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Issue  43  Article  95
Published:  2/1/1999

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U.S. Judgement Liens - Federal Debt Collection Procedures Act of 1990
Chris Burti, Vice President and Legal Counsel

Congress passed USCS 3001 et seq. entitled the Federal Debt Collection Procedures Act of 1990 (the "Act") effective May 29 1991. It can have a profound effect on the title to real property and from the many questions we respond to a general review appears to be in order. The Act applies to judgments in favor of the United States. Pursuant to the terms of the Act a judgment in favor of the United States is a judgment in favor of a federal corporation, agency, department, commission, board, instrumentality or other entity of the United States. Such a judgment is effective as a lien upon its docketing in the office of the Clerk of Superior Court in the county where the debtor owns an interest in real property. The lien is effective against all interests, present or future, vested or contingent, including property held in a spendthrift trust, 28 USCS 3002(12).

The lien of the judgment is effective for twenty (20) years. The lien may be renewed for one additional twenty-year period upon approval of the court entering judgment. The United States must file the notice of renewal prior to the expiration of the original judgment. Unlike a state judgment, this operates as an extension and the lien relates back to the first docketing. The Act operates retroactively to judgments that had not expired on the effective date of the Act. If a judgment was entered on May 30, 1981, and docketed, it is effective as a lien until May 30, 2001 and may be extended by renewal until May 30, 2021.

The Act states that a " lien created under [the Act] shall have priority over any other lien or encumbrance which is perfected later in time." 28 USCS 3201(b). It also provides in 28 USCS 3003(d) that the Act shall preempt state law "to the extent that such law is inconsistent with a provision of this chapter." Some commentators take the position that this would seem to supercede the common law doctrine of instantaneous seizin. This doctrine allows a purchase-money security interest perfected later in time to have priority over an existing judgment lien. The doctrine is clearly inconsistent with 3201(b). The implication for title examiners in North Carolina is that a standard search may now require examination of judgment records for prospective purchasers regardless of the standard exception contained the North Carolina Bar form title opinion.

The act provides that property exempt under state law may be exempted from enforcement of the judgment under 3014. This section requires an election in an action or proceeding under the act. Exemptions, therefor, are not automatic and require a court order to prevent enforcement of the judgment against eligible property. Property that is exempt under bankruptcy law, federal law, state law or held as tenancy by the entireties is eligible for exemption. At least one national title insurer has issued an underwriting bulletin requiring such orders be reviewed by underwriting personnel.

It should be noted that 28 USCS 3010(a) limits enforcement of the remedies under the Act " against property which is co-owned by a debtor and any other person only to the extent allowed by the law of the state where the property is located." A federal judgment attached to a husbands survivorship interest in tenancy by the entireties property in a Michigan case. It was subject to enforcement upon termination of the entireties estate by prior death of wife, divorce or joint conveyance. Under Michigan law each spouse’s interest is distinct, cognizable and sufficient to support attachment of a creditor’s lien, Fischre v. United States, 852 F Supp 628, (1994, WD Mich). The case was a declaratory action seeking to remove the cloud on title created by the judgment. Impliedly if the lien had not attached to the individual entireties interest, under Michigan law, the debtor would have been entitled to the requested relief. Under North Carolina law a spouse’s interest is not separable and no lien attaches until a termination of the estate. It would seem that, arguably, the federal lien would also not attach in North Carolina and exemption rules would not apply.

The United States may file a Notice of Levy on real property before securing a judgment. This notice operates much in the same manner as a Lis Pendens. Any subsequent judgment will relate back to the filing of the notice, The Act also contains an extensive fraudulent transfer remedy section which should cause concern when an abstract of judgment is docketed shortly after a conveyance. If a prior deed of trust is foreclosed the United States may assert a right of redemption for a period of one year. The title examiner can not rely on mere priority in order to pass on title unless the redemption period has passed.

Federal judgments may "be released on the filing of a satisfaction of judgment or release in the same manner as the judgement is filed to obtain the lien" 28 USCS 3201(d). Enforcement of the judgment may be by execution conducted under 3203(g) or judicial sale conducted pursuant to 2001, 2002 and 2004.

Most federal judgments tend to be very large and can give rise to a substantial claim. The following points summarize the important issues for the real property practitioner.

  1. Judgments must be checked for twenty years (i.e. May 30, 1981).
  2. Judgments should be checked for the prospective purchaser.
  3. Instantaneous seizin doctrine does not apply.
  4. Property exemptions are not automatic.
  5. United States has a one year right of redemption.
  6. All federal judgments should be reported to the Title Company.

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