How to Avoid Paying a Property Lien: Introduction to Strategically Removing Equity
For the purpose of this article, let’s assume a creditor has filed a statement of claim and is seeking judgment against you for $15,000. And you own a property worth $300,000 with a 1st mortgage of $200,000 owing. But you’re unemployed or in too high of debt to make a settlement on all of your debts.
So the creditor is about to get a judgment and you’re certain that they will want to lien your property (known as a writ).
How would somebody avoid having this happen to them? Well, you may not be able to avoid the judgment or the lien on your property but you could minimize the amount a creditor could receive by strategically removing the equity from your property.
The only way a judgment is any good to a creditor is if they lien an asset (usually a house) or garnishee a wage if the ‘debtor’ is unwilling or unable to repay an outstanding debt.
Now, strategically removing equity is actually a term we just made up because we’ve only seen this done once. It’s super rare and WAY out of the box thinking to ensure a creditor can’t get priority on your small amount of equity if/when your house is ever sold.
So in the above example with a creditor seeking judgment and a writ on your property for $15k, your land title would show the 1st mortgage of $200k then a $15k judgment, both of which need to be removed from the title if/when you sell your home.
But what if between the time you were served a statement of claim and the creditor obtained a judgment, you had added a second mortgage on your land title? Well that would take priority over any writ that may be added to your property later.
You do NOT need to go to a normal lender and apply for a loan here, simply to add a second mortgage charge which could be done by an acquaintance lending you a nominal sum of money. Then down the road (like right before your house sells), extend that 2nd mortgage for the total amount of equity in the house so only 1st and 2nd mortgage are paid off from the sale.
Have a friend or family member lend you $1,000 – $5,000 as a 2nd mortgage against the property which will take a priority order ahead of any future charges that could be made against the title. If your ‘loan’ from the person is repaid over a certain term just simply ‘renew’ the loan with the family member or ‘extend’ the loan for up to the total value of equity in the property.
Hopefully we were clear here with the above concept. The point is that the 1st mortgage will always be there and needs to be repaid whenever the house is sold. The second mortgage through a lender/friend/family member ‘strategically removes the equity’ available to future creditors.
If you later renew the 2nd mortgage for $70,000 and the property is sold at some point for $300,000. The 1st mortgage, 2nd mortgage and relator/legal fee’s of the sale will take priority without funds left over to repay a judgment.
Disclaimer: The above article is for reference only and is not a suggestion on a way for people to handle a possible judgment. If you have been served a statement of claim, it is recommended that you seek legal counsel immediately… then go put a 2nd mortgage on your house so that a writ won’t take priority if you ever sell it….