Recording Priorities when Real Property is Transferred After an Abstract of Judgment is Recorded under California Code of Civil Procedure Section 697.390
When a creditor records an abstract of judgment in California, a lien is created that attaches to all real property in the name of the debtor in the counties where the abstract is recorded. This creates a problem for sellers who acquire a property subject to a judgment lien and for debtors with a judgment lien that has attached to their real estate. This means that, when the owner of a property that is subject to a judgment lien transfers their interest in that property, the new owner(s) take that property subject to that judgment lien under California’s first in time, first in right system of recording. Despite these challenges, this article by an experienced California real estate attorney presents various methods to sell or transfer the property without the lien, or to resolve a lien that is already on the property with or without the creditor’s consent.
Recording an Abstract of Judgment Creates a Lien on All Real Property in that County for 10 Years – Code of Civil Procedure § 697.310
This system allowing judgment creditors to maintain their lien after a transfer of real property is set forth by statute. Specifically, Code of Civil Procedure § 697.310, entitled “Creation and duration of lien generally,” provides in Subsection (a) that: “Except as otherwise provided by statute, a judgment lien on real property is created under this section by recording an abstract of a money judgment with the county recorder.” In turn, Subsection (b) explains that: “Unless the money judgment is satisfied or the judgment lien is released, subject to Section 683.180 (renewal of judgment), a judgment lien created under this section continues until 10 years from the date of entry of the judgment.”
Property Transferred After a Judgment Lien Remains Subject to that Judgment Lien
Related thereto, Code of Civil Procedure § 697.390(a), entitled “Interest subject to lien transferred or encumbered,” provides that:
If an interest in real property that is subject to a judgment lien is transferred or encumbered without satisfying or extinguishing the judgment lien: … The interest transferred or encumbered remains subject to a judgment lien created pursuant to Section 697.310 in the same amount as if the interest had not been transferred or encumbered.
As one court explained: “When real property encumbered by a duly recorded abstract of judgment is transferred, the transferees are charged with constructive knowledge of the encumbrance and they take title to the property subject to the lien created by the abstract, not as bona fide purchasers. (§ 697.390, subd. (a); Gov.Code, § 27326.)” Fed. Deposit Ins. Corp. v. Charlton (1993) 17 Cal.App. 4th 1066, 1069–70. The Charlton court continued that “an abstract of judgment…makes the judgment creditor a secured creditor (Laubisch v. Roberdo (1954) 43 Cal.2d 702, 707) and, by statute, can be extinguished only by the recording of an acknowledgment of satisfaction of the underlying judgment or by the judgment creditor’s release of the lien (§ 697.400, subds. (a), (c); Songer v. Cooney (1989) 214 Cal.App. 3d 387, 391–393).”
As another court explained “those sections, [the creditor] may enforce his judgment in the same manner and to the same extent as if the property had never been transferred. (See Oliver v. Bledsoe (1992) 5 Cal.App.4th 998, 1009 [lienholder’s rights against the property remain as they were before the transfer].)” Dieden v. Schmidt (2002)104 Cal.App. 4th 645, 652.
As a California court explained in 2019: “The purpose of the recording statutes is to protect purchasers of real property by giving them notice of all existing and outstanding estates, titles, or interests in the property, whether valid or invalid, which may affect their rights as purchasers…. [The transferee] therefore received the property subject to that interest. A conveyance of real property subject to a judgment lien does not affect the lien, which can be enforced against the transferee. (Dieden v. Schmidt (2002) 104 Cal.App. 4th 645, 651, citing Code Civ. Proc. § 697.390, subd. (a).) There is accordingly no basis for removing the judgment lien.” Longview Internat., Inc. v. Stirling (2019) 35 Cal.App. 5th 985, 991.
The leading treatise on California real estate, Miller & Starr, explains the “Priority over subsequent purchasers and encumbrancers” as follows: “The judgment lien secures and preserves priority of the judgment over persons who acquire rights between the date of the judgment lien and the execution sale. (Federal Deposit Ins. Corp. v. Charlton (1993) 17 Cal. App. 4th 1066, 1069.) The lien remains on the property after a transfer or encumbrance of the property and is enforceable against parties who acquire a subsequent interest in the property, except a bona fide purchaser or encumbrancer. (Code Civ. Proc., § 697.390; Federal Deposit Ins. Corp. v. Charlton (1993) 17 Cal. App. 4th 1066, 1069.) Relation to subsequent interests, 4 Cal. Real Est. (Miller & Starr 4th ed.) § 10:126.
As The Rutter Group also explains: “Property subject to a real property judgment lien that is transferred or encumbered without satisfaction of the lien remains subject to the lien—just as if no transfer or encumbrance had occurred. [CCP § 697.390(a)…]” Property Transferred Subject to Real Property Judgment Lien, Cal. Prac. Guide Enf. J. & Debt (The Rutter Group 2020) Ch. 6B-7, ¶ 6:209.
Witkin reaches the same conclusion: “Where an interest in real property subject to a judgment lien is transferred or encumbered, the interest remains subject to an existing and unsatisfied judgment lien…in the same amount as if the interest had not been transferred or encumbered…. (C.C.P. 697.390(a) [additional case citations].)” Transfer or Encumbrance of Interest., 8 Witkin, Cal. Proc. 5th Enf. Judgm. (2020) § 78(1)(a).
California Jurisprudence provides that: “When real property encumbered by a duly recorded abstract of judgment is transferred, the transferees are charged with constructive knowledge of the encumbrance and they take title to the property subject to the lien created by the abstract, not as bona fide purchasers.” 30 Cal. Jur. 3d Enforcement of Judgments § 67 (citing Dieden v. Schmidt (2002) 104 Cal. App. 4th 645).
How to Transfer Real Estate with a Judgment Lien
This doesn’t mean that judgment debtors and those who take their interests in real property from judgment debtors are without a remedy.
A skilled real estate attorney may be able to raise issues in a quiet title action as to the validity of the abstract of judgment as attaching to the property. Even further, abstracts of judgment generally expire after 10 years unless they are renewed, meaning the judgment may already be void. There may also be issues as to whether the judgment debtor named in the abstract of judgment matches the owner of the property at the time it was owned. There are also a number of exceptions and defenses, such as equitable subrogation, that can apply.
Further, a bankruptcy lawyer can determine if the lien can be removed from the property through Section 522(f) of the bankruptcy code, or through a reorganization in Chapter 13 or 11 involving a lien strip. Even further, once the property is deemed to have no value beyond the homestead exemption, property with no value beyond the exemption can generally be transferred without fear of a valid fraudulent transfer action.
Even further, supposing everything is proper the judgment creditor may not be able to collect on their judgment if the debtor can claim a homestead in California.
Under all circumstances, judgment creditors are usually inclined to take money to go away, rather than trying to collect by levying on their judgment by having the sheriff sell the house. One reasons is that any buyer takes the property subject to any liens before the judgment lien, such as a first mortgage, as well as any super-priority liens, such as unpaid property taxes.
Contact a Skilled Lien Priority Lawyer in California
If you’ve received a notice of levy, a copy of an abstract of judgment, or received a preliminary title report from a title insurance company with a surprise judgment, contact an experienced real estate attorney or bankruptcy attorney in California to understand your rights.
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