Judgements against a living trust

9 Replies

Hello BP! I am trying to purchase a parcel of land from a family member, however there are a couple judgements against it one of which is much larger than value of the land itself. County records indicate the parcel is held in a living trust and the judgement is against the living trust according to the title company. I thought trusts were protected from judgements so how can this happen in the first place? And does anyone know how to get judgements cleared from title when they are against a trust?"

* I'm not an attorney and this is not legal advice *

The great thing about America is you can file a suit against anyone including members of a trust or LLC. There's a lot of miss information on bigger pockets about asset protection because the facts are if you get sued you will be named in the suit to include you, partners or members of a trust or LLC. So don't believe the hype posted a million times on BP. As for the parcel of land you want to buy I would say find something else to buy unless the seller is willing to clear the judgments before going under contract.

Revocable Living Trusts do not protect the Grantor/Owners from judgements.  If that were true, every single person in the country would hold their assets in trust.  An irrevocable trust may not be subject to judgements but then the Grantor/Owner has given up control of his assets.

You'll have to give us more information about your situation.

Can I assume the family member you are buying from … 

(a)  Is the Grantor/Trustee of the Trust that is now in title?

(b)  Does the family member, selling the property to you, know anything about the judgements filed on the property?

(c)  Does each judgement/recorded document, name the Trust, currently in title, as the defendant/debtor to the judgement?

FYI...creditors can obtain judgements against revocable living trusts in the same way they can against individuals.  Therefore, you should be able to clear a judgement against a revocable trust in the same way you would where there is a judgement against an individual.

If you can, provide answers to the above referenced questions and then I may be able to give you more direction.

Good luck.   

@Jay Story Trusts being judgment proof are one of the biggest myths I deal with in my practice. A Trust can absolutely still have a judgment against it. If you set a Trust up right, it can be extremely difficult to ascertain the beneficiary of the Trust. If no one can figure out who is the beneficiary of the Trust and owns the property, it makes it extremely hard for them to place a judgment on the property. However, if someone figures out you own the property or you have to disclose your ownership in the property during discovery of a lawsuit, the property is exposed.

@Clint Votruba  

(A) yes this family member is Grantor/Trustee

(B) they do know about the judgements. They went through a bankruptcy and thought that would wipe them out but later learned that judgements survive bankruptcy.

(c) yes each judgement names the trust and the trustee as the current debtor.

@Jay Story all liens have a statute of limitations.  Ten years for Judgement Liens, and for IRS and State of Missouri Tax liens.  Mo. Rev. Stat. Sections 511.350 to .360; Mo. Civ. Proc. Rule 74.08, 74.13.

Before you give up on the parcel, it would be wise to at least check how much longer the lien will be enforceable. Note that it is possible in many state's (like mine -WA) to renew a lien -but that is very rarely done. After the statute of limitations expires the lien will no longer be enforced by the courts, it can sometimes be removed upon request, or at least by filing a quiet title action.

As an example, if the lien has been in effect for 6.5 years, then there is only 3.5 years till the lien is likely to become unenforceable.  What you plan to do with the property may come into play?  If you're just holding it, or if you plan to build, then the lien might have little financial impact.   In my area in might take a couple years to design, permit, and complete construction of a building.    You might negotiate a discount on the property that makes it worth waiting out the Statute of Limitations.   

Another alternative can be to challenge errors made in the original lawsuit.  It is surprisingly common how often a review of the court file reveals a fatal error made be the complaining party such as; improper Service of the Summons and Complaint, Statute of Limitations, violations of Fair Debt Collection Practices Act, Lack of Standing, Past Payment of the Debt -in Part or in Full,  Fraudulent Claim of Debt, Actual Discharge in Bankruptcy, Mistaken Identity, etc.   If there is enough potential in the property, then it is a simple matter to have your own astute lawyer review the court's file of the action that resulted in the Judgement.   

Do remember that the more difficult/distasteful a title problem is for the average investor, the more profit there can be for a persistant and knowledgeable investor.

How about trying to work out a deal with the judgment creditor and the seller?  Perhaps the judgment creditor would agree to release the judgment lien on the property for the amount you would be willing to pay and the seller would agree to that in order to wipe out, or at least substantially reduce, the amount of the judgment against him.