Those First in Line Get Paid Quicker

Getting paid money you’re owed is a challenge to many businesses and individuals alike. When a customer refuses to pay, a lawsuit may be filed. If the lawsuit concludes favorably, the client obtains a judgment, which is often when the real work begins. In other words, the client must now collect on the judgment.

Tennessee, like most jurisdictions, allows judgment creditors to record their judgments turning them into judgment liens. Once a judgment lien is recorded, that lien takes priority over later recorded liens and unrecorded judgments. In other words, the recorded judgment lien sets the client’s place in line which can preclude others from “line cutting”.

The timing of when the judgment is obtained and when the judgment lien is recorded is crucial. The recent case of Hitachi Capital America Corp., v. Community Trust & Banking Co., et al., highlights this.

Simply put in Hitachi, three creditors were all owed money from the same debtor. Each creditor separately sued the debtor and each creditor obtained a judgment, and then later recorded its lien. Creditor One sued earliest, but filed its lien second. Creditor Two sued second, but filed its lien first. Creditor Three sued last, and filed its lien last, but made the argument that it was actually second in line, because of a technical issue pertaining to Creditor One’s judgment lien.

The Court ultimately disagreed with Creditor Three and the priority remained: Creditor Two, Creditor One, and then Creditor Three. Although the technical issue caused Creditor One to spend more on litigation against Creditor Three than it needed to, it still prevailed. Another interesting aspect of this case, is that Creditor One actually could have been first because it filed suit first and obtained its judgment first. For some reason though, it didn’t record its lien until one week after Creditor Two. So, technically correct, prompt, and timely filing are always crucial, but especially so when trying to get paid on a past due bill.