Legal Question in Credit and Debt Law in North Carolina

Repossession

If your mother and her husband default on a purchase money loan for a motor home, the lender has the right to pick up the motor home, sell it and apply the sale proceeds to the balance. If there is still a deficiency, the lender can sue both of them to recover payment. The lender can obtain a judgment, but cannot take away their home, car, etc. without consideration of several factors. It sounds like their lender is trying to frighten them into staying in a situation which may not be in their best interest by disclosing only part of the potential consequences. I will discuss those consequences below.

An unpaid judgment creates a "judgment lien" upon any real property owned by the debtors. Since the judgment would be a joint one, it will apply against any real estate they own jointly, including their residence. It will also be a lien against any separately owned real property of either of them. This does not mean that the lender can "take away" the home. The judgment lien comes in behind the first and second mortgages and any home equity lines of credit which are secured by the home. Each debtor gets an "exemption" of up to $18,500 in the real or personal property they use as a residence. In this situation, if there is less than $37,000 equity in the home, the creditor can do nothing except have their judgment lien. The debtors will not be able to sell or refinance the property without taking care of the judgment, but the property will be intact. In situations where there might be more than $37,000 equity, the judgment creditor is last in line. If the payments are current on all debt secured by the residence, it is often difficult for a judgment creditor to "take" a residence unless there are no mortgages on the property at all.

A judgment does NOT create a lien on personal property, such as cars, household furnishings, and the like. Each debtor gets an exemption of up to $3500 in one motor vehicle, and up to $5,000 actual cash value of household furnishings and other personal property. Additional amounts of exemption may be available if the debtors have any dependents. Retirement accounts, social security benefits, and many other assets may also be exempt in whole or in part.

Your mother and her husband should consult with an attorney to discuss the details of their current financial situation. There are probably several possible alternatives available to them. An attorney will be able to educate them about the potential legal consequences of each option and the potential effect upon their credit rating. They should seek specific legal advice promptly, before the motor home loan becomes past due and goes to collections.