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Judgement Liens: What Is Left When a Business Loses Its Construction Lien Rights?

Contractors that are consistently worried about their judgment liens probably didn’t perfect their construction liens properly. Construction liens and judgment liens are not the same.

While they are both created and controlled by statutes, there are key differences between the two in most states. Construction liens are specific to the property on which the contractor performed work and generally encumber the property before a lawsuit is even filed. Judgment liens almost universally come into effect only when a party achieves a money judgment at the successful conclusion of a lawsuit.

Generally, a construction lien is superior to a judgment lien because it attaches directly to the property that was the subject of the construction even before a lawsuit is won as long as all of the state’s requirements are followed to obtain such a lien.

A judgment lien, in most cases, requires a contractor to win a lawsuit and obtain a money judgment on which it is based before obtaining a lien on a property is even considered. Only once a judgement has been made can a state’s requirements for getting a lien on the judgment debtor’s property be followed. Why is this important? The most important advantage to a construction lien is that the debtor generally cannot sell or even refinance their property while a construction lien is in place, which provides a powerful incentive for a property owner to settle.

On the other hand, a judgment lien does not attach to a debtor’s property until the suit is won and the state’s procedure for perfecting the lien is completed. The judgment lien’s main advantage, in some states, is that it acts as a lien on all real property owned by the debtor within a given jurisdiction instead of one specific parcel of property. It also has the advantage in many states of effecting personal property as well as real property.

When it comes to enforcing a judgment lien, it is easy to see the superiority of the construction lien. While a suit to enforce a construction lien ends in foreclosure of that lien if the contractor prevails, foreclosure of a judgment lien requires perfecting the lien and then, generally, a second lawsuit or supplementary proceeding to enforce the lien. Also, while a construction lien is not blocked by homestead protection, a judgment lien is.

The judgment lien does have the advantage when it comes to its duration. Generally, a construction lien has a short duration, no more than a year or two. A judgment lien can last between 10 and 20 years, depending on the laws of a given state if all the correct steps are taken to preserve it.

Both types of liens have their uses, strengths and weaknesses. When dealing with either type of lien, it is important to know the law of the jurisdiction where enforcement of the lien is being sought. There are many pitfalls in the statutes that create and control the liens, which can deprive a contractor of lien rights.

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