Q. How do you go about putting a lien on someone's property? What documents are necessary? I have an overdue personal note for several thousand dollars from a one-time "friend" and I have reason to believe that he is not going to pay me when his house is sold. This troubles me, especially because he will be selling at a considerable profit. I believe there are no debts other than a first mortgage on that property. Would a lien be the best way to extract this money, which is rightfully owed me?
A. Clearly, your first mistake was lending money to your friend -- and lending on an unsecured basis at that.
A lien on property gives a right to certain classes of creditors to have their debts paid out of the debtor's property, usually by means of a sale of that property.An unsecured creditor has no lien on property owned by the debtor, and thus does not have the right to any of the sales proceeds.
The most common form of lien is a deed of trust, which in effect is a mortgage on the debtor's property. The debtor borrows money and signs a promissory note and a deed of trust. The promissory is the "IOU." The deed of trust secures payment of that IOU by placing a lien on the property. In effect, the debtor conveys his or her property to a trustee, who holds the property in trust until the IOU is satisfied. If it is paid in full, the trustee will release that deed of trust; if it is not paid in full and the borrower goes into default, the trustee has the right to sell the property at a foreclosure sale. Needless to say, this is an oversimplification of a very complex area of financing and real-estate law.
In your case, however, you merely took the promissory note. You omitted placing any deed of trust (i.e., the lien) on the debtor's real estate. Thus, the only way that you can assure yourself of collecting is to file suit against your "friend" immediately, claiming a default on the promissory note. Depending on the amount of the note, you may be able to go into a small claims court in the jurisdiction where you live, or where the debtor lives.
Once you have a judgment against the debtor, you can then record that judgment among the land records where your friend's property is located. The judgment is a lien on the property, and the property cannot be sold free and clear of that judgment until you are paid in full. It also should be pointed out that if you are able to receive a judgment, you will be able to receive interest on the judgment until the date of payment. The judgment interest rate is set by each jurisdiction.
Under rare circumstances, you can obtain what is known as an attachment before judgment (ABJ). This is considered an extraordinary legal remedy, and will only be issued by a court under extreme circumstances. For example, if you are living in one state and the debtor is living in another, and you have reason to believe that the debtor will flee the country with all of his assets, then a judge may be willing "to freeze the assets." However, we follow a deep-rooted legal principle that everyone is innocent until proven guilty, and thus the courts are extremely reluctant to grant the ABJ until there has been a full trial on the merits of the case. It may very well be, for example, that the debtor has a valid defense. He may have paid the obligation already or satisfied it in some other way. There may be other defenses, such as consumer protection laws, statute of limitations and the like.
You certainly recognize that you should have protected yourself when you first lent money to your friend. If you are not prepared to "cross it off," your only remedy is to file suit. Hopefully, the promissory note your friend signed gives you the right to collect reasonable attorney's fees in the event you have to go to court to collect on the note. We follow the American rule of legal fees, which means that each side pays his or her own legal fees, in the absence of a statute (such as truth in lending) or a specific agreement between the parties spelled out in the promissory note itself.