`Levy' or `lien' on property explained

MAILBAG

September 12, 1999

Dear Mr. Azrael:

Entity-wise, can a levy be placed on real property in a living trust name if a court order is directed at the trustee's personal name and not under his name as trustee? Can you cite the applicable Maryland rule? M. Baratta, Baltimore

Dear Mr. Baratta:

Many laypersons -- and even some lawyers -- are confused by terms such as "levy" or "lien" on real property.

A "lien" means a charge or liability binding on property for the payment of a debt or legal obligation.

Creditors usually prefer to have their debts secured by a "lien" on the debtor's property. A "lien" creditor has a right to be paid from the proceeds of sale of the property to which the lien applies. For instance, a mortgage or deed of trust on real property is a "lien." If the mortgage debt is not paid, the creditor can enforce its lien by a court-ordered sale of the debtor's real estate.

A mortgage or deed of trust are examples of "consensual" liens. The debtor has agreed by contract to give the creditor a lien on the debtor's property.

Other liens can be placed on real estate without the owner's consent. If a property owner fails to pay real estate taxes, for example, the taxing jurisdiction has a statutory lien on the real estate.

A money judgment entered by a court is another example of a "nonconsensual" lien. Maryland Rule 2-621 provides generally that a money judgment, when properly recorded and indexed, "constitutes a lien from the date of recording in the amount of the judgment and post-judgment interest on the defendant's interest in land located in the county of recording."

A judgment creditor obtains a statutory lien on any real property interest of the debtor located in a county where the judgment is properly recorded in the court docket.

A "levy" means the seizure or sale of specific property of a debtor to satisfy a debt or obligation owed to a creditor. In Maryland, a "levy" on real property is made, pursuant to a court order, by the sheriff in the county where the property is located. The sheriff enters a description of the property on a schedule and posts a copy of the court order and schedule "in a prominent place on the property."

The "levy" entitles a creditor who has obtained a judgment against the debtor to "execute" the judgment by selling the debtor's interest in property at a sheriff's sale.

A lien can apply and a levy can be made only on property in which the debtor has an interest at the time the lien arises or the levy is made. But, once it attaches, a lien or levy applies to the property, even if it is transferred to a trust or a new owner.

Once real property has been transferred by a recorded deed to a living trust, the trustees have legal title. A judgment against the person who transferred the property that is recorded after the effective date of the transfer does not constitute a lien against the property. The judgment creditor cannot enforce the judgment by levying against the property, since it was not owned by the judgment debtor on or after the date of the judgment. This rule applies even if the judgment debtor is a trustee of the living trust.

A creditor may not be defeated when a debtor transfers property to a trust or third party. If the transfer was made for less than adequate consideration and with an intent to defraud creditors, a court may set aside the transfer and allow creditors to obtain and enforce judgment liens against the property.

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