(Note: the author is not an attorney, and this article should not be construed as legal advice. Readers are strongly encourage to speak with a qualified attorney for all legal matters)
Quite often, we get calls from borrowers in a panic. They got a letter from the banks lawyer, and the bank is seeking a personal judgment against them. People don’t always know exactly what that means, but they know it ain’t good.
While we are not attorneys, we have seen enough personal judgments to have a firm understanding of what a judgment means and what borrowers stand to lose personally, so here’s the deal:
When a personal judgment is granted against you, what’s basically happened is that your bank went to court with all the loan documents that you signed and say “Hey judge, Mr. Smith promised to make payments according to the terms listed on this piece of paper. He has violated the terms of our agreement, and we would like you to give us permission to take his stuff and sell it so we can get our money back.” At that point, the court will give you the chance to respond to the banks allegations. If for example, they got the wrong guy, or you never actually signed the documents, you could go to court and tell them that the banks allegations are false. In most cases, borrowers never respond, and the court will grant a default judgment, meaning no defense was put forth so the judgment was granted.
Now that the bank gets its judgment, they have the legal right to go after your personal property and earning. Typically, the most popular asset that a bank will try to go after is your home. Even though it probably won’t result in a foreclosure, the idea of a judgment lien is to attach it to a property. If the owner ever tries to sell the property, ownership cannot be legally transferred without the judgment lien being satisfied. The whole idea is that the property owner can’t skip out on a debt, then walk away from the sale of a home with cash.
Another way that a lender can enforce a lien is through wage garnishment. If a lender knows that a borrower has a job, they can seek to get payments taken out of the borrower’s paycheck.
While a judgment may not result in losing property, it is likely to show up on your personal credit report. That means any time you apply for credit in the future, potential lenders will see that you borrowed money from another lender and didn’t pay it back. For most lenders, this means an automatic decline.
Overall, it’s always a smart idea to try and settle with your lender so they don’t resort to a judgment. If you are willing to cooperate with a lender, they won’t seek a judgment against you unless a deal can’t be worked out. Working with a firm like Distressed loan Advisors can help you settle the debt and avoid a judgment, so if you are behind on debt, contact us today before its too late for us to help you!