Imagine you just completed a full bathroom remodel for a new client in New York. Though you have a signed contract, and you complete the work to their satisfaction, they refuse to pay. You take them to court and win a verdict in your favor. The court enters a judgment. The judge instructs your client to pay your bill. But they still won’t pay. What recourse do you have?
One way to get payment in this case is to file a judgment lien. This gives you the right to collect the money you are owed when the property is sold.
What is a real estate property lien?
When you record a property lien against the judgment debtor’s property, you are publicly notifying them and anyone else who reads the document that the property owner owes you money. The lien is attached to the title. If your client wants to sell or refinance their property, they will need to pay their debt in order to get a clear title.
How do I place a lien on a property in New York?
Since the judge settled the case in your favor, the next step is to file a transcript of judgment with the county clerk in the New York county where your client lives. According to New York law, you can attach a judgment lien to your debtor’s real estate, whether they own a free-standing house, a condo, or land. In addition, New York allows you to place a judgment lien on your debtor’s personal property. Examples include valuables, artwork, jewelry, cars, and boats.
The judgment lien will remain in effect for 10 years. If your client still hasn’t paid after 10 years, you can request a renewal on the lien. This extends your judgment lien for an additional 10 years. You can attempt to collect from your client the full amount of the judgment, plus interest, for up to 20 years. In some cases, the judgment may remain in effect for more than 20 years.
What factors can impact whether your property lien is paid?
Your ability to collect on your property lien depends on whether there are other liens on the property, how your lien ranks when the liens are prioritized, and whether the property is your debtor’s primary residence and protected by the homestead exemption.
Liens are prioritized on a first-come, first-served basis. If other people have filed a lien on your client’s real estate before you did, they will be paid first from the proceeds of the sale.
What is a homestead exemption?
A homestead is a person’s primary residence, whether it is a single-family home, farm home, condo, or mobile home.
A homestead exemption is a state-determined legal provision that shields a portion of your home’s value from creditors following the death of a homeowner’s spouse or their need to declare bankruptcy. It can also reduce property taxes.
According to New York state law, the homestead exemption amount varies from $82,775 to $165,550. If the homeowner is married, this amount is doubled.
If your client’s real estate is protected under the homestead exemption, the exemption will be applied first, followed by attorney’s fees and other costs, and any other liens that were placed before yours.
What are the benefits and drawbacks of a judgment lien?
If your client owes money to several creditors, there is the risk that they will declare bankruptcy. You want to reduce the probability of this happening because they may be able to wipe out your lien and you won’t get paid.
Attaching a judgment lien is a relatively inexpensive and straightforward process that reduces the risk that your client will declare bankruptcy.
The biggest drawback with a property lien is that it could take a long time for you to receive payment. Property liens are paid in order, so there is a possibility you will never get paid.
When the property is sold or refinanced, the lien stays with the title. If the property is sold and transferred to a new owner without clearing the lien, the lien is transferred to the new owner.
There are several other options you can pursue if your client does not pay for the bathroom remodel. To learn more about how to protect yourself from nonpayment and to understand lien laws in New York, consult a NYC estate planning attorney at Katzner Law Group.
If you have questions about transferring wealth across multiple generations or want to learn about how to protect your assets and property with a comprehensive set of estate planning tools, contact us.