Liens & Judgments

In general, liens are legal claims placed on a property to secure the payment of a debt, while judgments are court orders confirming the debtor's legal obligation to repay a debt. Understanding liens and judgments is essential in the intermediate mortgage lending process to assess property ownership, prioritize claims, and evaluate the creditworthiness of borrowers. Let's explore each concept in detail:

Liens

A lien is a legal claim or encumbrance placed on a property or asset to secure the payment of a debt or obligation. It serves as a form of collateral, giving the creditor the right to satisfy the debt by seizing or selling the property if the debtor fails to meet their payment obligations.

Key characteristics of liens include:

• Types of Liens: There are different types of liens that can be placed on a property. Common examples include mortgage liens, where a lender has a claim on the property as collateral for a mortgage loan, and tax liens, which are imposed by the government for unpaid taxes.

• Priority of Liens: Liens can have different priorities depending on when they were recorded or filed. The priority determines the order in which liens are satisfied if the property is sold or if there are insufficient funds to repay all creditors. Generally, liens are prioritized based on the date of recording or filing, with earlier liens taking precedence over later ones.

• Impact on Mortgage Lending: In the mortgage lending process, liens play a crucial role in determining the eligibility and loan terms for borrowers. Mortgage lenders typically conduct a thorough lien search to identify any existing liens on the property. The lender will ensure that their mortgage lien will have a superior position to other liens, providing them with the primary claim in case of foreclosure or default.

Judgments

A judgment is a court order that confirms the legal obligation of a debtor to repay a debt owed to a creditor. Judgments are typically obtained through a lawsuit or legal proceedings initiated by the creditor to recover outstanding amounts.

Key characteristics of judgments include:

• Legal Validation: Judgments are obtained through a legal process where the creditor files a lawsuit against the debtor. If the court determines that the debt is valid and owed, it issues a judgment in favor of the creditor, requiring the debtor to pay the owed amount.

• Public Record: Judgments become public records and are typically recorded in the county or jurisdiction where the lawsuit was filed. As public records, judgments can be accessed by credit bureaus and other interested parties, including mortgage lenders, during the underwriting process.

• Impact on Mortgage Lending: Judgments indicate a history of debt default and legal action, which may raise concerns for lenders. Mortgage lenders typically consider judgments as outstanding debts that need to be repaid and may affect the borrower's debt-to-income ratio and overall creditworthiness.

It's important to note that liens and judgments can have serious implications for borrowers in the mortgage lending process. Mortgage lenders conduct thorough checks to identify any existing liens or judgments on the property and assess the associated risks. Borrowers are generally required to address outstanding liens and judgments or provide sufficient documentation to demonstrate that they have been resolved or paid off before obtaining a mortgage loan.