In recent years, many in the construction industry have found themselves in the situation of having obtained a judgment against an owner, general contractor, or subcontractor in one state only to find out that the debtor has moved its operations or assets to another state to avoid its creditors.  While this is an unavoidable challenge when working in different states, there are four basic steps a business can take to help ensure that its foreign judgment can be collected across state lines.

  • Step 1 - Domesticate/register the foreign judgment in the Debtor’s new “home” state.
  • Step 2 - Have the judgment recorded in the “new” state’s property records.
  • Step 3 - File a garnishment action.
  • Step 4 - Serve post-judgment discovery or take a post-judgment deposition. 

Step 1 - Domesticate/Register the Foreign Judgment 

Given the prevalence of debtors moving their operations or assets from one state to another to avoid judgments, all but a handful of states have now adopted the Uniform Enforcement of Foreign Judgments Act which was created to help combat this problem.  The Act allows judgments obtained in one state to be domesticated in another state with the domesticating state giving the judgment “full faith and credit” as if the judgment was rendered by the state’s own courts.  The Act has proven to be very effective in preventing debtors from evading their payment obligations by simply relocating to another state.  Most states which have adopted the Act have done so by incorporating its provisions into their own state statutes and by requiring that the debtor have some connection with the forum state where domestication is sought, such as residing or having assets in the forum state.

In most states, domestication actions filed under the Act are very streamlined and require only that notice be given to the debtor that the foreign judgment is being domesticated in the forum state.  In Georgia for example, the creditor is required to obtain an authenticated copy of the judgment from the state of origin and file an affidavit and notice of filing foreign judgment which are simple forms to complete.  After notice of the domestication action is given to the debtor (and assuming there is no objection filed by the debtor) the court will enter an order affirming that the foreign judgment has been domesticated and is recognized as fully enforceable in Georgia.  In situations where a creditor is trying to domesticate a judgment from a state which has not adopted the Act (i.e. California) many states such as Georgia have simplified procedures whereby a “foreign judgment lawsuit” can be filed to give the foreign judgment full faith and credit. 

Judgments obtained in out-of-state federal district courts are not “domesticated” but are “registered” between federal courts and are also enforceable as if the judgment was rendered in the forum state.  In fact, the process of registering a judgment between federal courts is even simpler than what is required to domesticate a judgment between state courts.  Registering judgments between federal courts is controlled by 28 U.S.C. § 1963, which unlike some state court domestication procedures, does not require notice be given to the debtor of the registration.  Not having to provide notice is very advantageous to a creditor that may be able to take actions (i.e. file a garnishment action) to collect on its judgment before the debtor has an opportunity to hide assets or otherwise thwart the collection process.  The registration process is so streamline that many district courts have simple forms on their websites for creditors to use to request that a “Certification of Judgment” along with a certified copy of their judgment be sent to the federal court in the district where registration is sought.  Once registered, the district court will open a new case for the judgment (as if the judgment was obtained in state) whereby the creditor can serve post-judgment discovery and engage in other collection activities. 

Domestication or registration of foreign judgments should be done immediately.  Most states have very strict and sometimes short statutes of limitations periods relating to foreign judgments.  Therefore, a creditor should take immediate action after learning of a debtor’s out-of-state location. 

Step 2 – Recording the Foreign Judgment 

After a creditor has domesticated or registered its foreign judgment the next step is to immediately record the judgment.  Most states have a process whereby a judgment can be recorded in the property records of a particular county (or counties) where the debtor owns real property or has assets.  Recordation puts other creditors on notice of the judgment and reserves the creditor’s place in line for the distribution of any assets which the debtor may have.  In most states “first in time - first in right” is the rule for collections making immediate recordation essential. 

Each state has its own method for recordation with the document memorializing the judgment being known by many different names.  In Georgia for example, the recorded judgment is known as a “Writ of Fieri Facias” or “Writ of Fi.Fa.” for short.  In Alabama, judgments are recorded with a “Certificate of Judgment.”  Many federal district courts issue a “Writ of Execution” after the judgment is registered.  Judgments which are recorded are oftentimes paid following a title search by a lender contemplating making a loan to or financing a debtor’s enterprise.  The lender, after discovering the judgment, will frequently contact the creditor’s attorney and attempt to broker a deal between the creditor and debtor in order for a loan (or other transaction) to be finalized.  This can occur years after the judgment has been recorded. 

Once recorded, it is important to be aware of the lifespan of a judgment and the forum state’s renewal process.  In Georgia, judgments have a lifespan of seven years with a three year grace period.  In Mississippi, judgments are good for seven years and in Tennessee ten years.  To renew a judgment in Georgia, a creditor must have the sheriff of the county where the judgment is recorded attempt to collect on the judgment before the seven year lifespan expires before the Writ of Fi.Fa. can be re-recorded. 

Step 3 - File a Garnishment Action 

The quickest and most efficient way for a creditor to collect on a foreign judgment is through the process of garnishment.  Garnishments oftentimes come as a complete surprise to unwitting debtors who find that their bank accounts are frozen and that they are unable to make payroll or satisfy other obligations.  A successful garnishment results not only in the creditor seizing any money (and the contents of any safety deposit boxes) on deposit with the garnished bank, but can also lead to a debtor being willing to work out a payment plan to avoid future collection activities. 

Most states have two types of garnishment actions which are applicable to the construction industry.  The first is a regular garnishment (usually served upon a bank) which requires the garnishee to freeze any accounts belonging to the debtor or to withhold any money which may be due the debtor to satisfy the judgment.  A regular garnishment can also be served on any party involved with a construction project (i.e., owner, general contractor, or subcontractor) which owes, or will owe any money to the debtor for its work or materials.  Garnishments filed against construction projects can result in a debtor being forced to complete its work knowing that any monies earned will be used to pay off a judgment from a previous project.  Debtors faced with this dilemma are oftentimes willing to work out a deal to avoid taking a complete loss on a current project and to save face with those who have employed their services. 

The second type of garnishment is a wage garnishment.  Wage garnishments are applicable to the construction industry in situations where the creditor may have obtained a judgment against an individual through a personal guarantee or otherwise.  Oftentimes, an individual after having a judgment entered against them personally will go to work for someone else.  A creditor upon learning where the debtor is working can file a wage garnishment and receive a portion of the debtor’s disposable income (up to 25% in Georgia) every month (or so) until the judgment is paid in full.  In most cases, a debtor is not going to quit a steady job in order to avoid a wage garnishment.  Instead, the debtor will usually continue to work at his or her job resulting in the creditor collecting a portion of the debtor’s income every month until the judgment is satisfied or a compromise has been reached. 

Step 4 - Serve Post-Judgment Discovery 

Most state and federal jurisdictions have provisions allowing creditors to learn about a debtor’s assets through the process of post-judgment discovery.  Post-judgment discovery can take the form of written interrogatories which must be answered by the debtor under oath or a request for documents regarding the debtor’s assets.  Post-judgment depositions are also a powerful tool to discover assets.  With depositions, debtors do not know ahead of time what questions will be asked and may not have time to think of evasive answers to thwart the collection process.  In fact, it is not uncommon for debtors to agree to a settlement or to simply pay a judgment before having to respond to written discovery, or even worse, sit for a day-long, post-judgment deposition. 

Collecting foreign judgments is a challenge for those doing business across state lines. The steps outlined in this article, if taken, can significantly increase the chances of a successful outcome.