Seizure of Personal and Real Property to Pay a Debt

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One way a creditor can try to collect a debt is through seizing property. If a debt is secured, the creditor can seize the property without going to court. If the debt is unsecured, the creditor must go to court and get a judgment before seizing property.

Seizing Property to Pay a Secured Debt

You have a secured debt if you signed a contract that gives the creditor collateral (security) for the debt. Often the collateral is the property that was bought with the loan. Some examples of secured debt are a mortgage, a car loan, or a loan to buy furniture.

The contract you sign when you enter into a secured debt is called a security agreement. If you default on your loan by missing one or more payments, the security agreement allows your creditor to take (repossess) the property that you gave as collateral. For example, if you have a car loan and your car is collateral (security) for the loan, and you stop making your car payments (default), your creditor can repossess your car. This can happen without going to court.

The secured creditor does not need permission from a court to repossess the property that is security for the debt, such as a car. As long as the secured creditor can take the collateral without disturbing the peace, it is free to do so. The secured creditor cannot break into your house or garage to take the property. You do not have to give the secured creditor permission to come on to your property.

Read Dealing With Debt Before Court to learn more about this.

Seizing Property to Pay an Unsecured Debt

The rest of this article is about seizing property to pay unsecured debts. A creditor must sue you in court and get a judgment before it can seize your property to pay an unsecured debt.

After a court decides you owe money and enters a judgment against you, the creditor must wait 21 days before collecting it. One way to collect the debt is to get a Request and Order to Seize Property. This is a court order that tells a court-appointed officer to seize your property. The order expires after 90 days, but it can be renewed. Paying the judgment within 21 days of the judgment will prevent seizure of property.

Any property you own can be seized to pay the debt. It doesn’t have to be related to the debt. Judgment creditors can only seize property you own. This means:

  • Property you currently own or possess

  • Property you own but do not have on hand

  • Property you recently gave away

A creditor can’t take property you do not have a legal right to sell or give away to pay your debt. For example, a creditor cannot take your landlord’s furniture from your rental home. If you borrow a friend’s car, it cannot take that either.

Avoiding Fraud

You may be tempted to sell or give away your property to friends or family before a creditor collects a judgment from you. But, a creditor may sue you for fraud if you intentionally delay or trick the creditor to avoid collection. A creditor may also sue for fraud if you sell your property for an extremely low value or become bankrupt shortly after selling or giving away your property.

Fraud is a serious crime. Defending fraud is very complicated. You may want to talk to a lawyer if you are being charged with fraud. If you need a lawyer and are low-income, you may qualify for free legal help. Whether you are low-income or not, you can use the Guide to Legal Help to find a lawyer or legal services in your area.

Carrying Out the Court Order

A court-appointed officer must carry out the order to seize property. A creditor cannot serve the order on you or remove the property. Court-appointed officers include:

  • Court officers and bailiffs

  • Sheriffs and deputy sheriffs

  • State and local police officers

The court-appointed officer must deliver the order in person or post it on your property in an obvious place. After you get served, the officer will choose what property to seize. The officer must enter your home peacefully and lawfully. But, the officer can enter your business or detached garage by force.

Exemptions to Seizure

A creditor cannot take all of your property. Up to $1,000 worth of certain personal property may be exempt from seizure. Possible exempt property includes:

  • Household goods

  • Furniture

  • Books

  • Appliances

  • Tools

  • Vehicles

Up to $1,000 worth of the things you use for your job or trade are also exempt.

Other property is always exempt and is not part of the $1,000 limit. This includes:

  • All family pictures

  • Clothes for you or your family

  • The amount of six months of heating costs

  • Burial plots for you or your family

The court-appointed officer must let you choose which property (up to the $1,000 limit) you will keep. You will have 10 days to choose your exempt items. After 10 days, the officer can seize all other property. You must get an inventory list of all property seized.

Sale of Your Seized Personal Property

After taking inventory of your seized property, the officer will auction it off. The creditor must post notice of the sale in three public places. It must do this 10 days before the auction.

The officer will take fees from the sale of your property. These can include:

  • Personal service fees ($40)

  • Mileage fees

  • Appraisal fees by two disinterested parties

  • Towing fees

  • Storage fees

  • Labor fees

  • Locksmith fees

  • Inspection fees

  • Advertising fees

  • Property sale fees

  • 7% of the first $8,000 of seized property

  • 3% of any seized property over the first $8,000

  • Other reasonable costs or expenses related to the seizure

After the sale, the officer must give you a receipt for all property seized and sold. If your property is sold for more than the amount you owe, you will get the extra money back.

For example, if you have a debt for $5,000 and a boat worth $7,000, an officer may sell it at auction. The officer will take fees from the sale price, and the creditor will take the rest of the money you owe. If the officer takes $500 in fees and sells your boat for $7,000, the creditor will get $5,000 including any interest on the judgment against you. You will get $1,500 back.

Seizing Your Real Property

A creditor must take personal property to pay your debt first. If the money from your personal property does not cover your debt, the creditor can then seize and sell real property you own. Proceeds from the sale are used to pay taxes and mortgages first. Then the creditor is paid. If there is any money left after that, you will get it.

A creditor can’t seize real property if you own it as joint tenants by the entirety with your spouse. This means you and your spouse got the property together at the same time. But, a creditor with a judgment against both you and your spouse can seize the property.

If your real property is being seized, an officer will deliver you notice of sale with an appraisal of your property. You have 60 days after this notice to pay your debt before your real property is seized and sold.

Selling Your Real Property

Sixty days after getting notice of the sale of your real property, an officer will auction it off. The creditor must post notice of the sale in three public places. It must do this at least six weeks before the auction.

The creditor must also publish information about the sale in a newspaper. It must do this once a week for six weeks before the sale.

After the sale, the officer must give you a receipt for all property seized and sold. If your property is sold for more than the amount you owe, you will get the extra money back.

Judgment Liens

A creditor does not have to seize your property to make sure it can collect a judgment against you. A creditor can attach a judgment lien on real property you own, instead. A lien is a notice that you owe a debt. It is filed with the register of deeds in the county where the property is located. It gives the creditor the right to collect the debt from the sale price if the property is sold. Other things, like the mortgage and any taxes owed, will be paid first.

Judgment liens last for five years. But, a creditor can renew the lien until your judgment expires. Most judgments in Michigan expire after 10 years. 

Unlike a seizure of property, judgment liens do not require the sale and seizure of personal property first. A creditor can file the lien on your property 21 days after the judgment is signed.

A court-appointed officer does not need to serve or carry out a judgment lien. You must still get served with the lien, but a creditor can do this by certified mail. If the lien is for more than $25,000, you must be personally served.

Exceptions to Judgment Liens

Sometimes a creditor cannot enforce a judgment lien because of:

  • Foreclosure

  • Bankruptcy

  • Other liens on your property