Transferring ownership of a property is a common occurrence in the world of real estate, whether it be through a sale, gift, or inheritance. When a property is transferred from one owner to another, it is essential to publicly record the change in ownership through a legally binding document known as a deed. This deed records the transfer of property rights from the current owner and this critical legal step ensures that the change in ownership is documented, recognized by authorities, and legally enforceable.
The process of transferring ownership becomes considerably more complex when a judgment lien is associated with the property. A judgment lien is a legal claim against a property, typically resulting from unpaid debts or court-ordered judgments. This lien can complicate matters significantly, potentially affecting the new owner’s rights, responsibilities, and the property’s overall value. Having an experienced California real estate attorney helping you navigate the transfer of real property can make all the difference.
What Happens If a Property with a Judgment Lien On It Is Transferred to Another Owner?
Interest in a property means legal or equitable ownership in real estate, no matter the percentage of ownership the person has. Deeds, such as grant deeds, trust deeds, or quitclaim deeds, show interest in real property. If an owner of real property is in debt to a creditor, a judgment lien may be placed on the property. A judgment lien is a court ruling that gives a creditor the right to take possession of the debtor’s property if the debtor does not fulfill his or her debt obligation.
California Government Code section 27280(a) provides: “Any instrument or judgment affecting the title to or possession of real property may be recorded.” When a judgment lien is recorded against real property, the lien will remain binding even after ownership changes. “The lien remains on the property after a transfer or encumbrance of the property and is enforceable against parties who acquire a subsequent interest in the property, except a bona fide purchaser or encumbrance.” Relation to subsequent interests, 4 Cal. Real Est. (Miller & Starr 4th ed.) § 10:126 (citing Code Civ. Proc., § 697.390; Federal Deposit Ins. Corp. v. Charlton (1993) 17 Cal. App. 4th 1066, 1069).
What If Interest Is Transferred to a Third Party Before a Judgment Creditor Places a Lien on the Property?
In the case of Iknoian v. Winter, a California court held that when a judgment is recorded as a lien on a property, the debtor must have an interest in that property that belongs to the person who owes money, however, “if at that time [of recording a lien,] all title and interest has passed from him to a third person, the creditor gets nothing”.[1]Iknoian v. Winter, (1928) 94 Cal. App. 223, 225. Similarly, if the debtor only has the title to the property but no real beneficial interest or value in it, “the lien of the judgment does not attach.”[2]Riverdale Mining Co. v. Wicks, (1910) 14 Cal. App. 526, 536.
California courts have established that a judgment lien is subject to prior interests on the property. If a deed is drafted, executed, and delivered to a purchaser, then a judgment lien is placed on the property, and later the deed is recorded, the property will not be subject to the judgment lien.
Caution: Uniform Fraudulent Transfer Act (UFTA)
Transfer that is made with the intention to defraud creditors may be contested by judgment creditors. In the case of Filip v. Bucurenciu, the court’s application of the Uniform Fraudulent Transfer Act (UFTA) provides a clear example of how legal mechanisms are employed to address fraudulent asset transfers. A “debtor, his former wife and her daughter worked together to hide assets from judgment creditor by numerous transfers of property in which debtor had an interest to prevent creditor from collecting on the judgment, was substantial evidence that transfers were made with fraudulent intent under the UFTA.”[3]Filip v. Bucurenciu, (2005) 129 Cal. App. 4th 825.
“Whether a conveyance was made with fraudulent intent under the Uniform Fraudulent Transfer Act (UFTA) is a question of fact, and proof often consists of inferences from the circumstances surrounding the transfer”.[4]Filip v. Bucurenciu (2005) 129 Cal. App. 4th 825. The UFTA’s approach in Filip v. Bucurenciu signifies that establishing actual intent to defraud does not hinge on a rigid formula or the presence of a specific number of factors. Instead, it acknowledges the multifaceted nature of financial transactions and the myriad ways in which individuals might seek to protect assets from creditors unlawfully. “[T]he Uniform Fraudulent Transfer Act (UFTA) do not create a mathematical formula to establish actual intent, and there is no minimum number of factors that must be present before the scales tip in favor of finding of actual intent to defraud”.[5]Filip v. Bucurenciu, (2005) 129 Cal. App. 4th 825.
Caution: Unrecorded Deed of Trust
Similarly, a deed of trust that is not recorded may have negative consequences. The unrecorded status of a deed heightens the risk of fraudulent claims to the property if it is recorded later, complicating legal proceedings and potentially causing financial and emotional strain on the rightful owners.
Legal and Practical Consequences of Failing to Record
Without constructive notice of ownership changes, subsequent purchasers or lenders may unknowingly infringe on prior claims, leading to conflicts over the property’s rightful ownership. Additionally, the risk of liens and judgments against the property increases when a co-owner’s interest is not on record. Moreover, unrecorded deeds pose challenges in establishing the priority of claims, with California law typically favoring earlier recorded deeds, thereby complicating the legal landscape for property rights and transactions.
Unrecorded deeds not only complicate legal disputes but also impact the marketability of property. Title insurance companies and lenders require a clear title to proceed with transactions, making unrecorded deeds a significant barrier to selling or financing property. In cases of disputes or when addressing issues raised by unrecorded deeds, legal remedies such as quiet title actions or specific performance may be necessary to clarify and enforce property rights. These legal actions aim to resolve ambiguities in ownership, ensuring that property transactions can proceed smoothly and that the rights of all parties are protected.
Talkov Law’s Partition Attorneys Can Help
Given the frequency of real estate transactions and the commonality of debt-related disputes, understanding the interplay between property ownership and judgment liens is crucial for anyone involved in the real estate market. Navigating the complexities of property transfers, especially when dealing with unrecorded instruments and the potential for judgment liens, requires expert legal assistance to ensure that ownership rights are protected and disputes are resolved efficiently.
Homeowners can find tailored solutions to these intricate issues by contacting the seasoned partition attorneys at Talkov Law, as we explore the legal implications, potential challenges, and the steps that both the current and future property owners may need to take to navigate this complex situation effectively. Talkov law unlocks access to justice for co-owners by funding your case. For qualified cases, you pay no fees until we successfully partition your property by obtaining a sale on the market or to your co-owner!
For a free consultation, (844) 4-TALKOV (825568) or online today.
References
