Nov 2011

Judgments and the affect on Title Insurance in PA

By Marc Shaw

How Judgments affect the ability to obtain Title Insurance in Pennsylvania for Mortgage Financing in Pennsylvania

What is a Judgment?

A judgment is the final verdict of a court of what each party is forced to do after the proceedings of a lawsuit. In a civil case, the judgment is a money reward that is given to the plaintiff. The enforcement of this judgment by the plaintiff is outside of the scope of the courts power. Collecting on the judgment is often difficult and at times the plaintiff may have to agree to a lesser amount then the court awarded to obtain anything. Many times the judgment is ignored by the defendant and is never paid.

Judgment creditors such as common, traditional, creditors to which unsecured debts are owed, such as credit card debt, hospital and other medical bills, unsecured lines of credit, personal service loans and most trade debts have no unique status as a result of a statute or consensual lien or security interest. The creditor must first sue the borrower based on the promise to pay and the agreed upon terms. The lawsuit is commenced with the county Court of Common Pleas, and a non-consensual “judgment” has been entered in favor of the plaintiff, thus the “judgment creditor.”

Once a judgment is provided by a Court creating a judgment lien is done by sending a certified copy of the judgment for recordation with the County Recorder. Once recorded, the judgment automatically creates a judgment lien on all real estate owned or later purchased by the debtor in that county. A judgment lien lasts for five years, but the judgment creditor can renew the judgment for additional five year periods by filing a renewal with the clerk of court and the county recorder. Hence, a creditor holding an unsatisfied judgment should be sure to track the expiration of the judgment lien so it doesn’t accidentally expire without renewing.

Other judgments can be a result of statutes.  For instance, a federal IRS tax lien or Pennsylvania state tax lien automatically becomes a judgment and does not expire.

How a Judgment affects the ability to issue Title Insurance in Pennsylvania:

Mortgage Financing:

Collection on these judgments and how they impact mortgage financing as a “title issue” in Pennsylvania is quite simple to understand.

Judgments can go un-satisfied for years but when the judgment debtor attempts to refinance an existing loan or obtain a new mortgage against real property, the lien will have to be paid or else the transaction will be uninsurable for the new creditor. No bank will provide a mortgage on a property that would be taking 2nd lien position.  So any judgment liens that are brought up during the title search will need to be paid or at least negotiated with the judgment holder if the borrower wants to conclude the transaction.

Pennsylvania Home Buyers:

Home buyers obtain Pennsylvania title insurance to make sure that the seller has the right to sell their property. Practically all Pennsylvania purchase agreements signed provide for the seller to deliver “marketable title” on a property, which means there are no liens or legal judgments against the seller.  If a properties title search includes liens or judgments against the seller, then those liens or judgments would become the responsibility of the buyer if the seller did not resolve the liens before passing the title over to the buyer. This is one of the many reasons it is common practice for a buyer to purchase a title policy when purchasing a home as to avoid taking on financial responsibilities of the seller.

Other Posts Related that May be Interesting:

Mechanics Lien Coverage in Pennsylvania

How to Choose a Title Company in PA