The term “judgment” sounds final. But in the law, winning a judgment is just the first step in getting paid. Your next move is turning that judgment into money.
A judgment is a court order that gives you, the creditor, various rights to a judgment debtor’s property. Only the people who are named in the judgment are subject to it. Related companies or relatives of the judgment debtor are not automatically connected to the debt.
It takes time and effort to collect on a judgment. The good news is that any fees you spend pursuing payment of the judgment should be collectable. The bad news is that it can take quite a while to see any real money. A judgment lasts for 10 years, and can be renewed for another 10 years, for a potential total of 20 years. This is a long time, so you have plenty of opportunity to collect on it. Your debtor may not have money now, but he may in another few years.
The distinction between a judgment and a lien claim is worth noting here. A lien is an encumbrance on real property that allows you to foreclose on that property and get paid when that property is sold. You may not be the only one with a lien, however. A lien has the priority date of either the day the notice of commencement is recorded, or, if the notice of commencement has expired, the date the lien was recorded. If you foreclose on that property and you are successful, you have priority to get paid based on the date of your lien.
However, it’s all about the amount of equity on the property. If you have a $100,000 lien, for example, but the property, which is appraised at $175,000 and is subject to a first mortgage of $200,000, you have a property with no equity, and your lien is not worth anything.
What about bonds? These are rights you may have against the surety. If you prevail on a bond claim, you will have a money judgment against that surety. And if you do, you should wait 60 days. Because after 60 days, if the judgment hasn’t been unsatisfied, the surety will be reported to the state insurance commissioner and potentially prevented from selling any more policies in the state. One judgment is worth very little compared to not being able to write more policies. As a result, this strategy is often successful in seeking payment from a surety.
We find many of our clients are familiar with how to obtain a judgment, but are far less comfortable with and knowledgeable about how to collect on a judgment. This comes down to being experienced, creative and scrappy in pursuing debtors. Here’s what you need to know.
The expression “first in time, first in right” means that first judgments take priority. Your priority is the day you record a certified copy of your judgment in the county governing the debtor’s property. If any other liens or prior judgments are on that property, then they are in line for payment before you.
The rights to a debtor’s personal property are secured by docketing a copy of the judgment with the Secretary of State in the appropriate state. You will find a public database online for judgments in each state.
The most inexpensive, effective and quick collection tool is being able to locate the debtor’s bank accounts. This process is called garnishment, the ability to take money or property a debtor owes you from a third party holding that money or property. In this case, the third party is a bank. If you have a judgment and can identify a bank account in the debtor’s name, you can submit a writ of garnishment through the court to the bank. Money in the account sufficient to satisfy your judgment will be set aside, subject to exemptions. The most challenging aspect of a garnishment is finding the bank account. If you were lucky enough to have had the debtor pay you by check, and you kept a copy of that check, you will know where your debtor does his/her banking. There are also companies that find bank accounts for a fee. Garnishment is always our first attempt at seeking payment for a client.
The next way to get paid would be finding personal property, typically cars and boats. If you can identify any vehicles owned by the debtor – whether that’s a company or an individual – those items are subject to your judgment. Search the Uniform Commercial Code (UCC) database to see if there are any prior judgments on the item. Also determine whether there is any equity. Picking up a car or a boat is an expensive endeavor. You will need to get the sheriff involved. You will have to pay a company to tow and move the item, which will go to a bonded warehouse until it is brought to public auction. That intended sale also has to be published.
Following all these steps is costly, typically several thousand dollars. If a vehicle is only worth $3,000, that might not net you enough to make it worthwhile. That said, a vehicle is often crucial to your debtor’s ability to make money. Sometimes even the action of going to attach the car helps him “find” the money owed to you and you can see the debtor pay up.
In pursuing payment you can also look to the debtor’s equipment and inventory. It’s wise to check prior UCC claims to make sure you don’t pick something up that belongs to someone else with higher priority. Again, keep equity in mind. And most importantly, use a collection mindset. Picking up printing equipment might mean you need a costly forklift and it may not seem worthwhile. But, if you go to an office to clean out desks, chairs or computers, sometimes that’s disruptive enough that your debtor will pay up to avoid that business interruption.
Another though more expensive procedure is setting and taking the debtor’s deposition in aid of execution. This involves getting the debtor in during which you can ask about assets, what he makes, what he owes, where he banks, etc. If a debtor isn’t paying you, there’s a chance he will be less than forthcoming about his assets. This approach is not always successful, but it’s an option.
Here are few more approaches to getting paid that have been time-tested by our firm.
- Be the squeaky wheel. If you are dealing with judgment debtor who owes you money, be the person who is uber-persistent. The debtor will have you higher on his to-do list, even if that means starting a payment plan.
- Accounts receivable. Does anyone owe the debtor money? You can ask him, but you might not get an honest answer. Try to figure out ways to learn independently who may owe your debtor money that can become your money.
- If judgment debtor has lien rights on a job, that will be public record. Your judgment can access that lien.
- Notices of commencement. Figure out what jobs your debtor is working on, and you have an opportunity to garnish those wages.
- Open permits. If the debtor is doing work that requires a permit, you will be able to see who’s hired him. You can garnish that work in progress by sending notices to each of the general contractors.
- Proceeding supplementary. This means you can sometimes pursue third parties, and the assets of those parties, who are not the named judgment debtors. For example, maybe ABC Plumbing owes you money, and the business closed and opened XYZ Plumbing – to avoid the judgment. Do they have the same phone number? Same office? Same employees? The same board of directors? Show relationship between the debtor and some other identity, and you may be able to pursue that other business to satisfy the judgment.
You have come far enough in the process and obtained a judgment. Don’t stop now. Persistence paired with some detective work can pay off and get you paid for your work.