach judgment liens to the land. This could impact your ownership interests in the land. Before you acquire land as co-owners, you should assess whether any of the co-owners have any judgments or creditors that could jeopardize the land.
- Tax Issues: Tax liens, foreclosures, and forfeitures can have very different rules and can impact other judgment liens. For a good summary of Minnesota tax judgments, see “The Delinquent Tax and Tax Forfeiture Manual.” For guidance on IRS liens and forfeitures, see the “Legal Reference Guide for Revenue Officers.”
Winning a civil lawsuit can be the start of a bigger battle in collecting on the judgment. Judgment liens can be an excellent option for a creditor to collect on a large judgment. On the flip side, this is a risk for a debtor that owns non-exempt land. If the debtor sells that land, there will likely be a title defect that they should resolve before closing.
The bottom line: the better you understand judgment liens, the better chance you have of protecting your interests in the judgment or your land.