Quick Answer
Yes, a judgment can prevent a real estate closing if it creates a lien affecting the property or seller and cannot be appropriately satisfied, released, subordinated, excluded, or otherwise addressed in a manner acceptable to the title insurer before closing.
Whether a judgment stops a closing depends on several factors. The title company evaluates each judgment individually to determine what is required.
Does This Judgment Affect This Property and This Transaction?
The title company examines whether the judgment:
- Actually names the seller (or a person with the same or similar name)
- Was entered in a court with jurisdiction over the debtor and the property
- Has been properly recorded or docketed to create a lien under applicable state law
- Was recorded in the correct county where the property is located
- Has not expired under the applicable statute of limitations
- Has not already been satisfied
- Creates a requirement the title insurer cannot waive or insure over
Possible Outcomes
- Doesn't belong: The judgment is against a different person with a similar name. The title company obtains clarifying documentation.
- Doesn't attach: Under state law, the judgment does not create a lien against this specific property.
- Already satisfied: The judgment was paid but the satisfaction was never recorded. A recorded satisfaction resolves the issue.
- Payment required: The judgment must be paid from the seller's proceeds at closing. A payoff is obtained and the judgment is satisfied.
- Release required: The judgment creditor must execute a release of the lien.
- Legal review: The judgment may be subject to dispute, requiring attorney involvement.
- Delayed: If the judgment cannot be resolved in time, closing may be postponed.
Example
A seller named John Williams has a judgment lien of $12,000 against him in the county where the property is located. The title search identifies the judgment. At closing, $12,000 plus accrued interest is paid from the seller's proceeds. A satisfaction of judgment is filed. Closing proceeds.
WHAT SHOULD THE SELLER DO?
If you know or suspect you have a judgment, tell your title company immediately. The earlier the title team knows about a judgment, the more time there is to obtain payoff information and determine the requirements.
The best approach is to open title with 1st Option Title early so any judgments can be identified and addressed before the closing date.
FAQs
Can a judgment against a spouse affect a jointly owned property?
Possibly, depending on state law regarding tenancy by the entirety, community property, or other ownership structures. The title company evaluates based on applicable law and the specific facts.
Can bankruptcy discharge a judgment lien?
Bankruptcy may discharge the personal obligation to pay a judgment, but whether the lien itself is extinguished depends on the type of bankruptcy, the nature of the lien, and applicable law. Consult a bankruptcy attorney.