We were asked to insure a refinance transaction not too long ago. Our title search picked up a judgment against the borrower. When asked, though, the borrower stated that he had previously filed bankruptcy and the judgment had been ‘taken care of’. In this particular instance, we were able to remove the judgment, but that may not always be the case.
A discharge in bankruptcy only discharges the ‘personal liability’ of the debtor for most debts that precede the filing of the bankruptcy petition. This is more fully explained in Section 524(a) of the Bankruptcy Code. Section 524 (a)(1) further states that the discharge “voids any judgment” so the borrower might naturally believe that this ‘wipes out’ the judgment lien against the real estate. This is incorrect, though. In Johnson v. Homestate Bank, 501 U.S. 78,82-83, 111 S. Ct. 2150, 2153, 115 L. Ed. 2d 66, 73-74 (1991) the United States Supreme Court, held that a creditor’s right to foreclose on a lien survives the bankruptcy proceedings notwithstanding the discharge of personal liability of the debtor pursuant to 11 U.S.C. Section 524(a). This means that a creditor whose judgment lien predates the filing of the bankruptcy could still go after the real estate AFTER the debtor has been discharged of personal liability!!
What does this mean to you? If you’re a lender and a discharged bankruptcy by the borrower is involved, it can’t simply be ignored. As a Title Insurance company it is our responsibility to ensure that any judgment liens are formally satisfied or released on the record. By doing so we are making certain that the judgment creditor cannot make any claim to the real estate. At that point we can then issue you a lenders title insurance policy providing you full protection against all other potential unknown claims. And if you’re buying a property, but you were formally discharged in a prior bankruptcy? Then you’re in the clear because the creditor’s right to foreclose only applies to property you owned at the time of bankruptcy, not on future property you may own. In that case, our Title Insurance Company can provide you with an Owner’s Title Insurance Policy without worrying about your bankruptcy.
About World Wide Land Transfer:
World Wide Land Transfer is a full service Settlement and Escrow Company also providing comprehensive title insurance services for all forms of real estate transactions ranging from a home purchase or refinance to the most complex commercial transaction. World Wide Land Transfer started predominantly as a PA Title Company in 2004 but grew quickly and started issuing NJ Title Insurance, NY Title Insurance, MD Title Insurance, VA Title Insurance and FL Title Insurance. World Wide now covers most counties throughout the nation.