Archive for the ‘Finance’ Category
How To Keep Your Landlord Happy When Breaking An Apartment Rental Lease
October 20th, 2009
Christine OKelly asked:
Landlords know that sometimes things happen that can cause a tenant to break an apartment rental lease. In a perfect world, everyone would finish out their contract before moving on, but many landlords and property management companies realize that sometimes unavoidable events occur. You can do a few simple things to work with your landlord that may help you avoid penalties when breaking your lease.
Let Your Apartment Rental Landlord Know Early
Giving your landlord or property management company plenty of notice will most likely be met with cooperation if you have to break your apartment rental lease. Try not to spring a broken lease on a landlord and instead give them as much notice as possible. This will give them time to try to find a replacement tenant. If you behave professionally, so will your landlord.
A lease is a legally binding contract and you signed it willingly. If your time in your rental apartment has been good, but you’re being transferred out of town, let your landlord know. Tell them you’d be happy to renew if it weren’t for the move. If you remain calm and rational, your landlord is more likely to let you break the lease without penalty. Remember they do not have to do this. The landlord has the legal right to not let your break your lease without penalty. Talk with your company’s human resources department about a possible relocation package. Some include a payment to cover a broken lease fee.
If military service is causing you to break your lease, it should have a military clause that allows you to break it without penalty. If your landlord doesn’t know about a military clause, check with your base or post legal department for help.
Help Find A Replacement Tenant
Helping your landlord find a replacement tenant is a good way to make your landlord happy if you have to break your lease. Recommending your apartment to friends and family is a good start. Even if they’re not looking for a new place to live, they may know someone who is. A good recommendation is a positive thing for both the landlord and new tenant.
Let Your Landlord Show Your Apartment Rental
Letting your landlord or property management company show your apartment rental to prospective tenants will help them find a replacement tenant faster. Be sure to keep your apartment in a neat and tidy condition. It is especially important to keep the apartment clutter-free, the bed made, dishes put away, and the bathrooms clean. It will help your landlord show off the apartment to potential tenants and, although it may be an inconvenience, it could save you hundreds of dollars in penalty fees.
The easier you make breaking an apartment rental lease on your landlord, the more likely they are to let the penalties slide. It is easier to keep everyone happy if you work together to find a new tenant.
Landlords know that sometimes things happen that can cause a tenant to break an apartment rental lease. In a perfect world, everyone would finish out their contract before moving on, but many landlords and property management companies realize that sometimes unavoidable events occur. You can do a few simple things to work with your landlord that may help you avoid penalties when breaking your lease.
Let Your Apartment Rental Landlord Know Early
Giving your landlord or property management company plenty of notice will most likely be met with cooperation if you have to break your apartment rental lease. Try not to spring a broken lease on a landlord and instead give them as much notice as possible. This will give them time to try to find a replacement tenant. If you behave professionally, so will your landlord.
A lease is a legally binding contract and you signed it willingly. If your time in your rental apartment has been good, but you’re being transferred out of town, let your landlord know. Tell them you’d be happy to renew if it weren’t for the move. If you remain calm and rational, your landlord is more likely to let you break the lease without penalty. Remember they do not have to do this. The landlord has the legal right to not let your break your lease without penalty. Talk with your company’s human resources department about a possible relocation package. Some include a payment to cover a broken lease fee.
If military service is causing you to break your lease, it should have a military clause that allows you to break it without penalty. If your landlord doesn’t know about a military clause, check with your base or post legal department for help.
Help Find A Replacement Tenant
Helping your landlord find a replacement tenant is a good way to make your landlord happy if you have to break your lease. Recommending your apartment to friends and family is a good start. Even if they’re not looking for a new place to live, they may know someone who is. A good recommendation is a positive thing for both the landlord and new tenant.
Let Your Landlord Show Your Apartment Rental
Letting your landlord or property management company show your apartment rental to prospective tenants will help them find a replacement tenant faster. Be sure to keep your apartment in a neat and tidy condition. It is especially important to keep the apartment clutter-free, the bed made, dishes put away, and the bathrooms clean. It will help your landlord show off the apartment to potential tenants and, although it may be an inconvenience, it could save you hundreds of dollars in penalty fees.
The easier you make breaking an apartment rental lease on your landlord, the more likely they are to let the penalties slide. It is easier to keep everyone happy if you work together to find a new tenant.
How Much Tax Will you Pay in France
July 1st, 2009
Nick Dowlatshahi asked:
In order to avoid any unexpected tax bills while owning your property in France it is important to know the French tax system. Here we outline the main sources of tax in France and explain how they may affect you.
Tax: Should you live in France you will be taxed on your total income whether generated within France or abroad. It does not matter what nationality you are if you spend more than 183 days per year in France you are considered as French domiciled and still taxed on your world wide income. For those not domiciled in France you are still liable for any income from French sources; this includes rent from letting out your property and any income derived from working in the country. The authorities in both the country in which you normally reside and France will be interested in your earnings and if it is above a certain threshold you could be liable in both countries unless there is a double tax treaty between the countries as exists between all EU members and many other countries. However it is very important to notify the authorities if you are making a permanent move to France before the event in order to take advantage of this treaty. It should also be noted that in France taxes are not deducted using the PAYE system as in England but each individual must fill in their own self assessment form whereby taxes are paid the year after which the income is earnt which runs from January the 1st to December the 31st. To do this you must first register at the “Centre des Impots” which is the local tax centre.
Income tax: This ranges from tax levied on “earned income” which is a progressive tax to tax on “unearned income” such as investment income based on interest from bank accounts and property yields. There is a seperate tax levied on your gross rental income if you let out your French Property. France still strongly favours the family unit and there are distinct advantages in terms of reduced tax liability if you are a large family as tax is assessed on a household basis. If you are married and/or have children in the family you pay less tax as there are more dependants; this is called the “quotient familial”. There are also other allowances such as those for childcare and domestic help all of which go towards making large families in France pay less tax than anywhere else in Europe. If you are unmarried or united only by the PACS agreement then you are likely to pay more tax than married couples not just with regard to income tax but also inheritance tax.
Property tax: Two property taxes exist in France: taxe fonciere and taxe d’habitation. Taxe fonciere is paid by the property owner regardless of whether you live there or abroad, but there is an exemption for two years for newly built properties. Taxe d’habitation on the other hand is paid by whoever occupies the building at the time, hence if it is rented out it is paid by the tenants. Both taxes form part of what we know in the UK as council tax and are paid the year after the rental period with special allowances for retirees and dis-used, inhabitable properties.
Capital Gains Tax: This tax is paid on the profits of any property which has been sold to include jewellery, securities, shares and real estate. However, fortunately there are no taxes to be paid on the sale of your principle residence but only on sales of additional property. People who rent their main home are exempt if they sell their second home as well as those who have owned the house for 15 years or more. If a property is sold within two years then it is subject to 33.3% capital gains and this falls by 5% a year and multiplied by an index linked multiplier of the eventual sale price of the property until the 15 years are up. If you have renovated your property or spent money on legal or agency fees the cost of these can be offset against your profits.
Inheritance tax: The system in France is very different to that which you might find in England or anywhere else and it is advisable to talk to a tax advisor BEFORE you buy your property in France to prevent future burdens on your family or partner. Whether you are a resident or not in France you will still have to conform to french succession law and your family will still be liable to pay inheritance duty in France upon your death. It is also important to note that French succession law will not allow for you to leave out any of your children in favour of your spouse and will ensure that they get their share. There are however, a number of different ways to minimise their burden depending on your situation. Below we outline a number of different contracts that can be made. A very popular and useful way of lessening your relatives’ inheritance tax if the tax in France is greater than it would be in your home country is to form an SCI which is a property holding company. The property in question can be divided into shares and these shares can be distributed as you wish with the result that any future inheritance tax on the property will be subject to the laws in the country in which you are a resident. It is also a good solution for those in a complex family situation living with people who are not members of their family. Shares can be freely given to a partner or children whereby inheritance tax will be avoided if done at least 10 years prior to death of the owner of the shares. For married couples who wish their half of the property to go to the surviving spouse then the “clause tontine” is a good option. It is like a joint tenancy agreement and essentially suspends the ownership of the property until either spouse dies so that the entire property is owned by the surviving spouse. They will, however, still have to pay inheritance tax on half of the property. Another way to ensure that your half of the property in question goes to your spouse is to make a change of the matrimonial regime so that your properties are no longer separated. You must have been married for at least two years and prepared to pay some legal charges but it will mean that the surviving spouse will only pay 1% tax on the property as “registration duty”. This system can get complicated if there are children involved from current or past marriages as they still retain certain rights to the property and legal advice should be taken. In 1999 a new contract called PACS was also brought in under French law giving certain benefits to same and different *** couples which were not previously available. These inheritance and fiscal rights are not as beneficial as those available to married couples but are certainly an improvement on the previous situation.
Wealth tax: This is a tax levied on assets that exceed 720,000 Euros and covers a wide range of assets to include your property and bank balances amongst other things. If you are resident in France but not domiciled there then you will only be taxed on what you have in France. If domiciled there as well then the tax applies to your entire fortune all over the world.
In order to avoid any unexpected tax bills while owning your property in France it is important to know the French tax system. Here we outline the main sources of tax in France and explain how they may affect you.
Tax: Should you live in France you will be taxed on your total income whether generated within France or abroad. It does not matter what nationality you are if you spend more than 183 days per year in France you are considered as French domiciled and still taxed on your world wide income. For those not domiciled in France you are still liable for any income from French sources; this includes rent from letting out your property and any income derived from working in the country. The authorities in both the country in which you normally reside and France will be interested in your earnings and if it is above a certain threshold you could be liable in both countries unless there is a double tax treaty between the countries as exists between all EU members and many other countries. However it is very important to notify the authorities if you are making a permanent move to France before the event in order to take advantage of this treaty. It should also be noted that in France taxes are not deducted using the PAYE system as in England but each individual must fill in their own self assessment form whereby taxes are paid the year after which the income is earnt which runs from January the 1st to December the 31st. To do this you must first register at the “Centre des Impots” which is the local tax centre.
Income tax: This ranges from tax levied on “earned income” which is a progressive tax to tax on “unearned income” such as investment income based on interest from bank accounts and property yields. There is a seperate tax levied on your gross rental income if you let out your French Property. France still strongly favours the family unit and there are distinct advantages in terms of reduced tax liability if you are a large family as tax is assessed on a household basis. If you are married and/or have children in the family you pay less tax as there are more dependants; this is called the “quotient familial”. There are also other allowances such as those for childcare and domestic help all of which go towards making large families in France pay less tax than anywhere else in Europe. If you are unmarried or united only by the PACS agreement then you are likely to pay more tax than married couples not just with regard to income tax but also inheritance tax.
Property tax: Two property taxes exist in France: taxe fonciere and taxe d’habitation. Taxe fonciere is paid by the property owner regardless of whether you live there or abroad, but there is an exemption for two years for newly built properties. Taxe d’habitation on the other hand is paid by whoever occupies the building at the time, hence if it is rented out it is paid by the tenants. Both taxes form part of what we know in the UK as council tax and are paid the year after the rental period with special allowances for retirees and dis-used, inhabitable properties.
Capital Gains Tax: This tax is paid on the profits of any property which has been sold to include jewellery, securities, shares and real estate. However, fortunately there are no taxes to be paid on the sale of your principle residence but only on sales of additional property. People who rent their main home are exempt if they sell their second home as well as those who have owned the house for 15 years or more. If a property is sold within two years then it is subject to 33.3% capital gains and this falls by 5% a year and multiplied by an index linked multiplier of the eventual sale price of the property until the 15 years are up. If you have renovated your property or spent money on legal or agency fees the cost of these can be offset against your profits.
Inheritance tax: The system in France is very different to that which you might find in England or anywhere else and it is advisable to talk to a tax advisor BEFORE you buy your property in France to prevent future burdens on your family or partner. Whether you are a resident or not in France you will still have to conform to french succession law and your family will still be liable to pay inheritance duty in France upon your death. It is also important to note that French succession law will not allow for you to leave out any of your children in favour of your spouse and will ensure that they get their share. There are however, a number of different ways to minimise their burden depending on your situation. Below we outline a number of different contracts that can be made. A very popular and useful way of lessening your relatives’ inheritance tax if the tax in France is greater than it would be in your home country is to form an SCI which is a property holding company. The property in question can be divided into shares and these shares can be distributed as you wish with the result that any future inheritance tax on the property will be subject to the laws in the country in which you are a resident. It is also a good solution for those in a complex family situation living with people who are not members of their family. Shares can be freely given to a partner or children whereby inheritance tax will be avoided if done at least 10 years prior to death of the owner of the shares. For married couples who wish their half of the property to go to the surviving spouse then the “clause tontine” is a good option. It is like a joint tenancy agreement and essentially suspends the ownership of the property until either spouse dies so that the entire property is owned by the surviving spouse. They will, however, still have to pay inheritance tax on half of the property. Another way to ensure that your half of the property in question goes to your spouse is to make a change of the matrimonial regime so that your properties are no longer separated. You must have been married for at least two years and prepared to pay some legal charges but it will mean that the surviving spouse will only pay 1% tax on the property as “registration duty”. This system can get complicated if there are children involved from current or past marriages as they still retain certain rights to the property and legal advice should be taken. In 1999 a new contract called PACS was also brought in under French law giving certain benefits to same and different *** couples which were not previously available. These inheritance and fiscal rights are not as beneficial as those available to married couples but are certainly an improvement on the previous situation.
Wealth tax: This is a tax levied on assets that exceed 720,000 Euros and covers a wide range of assets to include your property and bank balances amongst other things. If you are resident in France but not domiciled there then you will only be taxed on what you have in France. If domiciled there as well then the tax applies to your entire fortune all over the world.
How to Nail Your First Income Property Transaction
May 29th, 2009
James Kobzeff asked:
As a residential agent, you overcome the largest hurdle and are well on your way to closing your first income property deal once you make the decision to sell multifamily property: The desire to sell more than houses is foremost.
In this article, I’ll show you four things you must now do that will help you seize every opportunity, perhaps avoid missed opportunities, and maybe bypass months (perhaps years) of trial and error before you close and subsequently collect your first rental property sales commission. It’s not exhaustive (there are other factors, of course). Nonetheless, if heeded, they are guaranteed to get you started on the right foot.
1. Learn some basic terms and formulas. After numerous years of assisting residential real estate agents frantic for rental property advice, I strongly recommend that you understand just two real-estate-investing-related terms (and/or formulas) in the beginning. Comprehension of other terms and formulas can wait and follow later.
The APOD
An APOD is a report that shows the income, expense, and cash flow of an investment property for the future first year of the property’s operation. It’s an assumption because it’s based upon current property data subject to change; but it does provide a good “snapshot” of property performance during the first year of ownership. APOD is an acronym for Annual Property Operating Data (in case you’re wondering).
Cap Rate
Understanding how cap rate (or capitalization rate) is calculated is likewise paramount to working with rental income property. You will start hearing the term and seeing the return used almost the instant you start working with investment real estate. I’ll forego the textbook definition and cut to the chase: Here’s the calculation (memorize it):
Net Operating Income (NOI) divided by Sale Price = Cap Rate
2. Learn the typical cap rates for you local market. Conduct your own comparative market study.
Dig through your local MLS to determine what capitalization rates income-producing properties are listed and/or sold. This calculation is commonly included in rental property listings and if not, make the calculation yourself (you only need the property’s net operating income and sale price). If the listing doesn’t show the NOI then derive one by computing the gross income less about 45% for vacancy allowance and operating expenses. If gross income data isn’t provided, you can either call the listing agent or simply decide to move on to the next property.
Ask a real estate appraiser. Call around until you find someone who appraises income property and ask about typical cap rates for multifamily and commercial properties in your area. Appraisers are an excellent resource for local market conditions. While you’re at it, be sure to subscribe to their newsletter if they provide one: Sometimes they include surveys and other income property data you will find useful.
Ask a real estate professional. If you know an agent that specializes in multifamily and commercial properties, buy him or her a coffee and start a discussion. If they are truly active with multifamily property and you know them well enough, you should get lots of good information about your area’s rental property activity and capitalization rates.
3. Invest in real estate software. Yes, it sounds like a shameless plug for my real estate investment software, but not so (honest). Having sold income property for nearly twenty years, I can attest that quality cash flow presentations got me listings, sales, and real estate investor customers time and again. Truly, you would be wise to invest in real estate software (some software) that enables you to create real estate analysis and marketing presentations. Consider it a way to develop your real estate investing knowledge and at the same time as a tool to advance your income property business.
4. Let others know you work with rental property. Once you master steps 1-3, call your residential customers and alert your colleagues. You might be surprised how quickly you benefit having them know about your interest and commitment to investment real estate. It regularly prompts existing customers to discuss real estate investing opportunities more openly and colleagues to give you multifamily referrals. It’s not magic, but the steps above will put you ahead of the pack in most offices and therefore the traction to move on the fast track toward your first income property deal.
Here’s to your success.
Posted in Finance | 
Tags: Capitalization Rate, Cut To The Chase, Investment Real Estate | 
No Comments »
What You Need to Know About Property Auctions in the UK
May 8th, 2009
Parmdeep Vadesha asked:
For both first-time and seasoned property investors, one of the best bets for scoring a great deal on a prize property is through an auction. An auction is a good place to start if you want to get up on the first rung of the property ladder. For the more experienced investor, auctions are also helpful in securing a reasonable property to add to your investments portfolio.
The greatest lure of auctions is that properties are sold at a price well below market value. How is this possible?
Well, most auctioned-off properties are repossessions and rundown properties.
Repossessions are those homes or properties than have been used as collateral for a loan which the owner defaulted on. Thus, banks or lending institutions have called in the loan and are now the new owners of the repossessed property. Since banks are not in the property business, they want to dispose of the property fast and recoup their cash investment. Thus, many of these repossessed properties are sold at auction for a bargain price and sometimes for a price well below market value.
On the other hand, auctions are also a great avenue to pick up a rundown property that you can repair and refurbish to sell at a higher price. The attraction of a rundown property is, of course, its very low price. Though it is unsellable in its current state, by doing the necessary repairs and a little fixing-up, that once-shabby house could turn into a dream home. Look for rundown properties that have potential and factor in the cost of the repairs to determine whether the asking price is still a bargain.
While auctions can be a great place to score a bargain and save some money, there are some things to keep in mind and be conscious of. A property auction is a heady and thrilling experience and most people get so caught up in the process that they end up paying more for a property than they would have liked. Remember that your ultimate goal at the auction is to score a bargain, and not win a game. Go to the auction house with a maximum price bid in mind and stick to it and stop when the price gets too high. Also, choose properties well. You do not want to get stuck with an investment that it impossible to resell. Stay away from properties that are in severe disrepair, have unclear legal titles or those without proper legal access to the property or land.
If you have never been to an auction before, then now is a good time as any. It is definitely a good idea to do a little visiting and scouting around to see how auctions all across the United Kingdom are being conducted. If you are a first-timer, check out the auction scene first and attend as a viewer and not as a serious bidder. Take an experienced companion with you or someone who knows the ropes of an auction sale. More importantly, research on your potential purchase. What is the current asking price of similar properties in the same location? What is the neighbourhood like? Determine neighbourhood safety, noise level and the adequacy of private parking as these are the usual clinching points that make the property easier to resell.
For both first-time and seasoned property investors, one of the best bets for scoring a great deal on a prize property is through an auction. An auction is a good place to start if you want to get up on the first rung of the property ladder. For the more experienced investor, auctions are also helpful in securing a reasonable property to add to your investments portfolio.
The greatest lure of auctions is that properties are sold at a price well below market value. How is this possible?
Well, most auctioned-off properties are repossessions and rundown properties.
Repossessions are those homes or properties than have been used as collateral for a loan which the owner defaulted on. Thus, banks or lending institutions have called in the loan and are now the new owners of the repossessed property. Since banks are not in the property business, they want to dispose of the property fast and recoup their cash investment. Thus, many of these repossessed properties are sold at auction for a bargain price and sometimes for a price well below market value.
On the other hand, auctions are also a great avenue to pick up a rundown property that you can repair and refurbish to sell at a higher price. The attraction of a rundown property is, of course, its very low price. Though it is unsellable in its current state, by doing the necessary repairs and a little fixing-up, that once-shabby house could turn into a dream home. Look for rundown properties that have potential and factor in the cost of the repairs to determine whether the asking price is still a bargain.
While auctions can be a great place to score a bargain and save some money, there are some things to keep in mind and be conscious of. A property auction is a heady and thrilling experience and most people get so caught up in the process that they end up paying more for a property than they would have liked. Remember that your ultimate goal at the auction is to score a bargain, and not win a game. Go to the auction house with a maximum price bid in mind and stick to it and stop when the price gets too high. Also, choose properties well. You do not want to get stuck with an investment that it impossible to resell. Stay away from properties that are in severe disrepair, have unclear legal titles or those without proper legal access to the property or land.
If you have never been to an auction before, then now is a good time as any. It is definitely a good idea to do a little visiting and scouting around to see how auctions all across the United Kingdom are being conducted. If you are a first-timer, check out the auction scene first and attend as a viewer and not as a serious bidder. Take an experienced companion with you or someone who knows the ropes of an auction sale. More importantly, research on your potential purchase. What is the current asking price of similar properties in the same location? What is the neighbourhood like? Determine neighbourhood safety, noise level and the adequacy of private parking as these are the usual clinching points that make the property easier to resell.
What Is A Judgment Lien?
May 2nd, 2009
John Nazareno asked:
A judgment lien is a court ordered lien that is placed against the home or property when the homeowner simply fails to pay a debt. This doesn’t seem like a big deal, but when the homeowner has a judgment lien against his or her home and wants to sell it, the judgment lien has to be paid in full before the home or property can be sold. Judgment liens can be placed against the property for a variety of reasons such as unpaid credit card bills, utility bills, department store bills, landscaping or home improvement bills, and just about any bill that the homeowner has failed to pay in a reasonable amount of time. Any bill that can cause one to end up in court can result in a judgment lien.
A judgment lien is different than a trust, in that the judgment lien holder cannot foreclose on the home or the property as trust holder can. Judgment lien holders can demand payment, but ultimately they must wait for the homeowner to sell the property before they can expect to be paid the money that they are owed according to the judgment. Luckily for the judgment lien holder, the court will typically assign an interest rate to these liens so that the lien holder is compensated for their waiting as the interest will continue to accrue until the debt is paid in full. Because the majority of people will live in their home for quite some time, the interest can make a judgment lien grow, and grow, and grow over the years so that it is quite large. Imagine what a lien of just $3,000 would grow to over the years if the interest rate were 15% annually and that would be an even bigger amount if the debt were $5,000 or $10,000!
Of course, judgment liens require court action. A creditor will take the homeowner to court where the judge will determine if the homeowner does in fact owe the creditor any money. If the court decides that the creditor is owed the money, and the homeowner will not or cannot make payment, the judge will order that a judgment lien be placed against the property. The judgment lien will then be entered into land records offices for the city or county so that the home cannot be sold without repayment of the debt. Once the lien is filed with the land records office, the judgment lien is said to be attached to the property, meaning that it cannot legally be sold without paying off that lien. If the judgment lien is not listed at the land records office, then it means that the debt or lien is not legally attached to the property and does not need to be paid off to sell the home.
A home or property can have numerous liens against it, which may present a problem when the home is to be sold. Fortunately, the law says that liens will be paid off in the order that they were attached to the property, meaning the first lien will be paid first, the second will be paid second, and so on. This is a law that was basically developed for when a home is foreclosed on. If a foreclosed home is auctioned it will first pay off the first lien, then the second, and the third until there is no money left to pay the debts that are still attached or associated with the home. Of course, all trusts against the house, such as mortgages and home equity loans, would be paid off before the judgment liens, so it’s not uncommon for these liens to simply go unpaid because there is no money remaining to pay these debts after the trusts are paid. If there is not enough money to pay for all of the judgment liens and trusts on the home or property, they are then wiped out and can no longer be collected on. Of course, the auction will usually attempt to pay for all of these debts, and they are paid for until there is no money. The reason for this is that the new owner will not be able to get any home equity loans or second mortgages with judgment liens already on the home. If there is money left over after everything is paid off, the remaining amount would go to the foreclosed homeowner as all debts are paid.
You can look for judgment liens at the land records office, though you will typically not find them listed with trusts. Investors or homeowners looking to sell their home will have to look into both trusts and judgments, as they are listed in different areas. Investors can often be caught off guard when they realize how much debt is attached to the home, and sellers are often startled at old judgment liens that they had forgotten about and don’t want to afford to pay off in order to sell their home. It’s a good idea to go over all of this information before one bids on a home or attempts to sell it or put it on the market.
Judgment liens are not something that anyone wants put against their home, but they are common enough. There comes a time for many people when they simply cannot pay a bill, and a judgment lien is ordered. Making a continued effort to pay down the debt is a great idea so that you don’t acquire large interest fees in addition to the initial dollar amount of the lien. The homeowner does not have to wait until the home is sold to pay off the lien, instead they can be paid off as soon as possible. The judgment lien is simply put in place so that the home cannot be sold without the debt being paid, and when you look at it from the creditors point of view, this is a great tool to ensure that you’ll eventually be paid the amount you are owed in addition to an interest fee that will pay you for waiting.
A judgment lien is a court ordered lien that is placed against the home or property when the homeowner simply fails to pay a debt. This doesn’t seem like a big deal, but when the homeowner has a judgment lien against his or her home and wants to sell it, the judgment lien has to be paid in full before the home or property can be sold. Judgment liens can be placed against the property for a variety of reasons such as unpaid credit card bills, utility bills, department store bills, landscaping or home improvement bills, and just about any bill that the homeowner has failed to pay in a reasonable amount of time. Any bill that can cause one to end up in court can result in a judgment lien.
A judgment lien is different than a trust, in that the judgment lien holder cannot foreclose on the home or the property as trust holder can. Judgment lien holders can demand payment, but ultimately they must wait for the homeowner to sell the property before they can expect to be paid the money that they are owed according to the judgment. Luckily for the judgment lien holder, the court will typically assign an interest rate to these liens so that the lien holder is compensated for their waiting as the interest will continue to accrue until the debt is paid in full. Because the majority of people will live in their home for quite some time, the interest can make a judgment lien grow, and grow, and grow over the years so that it is quite large. Imagine what a lien of just $3,000 would grow to over the years if the interest rate were 15% annually and that would be an even bigger amount if the debt were $5,000 or $10,000!
Of course, judgment liens require court action. A creditor will take the homeowner to court where the judge will determine if the homeowner does in fact owe the creditor any money. If the court decides that the creditor is owed the money, and the homeowner will not or cannot make payment, the judge will order that a judgment lien be placed against the property. The judgment lien will then be entered into land records offices for the city or county so that the home cannot be sold without repayment of the debt. Once the lien is filed with the land records office, the judgment lien is said to be attached to the property, meaning that it cannot legally be sold without paying off that lien. If the judgment lien is not listed at the land records office, then it means that the debt or lien is not legally attached to the property and does not need to be paid off to sell the home.
A home or property can have numerous liens against it, which may present a problem when the home is to be sold. Fortunately, the law says that liens will be paid off in the order that they were attached to the property, meaning the first lien will be paid first, the second will be paid second, and so on. This is a law that was basically developed for when a home is foreclosed on. If a foreclosed home is auctioned it will first pay off the first lien, then the second, and the third until there is no money left to pay the debts that are still attached or associated with the home. Of course, all trusts against the house, such as mortgages and home equity loans, would be paid off before the judgment liens, so it’s not uncommon for these liens to simply go unpaid because there is no money remaining to pay these debts after the trusts are paid. If there is not enough money to pay for all of the judgment liens and trusts on the home or property, they are then wiped out and can no longer be collected on. Of course, the auction will usually attempt to pay for all of these debts, and they are paid for until there is no money. The reason for this is that the new owner will not be able to get any home equity loans or second mortgages with judgment liens already on the home. If there is money left over after everything is paid off, the remaining amount would go to the foreclosed homeowner as all debts are paid.
You can look for judgment liens at the land records office, though you will typically not find them listed with trusts. Investors or homeowners looking to sell their home will have to look into both trusts and judgments, as they are listed in different areas. Investors can often be caught off guard when they realize how much debt is attached to the home, and sellers are often startled at old judgment liens that they had forgotten about and don’t want to afford to pay off in order to sell their home. It’s a good idea to go over all of this information before one bids on a home or attempts to sell it or put it on the market.
Judgment liens are not something that anyone wants put against their home, but they are common enough. There comes a time for many people when they simply cannot pay a bill, and a judgment lien is ordered. Making a continued effort to pay down the debt is a great idea so that you don’t acquire large interest fees in addition to the initial dollar amount of the lien. The homeowner does not have to wait until the home is sold to pay off the lien, instead they can be paid off as soon as possible. The judgment lien is simply put in place so that the home cannot be sold without the debt being paid, and when you look at it from the creditors point of view, this is a great tool to ensure that you’ll eventually be paid the amount you are owed in addition to an interest fee that will pay you for waiting.