Has it really been 8 years since the Great Recession? It doesn’t seem all that long ago when the world economy faced the worst recession in a generation. Bankruptcy filings shot up and it seemed as if no borrower could pay back any loan, particularly those real estate development loans that only a few years earlier seemed like “no lose” loans. As a result of the record number of loan defaults, lenders throughout North Carolina obtained thousands of judgments against borrowers and guarantors. These judgments, obtained in 2008-2010, were dismissed by lenders as “uncollectible” and quickly put on a shelf to gather dust.
Those judgments, which are now 6-8 years old, will expire soon, and a lender must take affirmative action to keep their judgments alive. In North Carolina, a judgment (and the lien on real property created by the judgment) expire ten years from the date of the judgment. The statutes provide that no execution may be issued after the judgment, and its corresponding lien, expire. N.C. Gen. Stat. §§ 1-234, 1-306. It is not enough for the execution to have been commenced prior to the ten year expiration; in North Carolina the execution must be completed before the ten year expiration. Once the judgment expires, so does any pending execution.
So what should a lender do with all those uncollected judgments obtained during the Great Recession? North Carolina provides a simple process to “renew” the judgment. In order to keep your judgment alive, a lender needs to file a new lawsuit suing on the former judgment. This is a simple process and there are very few defenses that can be raised. Once the lender succeeds on this new lawsuit, it will have obtained a new judgment that will last another ten years.
It is important to note that the judgment lien on real property created by the original judgment cannot be “renewed.” While the new judgment will attach to real property in the counties where the judgment is docketed, it will not have the effect of “relating back” to the original judgment date. In other words, the priority of the judgment lien will be determined by the date of the new judgment, not the original judgment. Because of this, it is important for a lender to file the new lawsuit in enough time in advance of the ten year expiration to obtain the new judgment. Otherwise, a lender could be facing a “gap” period during with the original judgment (and the related judgment lien) has expired but the new judgment (and judgment lien) has not yet been obtained. Therefore, lenders should not wait until the eve of the ten year anniversary to file the new lawsuit.
Filing a lawsuit to “renew” a judgment is not a complicated or expensive process. Generally speaking, it would be in a lender’s interest to take the necessary steps to keep a judgment alive for an additional ten years. Since the judgment lien attaches to real property owned by the judgment debtor, a lender may wind up collecting on a judgment it had previously written off. This lawsuit must be commenced before ten years after the date of the original judgment. N.C. Gen. Stat. § 1-47. As we begin to approach the ten year mark of the Great Recession, now is the time for lenders to begin the process of renewing their judgments.