What is the difference between a judgment and a lien?

Understanding the difference between a judgment and a lien is challenging for lenders, debtors, paralegals ordering a lien search, and the general public, who are often confused.

A judgment is a formal decision made by a court regarding the rights and liabilities of parties in a legal case. On the other hand, a lien is a legal claim or right against a property to secure the payment of a debt or obligation. A lien can result from a judgment but can also result from independent consensual agreements such as loans or other financial contracts.

What is a judgment?

Investopedia explains this quite simply:

Judgment is a court decision, spelled out in a court order, that adjudicates (makes a formal judgment or decision) a dispute between two parties by determining the rights and obligations of each party. A judgment may require monetary compensation or transfer of property from one party to another. Judgments can also have non-monetary requirements, such as instructing one party to perform a service for the other.

The court system consists of various levels: trial, appellate, and Supreme Court. In these courts, evidence is presented, and decisions are made by judges or juries called judgments. Judgments may result in financial or non-financial implications for a debtor to make the creditor whole, and appeals can be made on these judgments.

What Is a judgment lien?

judgment lien is a court ruling that allows one party to take possession of another’s property, usually in satisfaction of a debt or similar obligation. A judgment lien enables the creditor to take over the debtor’s real or personal property, such as houses, vehicles, or other personal property.

How judgment liens work

If you owe money to a creditor and don’t pay, they may sue you for the balance. If the court rules against you, the creditor can file a judgment lien against you. A judgment lien is considered nonconsensual because it is attached to a piece of property without the owner’s consent or agreement.

A plaintiff who obtains a judgment is referred to as a judgment creditor, while the defendant becomes a judgment debtor.

The judgment creditor must record the lien in most states via a county or state filing. In a few states, if a court enters a judgment against a debtor, a lien is automatically created on any real estate the debtor owns in that county.

Once a judgment lien is filed with the appropriate authority, it becomes attached to the debtor’s personal or real property. Personal property refers to assets such as cars, appliances, or furniture, while real property refers to things like homes and other buildings or land.

What is a lien?

A lien is a legal claim that gives a creditor or lender the right to your property or assets if you fail to repay a debt. If you’re a homeowner with a mortgage, you’re likely familiar with a lien because you have one on your property until you pay off your mortgage.

Liens are used as a backup to help safeguard lenders’ investments and as a remedy for creditors to collect unsatisfied debts. When you offer collateral for a loan, the lender must guarantee that it can seize the property to recoup its loss if you default on your debt.  (experian.com)

 What types of liens are typical for a due diligence search?

The due diligence search involves thoroughly identifying, evaluating, and verifying all available information on a person, company, or entity. A due diligence check is essential when hiring or considering prospective business partners or new commercial relationships. A lien search is the main component of a due diligence search. Often requested by a lender or their attorney, lien searches can be made up of any or all these types of liens:

Real Estate Lien

A real estate lien gives a creditor the right to seize and sell real estate property if someone defaults on an agreement. Mortgages are typically real estate liens and are an example of a voluntary lien you agree to when you borrow money to buy a home.

Additional liens can be placed against your real property, which can be voluntary and involuntary. If you take out a second mortgage on your home or use your home equity as collateral for another loan, a second (or third) lien would be recorded against that property. In this case, the lienholders (the creditors) would be given priority based on when the lien was filed. Lien priority comes into play when you sell your home and dictates who gets paid first if the property is ever liquidated or foreclosed.

Bank Lien

A bank lien is a lien that gives a bank a legal right to assets you pledge as collateral for a debt or loan, such as a home, car, or personal loan. As such, the bank can seize the collateral and sell it to recoup its loss if you default on a debt.

Tax Lien

A tax lien is an involuntary lien placed on your property if you fail to pay state or federal taxes. Tax liens are given priority over all other liens, which means they must be paid first. Federal and state tax liens can be placed on assets, including personal property. When left unpaid for extended periods, tax liens could result in the forced sale of your property, at this time, all or some of the additional lienholders would be paid what they are owed from the sale proceeds.

Judgment Lien

A judgment lien is placed on your property or assets by a court that establishes you have an outstanding debt. Creditors who prove you defaulted on an agreement and owe them money can file judgment liens in local courts. As with other liens, the lienholders will be paid from the sale proceeds if your property is sold.

Mechanic or Construction Lien

Liens of this type must be filed through court and are placed against real property for which a contractor or subcontractor has performed work and was not paid by the property owner. A construction or mechanic’s lien can only be placed on the property the creditor worked on.

Child Support Lien

Most states allow liens to be placed on a parent’s property when they fail to pay court-ordered child support. These liens can be attached to real estate, vehicles, bank accounts, and other valuable assets.

Let’s not forget the UCC Lien!

A UCC search provides a listing from the public record of UCC Financing Statements filed by creditors to perfect their security interests by giving notice to the public.
When a UCC search is requested, the purpose is to uncover a possible list of these creditors/lessors and to view the collateral and assets previously promised, thus creating the lien.

 Fun Fact: Which is correct, ‘judgement’ or ‘judgment’?

We are asked this question all the time! According to Scribbr, Judgment and judgement are two different spellings of the noun for the act of forming an opinion, the ability to create an opinion, and the opinion itself. It also refers to a formal legal decision made by a court. The spelling varies based on whether you’re writing UK or US English.

  • In US English, “judgment” (no “e”) is the only correct spelling.
  • In UK English, “judgement” (with an “e”) is standard, but “judgment” is used in legal contexts.

While judgement is the standard spelling in most contexts in UK English, judgment is used instead in legal contexts. Various style guides, including Oxford Style, recommend this usage.

Are you still feeling a little overwhelmed?

It’s not a problem; we can help. Contact us and let us manage your requests or large projects, including lien searches and corporate retrieval. We will provide updates on your requests, detailed billing, and turnaround time information so you can concentrate on what you do best.

What is the difference between a judgment and a lien?

Resources: special note to Experian and Investopedia for the excellent description of liens.




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