Do Judgments Have to Be Paid in a Short Sale?

Judgments cause a lot of confusion in short sales. The short answer: sometimes yes, sometimes no, and knowing the difference can save you thousands.

What is a judgment?

A judgment is a debt ordered by a court. It only affects a short sale if it has been recorded and attaches to your property under state law. If it isn't attached to the title, it usually doesn't have to be paid to close.

The most important rule

The title company controls the deal. If title requires a judgment to be cleared, it has to be addressed. If title doesn't, it usually doesn't matter for closing.

Not recorded against the property

If the judgment isn't recorded with the county, it doesn't cloud the title and doesn't block the sale. The debt may still exist, but it doesn't stop the short sale.

Recorded as a lien

If it's recorded and shows up on the title report, it has to be paid or released before closing, even if the lender doesn't care about it.

"Name match" problems

Sometimes title flags a judgment against someone with the same or a similar name. That's usually fixed by confirming identity, and no payoff is needed.

Judgments that behave differently

• Child and spousal support: these can attach to property in ways other debts don't. Always ask title.
• IRS tax liens: these attach to all property and require a formal discharge. The IRS often accepts a reduced amount in a short sale.

When a collector says "we must be paid"

If there's no recorded lien, a collection agency usually can't block your sale. The debt is unsecured and doesn't affect the title.

Quick cheat sheet

• Recorded judgment lien: must be addressed
• Unrecorded judgment: usually doesn't affect closing
• IRS lien: always requires a discharge
• Support obligations: often must be resolved
• Title decides: always

Judgments don't automatically kill short sales. Confusion does.