Enforcing Judgments through Executions against Personal Property

                                                                                                 By Josh Casselman


           Execution is the process by which the county sheriff is directed to seize a judgment defendant’s personal property and sell it in order to pay the judgment.  This article examines when execution may be a useful judgment enforcement mechanism, provides an overview of the execution process and discusses important factors that should be considered in deciding whether execution should be pursued.


             (a)         When might execution against personal property be useful?


             A judgment creditor has successfully obtained a money judgment and is about to begin the often challenging process of collecting it.  It is aware that the judgment defendant owns a valuable piece of personal property that is not encumbered by liens, or that at least has equity over and above the amount of existing liens.  However, there is no security agreement under which the judgment defendant granted the judgment creditor a consensual lien against the personal property.  Instead, the judgment creditor is unsecured.


             Execution provides a mechanism for the judgment creditor to acquire a lien against the personal property and have the sheriff in the county where the personal property is located seize the property and sell it to pay the judgment.  Because the judgment creditor is unsecured, without the execution process, the judgment creditor would have no way to acquire a lien on the property or force the property to be sold to pay its judgment.  Moreover, unless the judgment creditor acquires an execution lien, the judgment defendant could sell the property free and clear of the judgment because the judgment does not automatically attach to the judgment defendant’s personal property.


             In addition to the benefits of acquiring a lien and potentially receiving payment from the sale proceeds, execution may provide the necessary leverage to force the judgment defendant to make a settlement proposal.  For example, the personal property may be essential to the operation of the judgment defendant’s business.  If the judgment defendant wants to prevent the property from being sold at an execution sale, it may have no choice but to pay the judgment.   


             (b)         How does the execution process work?


             An execution is initiated by filing a Praecipe for Execution with the clerk of the court in the county where the judgment was obtained.  Along with the Praecipe, a proposed Writ of Execution is submitted to the clerk.  The Praecipe requests that the clerk sign the proposed Writ of Execution and deliver it to the sheriff of the county where the personal property is located.


             The Writ of Execution should identify the judgment and specific personal property that is the subject of the Writ.  It should request that the sheriff seize the property, serve the Writ on the judgment defendant, sell the property in accordance with Indiana statute and return the Writ to the clerk with notations of the actions taken by the sheriff.  A certified copy of the judgment should also be attached to the Writ. 


             Almost all types of tangible and intangible personal property are subject to execution.  This includes tangible personal property such as cars, trailers, boats and equipment, as well as intangible personal property such as shares of stock, membership interests in limited liability companies and legal claims.


             Although the execution process is supposed to be self-executing (i.e., not require an order from the court) the clerk will sometimes refuse to sign the Writ of Execution or the sheriff will refuse to carry out the Writ without a court order to do so.  In this situation, a motion should be filed with the court that entered the judgment requesting an order requiring the clerk to sign the Writ and the sheriff to carry out the Writ.


             Once the Writ of Execution is delivered to the county sheriff, a lien automatically arises on all personal property owned by the judgment defendant in that county.  To perfect this execution lien, a UCC-1 Financing Statement should be filed with the Indiana Secretary of State. The execution lien does not attach to the judgment defendant’s personal property indefinitely.  Instead, the sheriff must return the Writ of Execution within 90 days and the lien continues for an additional 30 days after that.


             After the sheriff has taken possession or control of the personal property pursuant to the Writ, notice of the execution sale must be given.  Indiana statute requires that notice of the time and place of the sale be given for at least ten successive days by posting written notice in three of the most public places in the township where the sale is conducted.  Additionally, the personal property must be present and subject to the view of those attending the sale.  The proceeds of the sale are applied first to the costs of the sale and then are paid to creditors in accordance with their lien priorities.


             (c)         What factors should be considered before pursuing execution?        


             Prior to proceeding with execution, it is extremely important that the judgment creditor search for the existence of liens against personal property of the judgment defendant.  This can be done by running a search for UCC Financing Statements which are filed with the Secretary of State in the State where the judgment defendant is located.


             The results of this search are crucial because they will show whether there are secured creditors of the judgment defendant that may have a superior claim to the property that would be the subject of the Writ.  If the amount of the priority secured creditor’s lien exceeds the value of the property, there is generally no reason for the judgment creditor to proceed with execution.  If the judgment creditor executes against property subject to an existing lien, the UCC search will provide the name of the secured creditor so that notice of the Writ of Execution and execution sale can be provided to that secured creditor.  This reduces the risk that the executing creditor may be accused of converting the secured creditor’s collateral.


             Another important consideration are the costs associated with execution.  If the sheriff seizes personal property pursuant to the Writ of Execution, the executing creditor will be responsible for the costs associated with that seizure, including all costs of transporting and storing the property.  Although these costs are to be paid from the proceeds of the sale of the property, if the proceeds are insufficient to pay the costs or if the execution sale never takes place or is delayed by the bankruptcy filing of the judgment defendant, they are the executing creditor’s responsibility to pay.


             Many contracts contain provisions providing that the borrower or customer waives the right to relief from valuation and appraisement laws.  Although this language may seem insignificant, it can save an executing creditor significant time and expense.  Whether the judgment is “without relief from valuation and appraisement laws” is therefore an important consideration in deciding whether to proceed with execution.


             A judgment without relief from valuation and appraisement laws means that the property that is the subject of the execution does not need to be appraised prior to sale and is not required to sell for two-thirds of the appraised value.  By contrast, where a judgment does not contain this language, the property must be appraised by two appraisers (one selected by the executing creditor and one by the judgment defendant) and must sell for at least two-thirds of that appraised value in order for the sale to be valid.


             The appraisal requirement increases the costs of the execution sale and thereby reduces the executing creditor’s recovery.  It also has the potential to delay the execution sale while appraisals are obtained.  If the property does not sell for two-thirds of the appraised value, additional expense will be incurred in scheduling and conducting another execution sale.  Accordingly, if the executing creditor’s judgment does not contain the “without relief from valuation and appraisement laws” language, the executing creditor should consider these additional costs and potential delay in deciding whether to pursue execution.


             Under Indiana statute, individuals are allowed to claim certain property as exempt from creditors up to specified amounts depending on the type of property.  As relevant to executions, the tangible personal property exemption is $8,000.00 and the intangible personal property exemption is $300.00.  Executing creditors should be mindful that individual judgment defendants can claim property valued at less than these amounts entirely exempt from execution.  With respect to property valued at amounts exceeding these thresholds, individual judgment defendant can demand the first proceeds from the sale up to the exemption amount.  Executing creditors should therefore consider exemptions amounts in deciding whether the value of the property is sufficient to produce a net recovery after exemptions and costs of sale are paid.


             In most postjudgment collection proceedings, enforcement through execution against personal property will not feasible or practical due to the insignificant value of the judgment defendant’s personal property, the existence of liens, potential exemption claims and the costs of execution.  However, in some instances, execution can be an extremely effective mechanism to collect a judgment whether collection is from the proceeds of the execution sale or settlement spurred by the initiation of the execution process.


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