Getting lawsuit papers can be scary. A process server, or sometimes a sheriff’s deputy, may show up at the door of your home and insist on personally handing you the papers. Or this might happen at your place of work or business. It could even happen as you’re simply walking down the street. (See Service of Court Papers from the California Courts’ website.)
What the lawsuit papers say can be scary, too. There are almost always two documents: a Summons and a Complaint. The Summons announces that you’re being sued and that you have 30 days to respond to the court in writing. The standard form states, in the middle of all the fine print details, that: “If you do not file your response on time, you may lose the case by default, and your wages, money, and property may be taken without further warning from the court.”
Then the Complaint lays out in rather odd and accusatory language what the creditor or debt collection agency wants the court to enforce against you. The Complaint is written in an odd style and language making it hard to read or understand. To the extent you can make it out, your reaction may simply be: “Yeah, right, I know I owe the money. But I don’t have it—if I did I’d have already paid it.” So the Complaint feels like just a rude and frustrating reminder of your tough situation. You feel you can’t do anything about it, so you feel like just tossing it all into the pile of your other collection paperwork.
Not a good idea. This blog post is about what happens if you do just that—disregard a collection lawsuit. However, if you have received a Summons and Complaint recently, you should immediately contact a lawyer. You’d be surprised how often there are good defenses to such a lawsuit. But maybe even more important, sitting down with a lawyer enables you to face your situation realistically and hopefully. This usually starts you heading towards a solution to an otherwise overwhelming set of challenges.
BUT WHAT HAPPENS IF IT’S NOW PAST THE DEADLINE TO RESPOND?
First, if the 30 days on the Summons have passed recently, it might possibly not be too late to see a lawyer and respond. Under limited circumstances you may actually have a bit more time, as long as the other side doesn’t get a default judgment first.
Second, most creditors DO follow up by filing a request for entry of default and court judgment right after your deadline to respond has expired. A copy of that document should be mailed to you (or your lawyer if you have one). Calif. Code of Civil Procedure (CCP) § 587. The creditor can’t get a default judgment against you without including an affidavit that this document was mailed to you. However, the statute also says that if you don’t happen to receive a copy of the entry of default, that “shall not invalidate or constitute grounds for setting aside any judgment.” So don’t be surprised if the creditor requests a default judgment and you don’t get a copy of it.
Usually very quickly after the creditor files the request, the court will formally enter a judgment against you in favor of the creditor. Calif. CCP § 585.
WHAT IS THE EFFECT OF THE ENTRY OF A DEFAULT JUDGMENT?
It might seem that a default judgment is nothing more than a court merely affirming what you already knew: that you owed a debt and haven’t paid it. But a judgment is much more than that.
At the outset be aware that the amount of the judgment is usually substantially more than the debt amount. That’s because the judgment amount will almost always include the court costs, attorney fees, and other expenses of the creditor in filing the lawsuit and getting a judgment against you. Yes, it’s true: you become legally obligated to pay the creditor’s costs in pursuing you for the debt!
Furthermore, the judgment gives the creditor huge powers over you. The language quoted earlier from the Summons form gives you the general idea: after a creditor has a judgment in hand, “your wages, money, and property may be taken without further warning from the court.”
A debt is simply an agreement between you and the creditor. The creditor has limited ways of getting you to pay that debt. However, once the creditor gets a judgment, it essentially has a court order that you must pay the amount in the judgment. The law then gives your creditor a wide array of collection methods to use against you.
WHAT’S THE FIRST THING A DEFAULT JUDGMENT GIVES A CREDITOR?
Often the first thing a creditor with a judgment does with it is get a judgment lien over any real estate that you may own. This doesn’t take much effort by the creditor, and can really hurt you.
The creditor simply files an Abstract of Judgment at the court where the judgment was entered. That’s simply an abbreviated record of the judgment, signed and sealed by the court clerk. To attach a judgment lien onto any of your real estate, the creditor delivers the Abstract to the county recorder in whichever county your real estate is located. Calif. CCP § 697.310. The recording of the Abstract creates a lien on whatever property you may own in that county at that time, or in the future. Calif. CCP § 697.310. It’s good for 10 years from the entry of the judgment. Calif. CCP § 697.310(b).
WHAT’S THE EFFECT OF A JUDGMENT LIEN ON MY HOME OR OTHER REAL ESTATE?
In general, a lien turns an unsecured debt into one that is secured by whatever the lien is placed upon. So a judgment lien on your home secures the debt against the equity in your home. As a result you would usually have to pay the judgment amount in full—plus its continuously accruing interest—whenever you refinance or sell your home.
In the meantime the judgment debt cuts into the equity in your home, hurting your credit and reducing your financial opportunities. Furthermore, even if you have no home equity when the lien is first recorded, that lien attaches to whatever equity builds up over time.
And we’re not talking only about the period of 10 years after the judgment’s entry. Before that 10 years expires the judgment can be renewed for another 10 years, and then again thereafter. And throughout this time this increasing amount will keep cutting into your home’s equity. (See Collecting the Judgment from the California Courts’ website.)
CAN THE CREDITOR FORECLOSE THE JUDGMENT LIEN ON MY HOME?
Possibly, under certain circumstances a judgment lien can result in the foreclosure of that lien, essentially a forced sale of your home to pay that creditor.
But this does not usually happen because of the homestead exemption. That protects a certain dollar amount of your home’s equity from your creditors. For the current amounts of home equity protected, see my earlier blog post, Huge Increase in California Homestead Exemption.
Because of this recent increase in the homestead exemption amounts, many homes that were previously exposed to foreclosure on judgment liens no longer are. Contact an experienced debtor-creditor lawyer to find out about the risks you your home and your options.
WHAT’S THE EFFECT OF A JUDGMENT LIEN ON ANY OTHER REAL ESTATE?
A California judgment lien applies to all real estate: it “attaches to all interests in real property in the county where the lien is created (whether present or future, vested or contingent, legal or equitable).” Calif. CCP § 697.340(a).
If you own any real estate that does not qualify as your homestead, it is much more likely that the judgment creditor would foreclose its judgment lien if there is any meaningful equity in that real estate. That’s because the property doesn’t have the substantially huge protection provided by the homestead exemption.
Also, if you acquire any real estate in the future while the lien is still in effect in that county, “the judgment lien attaches to such [future] interest at the time it is acquired.” Calif. CCP § 697.340(b).
DO JUDGMENT LIENS ALSO ATTACH TO PERSONAL PROPERTY?
Yes, they can. The creditor simply files a Notice of Judgment Lien with the California Secretary of State. This creates a lien on your personal property located throughout the state. Calif. CCP § 697.530(a). This creates a means for a creditor to try to seize whatever personal property you own that is not exempt under the California personal property exemptions. This judgment lien would also show up on all your credit reports, likely hampering your ability to get a vehicle loan, other credit, and such.
Just like with judgment liens on real estate, a creditor can extent personal property judgment liens indefinitely.
Note that this method of creating a lien on personal property does not apply to registered vehicles, or mobile homes. Calif. CCP § 697.530(d)(1). However, if your vehicle or mobile home has any meaningful equity, a creditor has other means to get at that equity. That’s with a writ of execution and sheriff’s sale. If you have any of these situations you should contact an appropriately experienced lawyer without delay.