Dear Bankruptcy Adviser, When we went bankrupt, we had a loan to have a new roof put on. The contractor was a crook and scammed many people in our area. We put this loan in our bankruptcy. The bankruptcy case has since been closed. A year later we noticed it is a lien that has been attached to our property. It is still there, and it's causing havoc for us. What can we do? -- Carol
Dear Carol, There are two types of possible liens at issue here: a mechanics lien and a judgment lien. I'll help you understand both. I believe each of these answers will apply to all 50 states and should be removable, but it will take time and cost money.
Contractors, such as the party that installed your roof, place a security interest on the title to the property to secure payment for materials or labor performed on the property. Since the contractor cannot simply take the roof back if you fail to pay for the materials and labor, the lien acts as security to insure payment.
The contractor does not need a court order to place the lien against the property. But he or she does have a strict time frame in which to act against the property for failure to pay or the lien can be removed.
Most of the time, the contractor will remove the lien once payment for the work has been received. If there is a dispute between the homeowner and contractor, this could result in a lawsuit to resolve the issue and remove the lien.
If you are certain the lien is not valid, you would have to petition your state court, not the federal bankruptcy court, for an order to remove the lien. In many cases, the contractor will not bother to dispute your request to have the lien removed.
A judgment lien is created by a court ruling giving a creditor the right to place a lien against your property for failing to pay a debt. The creditor must first sue you, receive a judgment against you and then request for the lien to be placed on title to your property.
If this is the case with your lien, the bankruptcy would have eliminated your liability on the loan, but it did not get rid of the lien against your house. To remove a judgment lien, you must file a motion while the bankruptcy case is active. Since your bankruptcy case has already been closed, you will need to take an additional step to remove the lien.
This is a two-step process, but it requires me to make two assumptions. First, I'll assume you filed a Chapter 7 bankruptcy. Second, I'll assume you were able to protect your home either because you had no equity in the property or no more than could be protected. Here are the steps to removing the judgment lien on a closed bankruptcy case:
Step 1: Reopen your bankruptcy case. This does not mean all of your debts are magically revived. You received a notice of "discharge," meaning your debts were eliminated. To open the case, you'll need to pay a court fee.
Step 2: File a motion to "avoid a lien" while the bankruptcy is open. Once the case is reopened, you need to file this motion with the court to prove the lien can be avoided.
Depending on the local bankruptcy rules in your area, you may or may not have to set this motion for a hearing before the court. If you do have to file a motion, it will need to show:
Value of the property: You may need an appraisal but not always. Some courts will allow you to file a declaration that you have a reasonable belief as to the property's value, based on your time living in the home and knowledge of sales in your area.
Lien against the property: You will need to provide statements showing what you owe on the property. This is as simple as showing a monthly mortgage statement.
Property is exempt: You will need to show that, based on the value and liens against the property, there is little or no equity. As such, the lien against the property cannot be attached and can be removed.
After you prove your case, you need a signed order from the judge indicating the lien can be avoided.
You then give this order to the title or escrow company handling your loan. That will be enough to prove the lien no longer is attached to the title, and you can continue with a refinance or sale of the property.