Home Equity

Q. I loaned a guy some money, and he put his house up for collateral. He made a few payments and stopped, so I placed a lien on the house. Now what do I do to get paid?

A. There's not much you can do but wait.

While putting a lien on someone's property can be an effective way to collect a debt, it often requires a lot of patience.

You won't get your money until the property is sold or refinanced.

Even then, you may not receive all of what you're owed if the sale or refinancing doesn't generate enough money to repay the primary mortgage, any second mortgage such as a home equity loan and other creditors who filed liens.

In most states, the homestead exemption also protects a certain amount of equity in a primary residence from creditors in a sale or foreclosure.

Or if the owner declares bankruptcy, he may be afforded additional protections that make it even more difficult to collect.

If a sale or refinancing appears unlikely in the near future, or if you have reason to believe the equity left after the sale will be insufficient to pay off creditors' claims, you may want to consider other ways to collect what you're owed.

An initial step would be a demand letter from an attorney. Even though you may have written several letters demanding payment, receiving one from an attorney's office might be more intimidating and more effective.

The next option would be suing your creditor in small claims court.

Filing a claim is usually a fairly simple and inexpensive procedure, and you do not need an attorney. The maximum amount you can recover varies from state to state and ranges from a low of $1,500 in Kentucky all the way up to $25,000 in Tennessee.

If you win a judgment that your creditor doesn't pay, then you might be able to seize some of his wages or bank accounts, but that usually requires the services of an attorney and potentially expensive fees.

Collection agencies are another alternative, although they will often avoid the most difficult cases and may charge 30% or more of the amount they recover.

For more advice regarding your specific situation, we recommend consulting an attorney with experience in debt collection, especially if there is serious money at stake.