Record a Judgment Lien and Keep a Corporation Active

In the recent case of Longview International v. Stirling, Anne Catambay appealed the denial of her motion to expunge a judgment lien on real property. She contended that because the judgment creditor was a corporation that was suspended at the time the lien was created, the lien was void.

The Appellate Court concluded that recording an abstract of judgment is a procedural act that is retroactively validated once a suspended corporation’s powers are reinstated. As a result, it found the trial court had correctly denied the motion.

Anne Catambay’s husband was sued in Santa Clara County for embezzlement. That lawsuit resulted in a judgment against him for over one million dollars. A corporation––Longview International, Inc.––was the judgment creditor.

Longview International recorded an abstract of judgment in San Mateo County, creating a judgment lien on real property owned by Catambay’s husband in that county (a house in Redwood City). Two days later, Catambay’s husband conveyed the Redwood City house to her as part of a marital settlement agreement in their then-pending dissolution proceeding.

Catambay discovered that at the time Longview International recorded the abstract of judgment its corporate powers had been suspended because it had failed to file an annual statement of information and pay a $25 fee to the state of Delaware. She filed a motion in the Santa Clara County embezzlement case, asking to intervene in the action and seeking to expunge the judgment lien from the Redwood City property.

Longview International opposed the motion arguing that its corporate powers had been reinstated, which retroactively validated any actions it took while suspended, including recording the abstract of judgment.

The Appellate Court noted that Catambay’s motion to expunge the judgment lien was not authorized by any statute, and may not even be the appropriate vehicle to secure the relief she sought.  But even if it assumed the trial court had authority to grant the motion, denial was proper because there is no basis for removing the lien.

A judgment lien on real property is created by recording an abstract of a money judgment with the county recorder in which the real property is located. (Code of Civil Procedure § 697.310,(a).) Upon recording, the lien automatically attaches to all real property the judgment debtor owns within that county.

The effect of the lien is to secure the debt; it allows the judgment to be satisfied from the proceeds of a sale of the property. The lien remains until the judgment creditor files an acknowledgement of satisfaction of judgment (a certified copy should then be recorded) or agrees to release the lien. For a judgment lien to be valid, an abstract of judgment must be properly recorded and contain all the information required by statute.

Catambay did not dispute that the abstract of judgment was filed with the county recorder and complied with the necessary statutory formalities. She contended the lien was invalid because Longview International’s corporate powers were suspended when the abstract was filed, and suspended corporations are not allowed to take any action to enforce a judgment.

A suspended corporation loses all "corporate powers, rights, and privileges.” (Rev. & Tax. Code § 23301.) The right to enforce a civil judgment is one of the rights lost.

Catambay was correct that at the time Longview International recorded the abstract it did not have the legal authority to do so. That does not end the inquiry, though, because a corporation can retroactively validate unauthorized actions taken during a suspension by correcting the condition causing the suspension and applying for a certificate of revivor. (Rev. & Tax. Code § 23305) Longview International obtained such a revival of its powers, before Catambay moved to expunge the lien.

The revival of corporate powers retroactively validates any procedural steps taken on behalf of the corporation in the prosecution or defense of a lawsuit while the corporation was under suspension.

Accordingly, so long as recording an abstract of judgment is a “procedural step” in prosecuting a lawsuit, the abstract recorded in the case (which by operation of law created a judgment lien) was retroactively validated upon the revival of Longview International’s corporate powers.

Most litigation activity has been characterized as procedural for purposes of corporate revival. Obtaining a writ of attachment––a collection method that is a close analogue to the judgment lien here––has been found to be a procedural step subject to retroactive validation.

Even obtaining the underlying judgment is procedural and subject to later validation if a corporation is suspended when the judgment is issued.

If obtaining a judgment is considered a procedural step, the Appellate Court saw no reason why enforcing one would not be.

Catambay argued that Longview International’s enforcement action should be considered substantive because she was not a party to the litigation underlying the judgment and the lien affected rights she acquired in the property during the period of suspension.

But any interest Catambay has in the property is subject to the judgment lien that was recorded before she acquired it. Giving effect to that lien does not take anything away from Catambay, and the Appellate Court saw no reason for her to be rewarded with more than she had to begin with.

Therefore, Longview International’s recording of an abstract of judgment while the corporation was suspended is a procedural matter which was retroactively validated when its corporate powers were restored.

Catambay made an alternative argument: that even if the abstract of judgment is retroactively validated, it would not affect her interest in the property because the validation did not occur until the corporation’s powers were revived, which was after the date the property was transferred to her.

She invoked California’s “race-notice” statute, which provides that one who purchases property without notice of an unrecorded, previously created interest takes the property free of that unrecorded interest. (Civil Code § 1214.) The argument assumes the abstract of judgment when recorded was void–– something that “is without legal efficacy, is incapable of being enforced by law.”  A void instrument, even if recorded, does not create an interest in real property, and it is not effective to provide notice of an adverse interest in the property to a later purchaser.

But the abstract of judgment was not void. At the time it was recorded, it was capable of being enforced by law––upon Longview International obtaining a revival of its corporate powers, which would retroactively validate the lien and make it fully enforceable.

In the case, the abstract complied with all the statutory requirements, but Longview International could not enforce the judgment until it obtained a revivor. When Catambay took title to the property it was always possible that Longview International would cure its incapacity and be able to enforce its rights. The abstract of judgment was not void given the existence of that possibility.

The purpose of the recording statutes is to protect purchasers of real property by giving them notice of all existing and outstanding estates, titles, or interests in the property, whether valid or invalid, which may affect their rights as purchasers. The recorded abstract gave Catambay notice that Longview International asserted an interest in the Redwood City property, one that could be enforced upon the revival of its corporate powers.  She therefore received the property subject to that interest.

A conveyance of real property subject to a judgment lien does not affect the lien, which can be enforced against the transferee. There was no basis for removing the judgment lien.

LESSONS:

1.         Upon obtaining a money judgment, obtain an abstract of judgment from the Court and record it in all counties that the judgment debtor owns real property.

2.         Corporations should always maintain its corporate status, and should file with the California Secretary of State the annual Statement of Information before the Corporation is suspended.

3.         If the corporation is suspended, it should comply with the necessary requirement to obtain certificate of revivor.

4.         If a corporation's powers are reinstated, it retroactively validates any actions it took while suspended, including recording an abstract of judgment.