Bulletin: MI000023

Dear Associates:

Until September 1, 2004 it was very difficult for a creditor to collect amounts due from non-paying debtors. The creditor first had to go to court and obtain a money judgment, conduct a creditor's investigation to find assets and income sources of the debtor, garnish bank accounts and waged and if all else failed go through the time and expense required to levy and execute on personal and real property.

The legislative by amendment to the Revised Judgment Act of 1961 has established a method by which judgment creditors may obtain judgment liens against real property of a debtor. This legislation places Michigan in alignment with the vast majority of states.

This bulletin is intended to provide guidance in underwriting title insurance in light of, this new form of lien on real property. A judgment lien will only attach if a notice of the judgment is recorded in the land records of the county in which the land is located. The lien attaches when the notice is recorded or when the judgment debtor acquires an interest in land if a notice was recorded before the title or interest was acquired.

The Notice of Judgment Lien must be certified by the clerk of the court that entered the judgment certifying that the notice was filed with the court and that it includes the following:

1.  The cause caption and docket number;
2.  The current name and address of the judgment creditor and if the creditor has an attorney the name of the attorney.
3.  The last four digits of the debtor's social security number;
4.  The current balance owing on the judgment;
5.  The date the judgment was entered by the court; 
6.  The date the judgment lien will expire;
7.  The signature of the creditor or the creditor's lawyer.

A judgment lien will expire 5 years after the date it is recorded or on the date stated in the notice which ever is first to occur. The expiration date of the judgment lien may be extended for an additional 5 years provided that not less then 120 days prior to the expiration date of the lien under the first recorded notice a second notice has been certified by the clerk of the court that entered the judgment and recorded. The second recorded notice must be certified in the same manner as the first recorded notice.

There are certain real property interests to which a judgment lien will not attach or have priority over.

Tenants by the entirety:

The lien will not attach unless the judgment is against both the husband and wife.

Other interest and encumbrances:

Judgment liens do not have priority over:

1.  A purchase money mortgage of the debtor.
2.  A mortgage obtained to refinance a purchase money mortgage or a subsequent refinance of such purchase money debt, but only to the extent the processes were used to refinance the purchase money mortgage, or refinance of a non-purchase money mortgage, which was recorded before the Notice of Judge Lien was recorded.
3.  A future advance mortgage and or advance, thereon whether made before or after recording of the Notice of Judgment Lien, provided the future advance mortgage was recorded before the Notice of Judgment Lien.
4.  A judgment lien is also junior to the priority of liens crated by operating of law; federal and state tax liens; construction liens; and condominiums and homeowner association liens, if provided for in a recorded condominiums declaration or in recorded restrictions that run with the land.

Underwriting Guidelines:

Insuring when a Notice of Judgment Lien is of record and not expired:

1.  Tenants by the entirety

a.   If only one spouse is the judgment debtor the notice should be excepting in the commitment but may be eliminated when the policy is issued if both spouses are grantors in the deed or mortgage to be insured.
b.  If both spouses are judgment debtors the guidelines stated below will apply.

2.  Insuring a sale or a mortgage by Judgment Debtor or by a subsequent purchaser if the Notice of Judgment Lien was recorded at time or such mortgage or purchase.

a.  Except the notice of judgment lien on the commitment together with a requirement that a discharge of judgment lien be recorded. 
b.  Exception: "Judgment lien in the face amount of $* disclosed by Notice of Judgment Lien recorded * 200*, in Liber  * Page*, in the office of *The County Register of Deeds."
c.  Requirement: "Discharge or Partial Discharge of the judgment lien disclosed by the Notice of Judgment Lien accepted by exception no. * of this commitment."

3.  Owners and loan policy commitment for a purchase or mortgage on property being purchased by a judgment creditor.

a.  The commitment must include an exception to the judgment lien disclosed by the Notice of Judgment Lien.
b.  When the commitment is for a loan policy a note or requirement in the commitment may state that the exception will not be an exception in the loan policy. However it should be disclosed on schedule B II to loan policy.
c.  The exception must be included in schedule B of the owner's policy when insuring an interest being acquired by a judgment debtor.

4.  Mortgage refinance transactions

a.  The judgment lien must be accepted in the commitment.
b.  Requirement for a discharge of the lien must be made in most cases.
c.  A note or a requirement may state that if all processes of the mortgage to be insured are use solely to repay an existing purchase money mortgage; a sequent refinance of a purchase money mortgage; or of a non purchase money mortgage that was recorded be for the recording of the Notice of the Judgment Lien. The judgment lien will not be accepted in schedule B I of the loan policy. The judgment lien should be disclosed in to schedule B II of the loan policy.

5.  Closing a transaction when it is necessary to obtain the discharge of a judgment lien.

a.  The closer must review the commitment and determine the priority of all mortgage and other liens on the property.

Remember:
Construction liens; state and federal tax liens; condominium and homeowner association liens and liens created be operation of law (the court) have priority over judgment liens even if recorded after the Notice of Judgment Lien is of record.

Note:
Where there is not be sufficient proceeds to pay the judgment liens the judgment lien creditors must give a partial discharge for the property when paid the amount of available proceeds after all senior liens are paid. This is true even if there are no proceeds available to the pay the judgment creditors.

b.  If the available proceeds will not satisfy the judgment lien the closer may still require a Partial Discharge of Judgment Lien, the closer discharge the subject property. This obligation to issue a discharge exists even if there will be no proceeds available to pay the creditor. You must require the creditor to submit a partial discharge, and recording fees and the law obligates the creditor to comply with the request.

c.  The closer should contact the judgment creditor or it's attorney, disclosed on the recorded Notice of Judgment Lien prior to closing and ask that a pay off statement be provided in writing for the closing. The closer should further require that a Discharge of Judgment Lien be submitted with the pay off demand so that you can insure it is recorded.

Note:
The creditor or its attorney may include instruction with the discharge limiting the closer's right to record the discharge. Make certain such instructions are reasonable and that they can comply with them.

The Act provides penalties against a creditor who fails to record discharges as required by the act. Nonetheless, it is better practice that you handle the recording of a discharge. Based upon our experience with lenders, we all know recording discharges is a back burner item.

On occasion you will have a party who states that the judgment lien is not against him or her. If this occurs you must request that the party produce his or her social security card so that you can determine whether or not that last four digits on the card are different then the digits on the Notice. If the digits do not match the digits on the Notice you may ignore the Notice of Judgment Lien and remove lien as an exception on the title commitment and policy.

Attachments

Exhibit A:         _______________

Exhibit B:          _______________