Cannot Get a Home Loan Because of an Old Judgment?

by Gary on December 26, 2012

The other day I had a call from a potential client who told me about an old credit card debt that was keeping him from getting his mortgage refinanced. “I had a credit card debt that I believe was essentially $5,000 – 10,000 that went to judgment after a default was taken against me,” he said. “The judgment was abstracted and is now at or around $30,000. A lien has been placed on my home which is homestead - Is that legal in Texas? I am attempting to negotiate this debt and they are continuing to demand upward of $20,000.”

First let me clear up a misconception. Involuntary liens, like judgments, are not placed against specific properties. Instead, an “Abstract of Judgment” is filed in the county records and then attaches as a lien to any non-exempt assets of the debtor in the county.

But credit card judgment liens cannot and do not attach to homesteads. So, while this judgment is filed in the county, it does not actually attach to the homestead.

That said, if you want to sell the home, or refinance the home, the title company will usually require a release of the lien against the homestead. In that sense, if you cannot sell or refinance without title insurance and you cannot get title insurance unless the lien is cleared, then the lien is said to “cloud” the title to your property. It’s not attached, it’s just that the title company will not issue insurance while the lien is out there. That’s a business decision the title insurance company makes, not a legal decision. The lien is a risk they don’t want to take on because they cannot be sure that the property has been your homestead the entire time the judgment has been outstanding.

Can I fix this problem?

How do you go about trying to get the title cleared?

First, you can draft a partial release of lien and write a demand letter to the judgment creditor, or its attorneys, insisting that they provide a partial release of lien for you on the homestead. They may insist on some kind of affidavit that the property is, and has been throughout the life of the judgment, your homestead.

Or, the Texas Property Code sets forth a procedure to contact the judgment creditor and request a release. If you follow all the procedures in the Property Code and if the judgment creditor fails to provide the partial release, you can record an affidavit in the property records to show that the property is your homestead. The title company is then supposed to be able to rely on that affidavit and the property code procedure to issue a title policy. The Property Code section is 52.0012 and the Property Code can be found at this website:

The problem with the Property Code method is that it takes at least 30 days. Sometimes people are in a bigger hurry to close on a transaction. In that case, the title company may offer to simply hold a judgment payoff in escrow until the lien release is received. Or, you can pay the judgment off “under protest” and sue later to recover the amount paid.

My general approach depends on whether the release is needed very soon or not. If it is needed soon, then I write a letter to the judgment creditor’s attorney, together with the form of partial release of lien and an affidavit from my client. I then follow up with phone calls and faxes to try to get them to sign the release. In the mean time, I may start the formal Property Code method, too. Finally, if no release is in sight then I try to get the title company to close and pay the judgment payoff “under protest,” followed by a lawsuit against the judgment creditor to recover the funds and attorney’s fees.

The vast majority of the time, the judgment creditor’s attorney will timely provide a partial release of lien. They are certainly aware of the law and they know that they can be held liable for any damages for failure to provide the partial release. Sometimes a letter from an attorney, though, gets action from them where a debtor acting all by him or herself does not work. Indeed, in my experience, judgment creditors’ attorneys sometimes try to extract a payment to issue the partial release when they are dealing with the debtor personally. But, they know better than to try that with a an experienced consumer credit attorney.

If you are facing a problem with an old judgment clouding title to your homestead, consult with an attorney as soon as you become aware of the problem so that he or she can take steps to solve the problem, hopefully without delaying your closing.

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