Many property owners facing bankruptcy misunderstand the distinction between personal financial obligations and real property liens, often leading to complications when selling or refinancing property. This is especially true for judgments that remain attached to the property even after personal debts are discharged through bankruptcy.
Consider the case of Mary Smith. She owed money to “Credit Card Company X,” which obtained a judgment against her and recorded it on her property. After filing for bankruptcy and receiving a discharge, Mary believes her debt is fully erased. However, while her personal liability to repay “Credit Card Company X” is discharged, the judgment attached to her real estate remains unless specific steps are taken to remove it.
In such cases, property owners need either an Order to Avoid Lien from the bankruptcy court or a release from the creditor. Without this, the judgment continues to encumber the property, affecting its marketability. This oversight can lead to problems during closing, often resulting in delays or, in some cases, failed sales.
Proactive Steps to Resolve Post-Bankruptcy Judgments:
- Order to Avoid Lien: Property owners can file with the bankruptcy court to remove the lien attached to their real estate.
- Negotiate a Release: If no court order is available, negotiating with the judgment holder for a release of the lien is essential.
- Review the Title Report: Agents must ensure that any outstanding judgments are addressed before closing. If the title report shows a lien, the agent should inquire whether the property owner has obtained an Order to Avoid Lien.
Conclusion
Navigating post-bankruptcy property transactions can be intricate, but resolving liens in advance ensures a smooth closing process. Proactive management of these judgments saves both property owners and real estate agents from unnecessary complications. Timing is crucial, and for property owners, catching the right moment in the market can mean securing favorable financing conditions or locking in a mortgage before rates rise. If the market dips, pulling the trigger on a purchase or refinance can offer advantages. Rates may even decrease later, allowing for refinancing into a better deal. Knowledgeable agents from Boutique Property Management play an invaluable role in guiding owners through these complex situations, ensuring that all loose ends are tied up before closing.