Broke up with ex-fiance and he sued for work done in my home. Court awarded him $13,000 via lien when home sells. Tried to refinance for lower interest rate and bank says he needs to "subordinate the lien." What does this mean exactly? Is there anything else I can do? Bought new car and had good credit rating but the outstanding judgment made interest rate go from 2% to 6%. Should I consider bankruptcy? Would that help?
1 Answer from Attorneys
Judgments are automatically indexed as a lien against real property. Currently, you have a mortgage which is in first priority and next would be the judgment lien. When you refinance though, it usually entails recording a whole new mortgage. The problem is that when the old mortgage is paid with the proceeds of the new mortgage, the judgment lien would move up in priority to first place and any new mortgages would be in second place. No mortgage lender is going to let this happen and in order for them to get into first place then the holder of the judgment lien would have to agree to subordinate the judgment lien or make it be in second place. Doubtful that the ex-fiance is going to do this here. The fact that he sued you for $13,000 in work and that he broke up with you leads me to believe that he does not exactly have warm and fuzzy feelings for you any more so that he would not agree to subordinate unless you make it worth his while.
Is there anything you can do besides file bankruptcy? Yes, but it depends on your income/assets and what you want to do. You are not going to be able to refinance if you file bankruptcy either. And bankruptcy does not automatically discharge a judgment lien. Your bankruptcy attorney, if you filed, would have to make a motion to get the lien discharged to the extent that it impairs your exemptions. The problem I see though is that the ex-fiance made some repairs to the home and you get the benefit of that so I am not entirely sure that a bankruptcy court would wipe this out. I don't know - I am not a bankruptcy attorney and while I understand the basic process in counseling clients with debts, I am not sure how something like a judgment lien for home improvement would be treated.
You should have bought the car before the judgment was entered. Now you are stuck and you cannot modify car loans unless you file a chapter 13 bankruptcy. You would be better off getting someone with better credit to refi the car note in their name (like a family member or really really close friend or relative). You have to structure this right but it could be done.
How else is this affecting you? The judgment is going to get bigger (it earns 6% interest per year and accrues on a daily basis). While credit card companies will usually settle, he is an ex-fiance and there might not be much incentive to do so unless he really needs his money. If you can handle this financially, I would do nothing. Try to work something out on the car loan and if you can't then just accept it and move on. After 5 years, the judgment is not enforceable against real property unless its renewed. That does not mean the judgment goes away - its still enforceable against personal property (including bank accounts) for 20 years. However, the longer the judgment is unpaid the more amenable to settlement your ex-fiance will be. At some point, if you are able to save $6500, you can always approach him and see if this can be settled for less than the judgment amount.
It would not hurt to consult with a bankruptcy attorney as well. Many attorneys give free consults. It costs money to file for bankruptcy and you need to weigh the costs involved against your debts. Bankruptcy stays on your credit report for 7 to 10 years and you would not be able to refile for 4-8 years depending on the kind of bankruptcy you file now. So its not without its own consequences. If the judgment is your only debt besides your car and mortgage, I am not sure that I would file.
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