You’ve reached the end of the actual litigation and received a judgment. Now what? The initial answer is simple: enforcement and collection! There are many steps to take on the path to converting the judgment to cash. Some of the prior articles on this blog illustrate the complexity of converting the judgment to cash, but one of THE most important steps to take is the creation of a judgment lien. This article provides some hints and recommendations on how to subject a judgment debtor’s assets to a judgment lien.
The Tennessee Rules of Civil Procedure provide general insight into this process. Rule 69 sets forth the various ways to execute on a judgment. At first blush, these rules seem complete yet there are specific statutes that should also be considered to make sure the creditor is fully encumbering a debtor’s interests. The general belief among most creditors is that recording a copy of the judgment in the Register of Deeds’ records in the county where the judgment debtor resides or has property is sufficient to create a judgment lien on real estate. While this is a true statement, such an action alone does not create a complete lien!
In order to fully subject a judgment debtor’s legal AND equitable interests, an abstract of judgment must be filed. While both T.R.C.P. 69 and T.C.A. § 25-5-101(b) provide for the creation of a lien upon the debtor’s real estate once a certified copy of the judgment is recorded, they do not address equitable interests, and also do not address a debtor’s future acquired interests. T.C.A. § 25-5-101(c) is the first to shed light on this by stating that third-parties will be subject to a judgment creditor’s lien only after an abstract is recorded.
Similarly, T.C.A. § 25-5-102 states that “[a] judgment or decree shall not bind the equitable interest of the debtor in real estate or other property until a[n] … abstract of the judgment or decree … is registered in the register’s office of the county where the real estate is situated.” Thus, only after filing an abstract will the debtor’s complete interest be encumbered. The contents of the abstract are found in T.C.A. § 25-5-108, and provides that the names of the parties to the action are to be listed along with the amount of the judgment and the date of the judgment. The abstract must also be issued by the clerk of court (i.e., the clerk of the court from which the judgment was issued) or the sheriff. A certified copy of the judgment should also be attached.
Filing an abstract not only subjects the real property, but also certain personal property. T.C.A. § 25-5-103 provides that “[a]n execution [on the judgment] shall not bind the debtor’s legal or equitable interest in stock, choses in action, or other personal property, not liable at law, unless [an] abstract is registered within sixty (60) days from the rendition of the judgment.” Such an abstract must be registered in the county where the debtor resides, or if the debtor resides out of state, then in the county wherein the property is located.
The cost to obtain an abstract is nominal, costing less than $100.00 to receive and register, but the failure to do so could be very high. Solely relying on the recording of a certified judgment fails to capture the full benefit of the judgment lien, so creditors would be wise to go ahead and record an abstract.
For more information on this topic, please do not hesitate to contact us! Ronn can be reached at [email protected] or at (615) 465-6010.