If you are responsible for conducting public record due diligence searches, you will end up conducting UCC, state and federal tax lien, judgments, and intellectual property searches – or some combination thereof. After all, these are standard practice in the M&A and financing worlds and generally everyone knows what is needed for these types of transactions. Right?
Well, let’s stop, take a step back and zero in on this public record due diligence process. One specific term in here is often misunderstood and that confusion can impact the outcome of public record due diligence searches.
That word? Judgment.
Judgments vs. Judgment Liens
The key point to be made here is that there is a difference between a judgment and a judgment lien. The two terms are not interchangeable:
- Judgment: The official decision of a court of law. It is a court’s decision granting or denying a plaintiff’s claim. Depending on the nature of the case, it could include an official determination of the amount due from a defendant to a plaintiff.
- Judgment Lien: A judgment lien follows a judgment and is an encumbrance on property, real and/or personal, typically against the real estate of a judgment debtor.
Judgment liens are created after a judgment is recorded in the local filing office (County Recorder, Recorder of Deeds, County Clerk etc.) where the real property records are located – not in the court. It is true that a judgment can automatically become a judgement lien in some jurisdictions but in the large majority of states, a judgment lien does not occur automatically just because a judgment has been entered by the court.
How does this affect public record due diligence searching?
When a ‘judgment search’ is requested, what is the end user expecting to uncover? A lien? A judge’s decision in a litigated matter? Open and/or closed litigation? The answers to these questions will dictate where to search and ultimately, the results of these searches.
Since a judgment is not the same as a judgment lien, searching in either the court or the local real property filing office will not uncover everything needed for public record due diligence.
- A court search (in the appropriate court) for open and closed litigation will determine if there is a recently adjudicated matter that has resulted in a judgement – or the potential for a future judgment – which may soon result in a judgment lien.
- A local real property filing office search (where the real estate is located) determines if any judgment liens are attached to the property.
Court searches are necessary to uncover both judgments and pending litigation, but local real property filing office searches are necessary to uncover judgment liens.
Better Communication, Better Search Results
The next time someone requests a thorough public record due diligence search, stop and confirm whether both court searches (for judgments and pending litigation) and local real property filing office searches (for judgment liens) are needed – and if so, that both are requested. Without clarifying exactly what’s needed, you might end up missing critical public record information.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.