When the Coverage Doesn’t Cover It

It can often be a difficult decision to pursue a defendant in his or her individual capacity to recover funds awarded in a judgment that exceeds the value of the applicable liability policy. Nonetheless, a plaintiff’s attorney may find it necessary to do so in order to make the client “whole.” Yet the fruits of this effort may become bittersweet if the defendant lacks liquid funds to satisfy the judgment.

Our attorney, Brittany Wolf-Freedman, wrote an article for the December 2018 issue of Louisiana Advocates published by the Louisiana Association for Justice, explaining the options available in those situations.

In such cases, plaintiff’s counsel may need to identify assets for potential seizure. Under certain circumstances, which ought to be reserved for extreme cases, the plaintiff may wish to leverage the defendant’s home to cover the remainder of the debt.

Unlike many states, which wholly exempt a defendant’s homestead from seizure, Louisiana’s homestead exemption only applies to the first $35,000 of the value of the home. See La. Rev. Stat. § 20:1. Thus, if a homeowning defendant fails to satisfy a judgment against a plaintiff whose injuries exceed the equity value of the home, the plaintiff has several available avenues through which she or he may leverage the defendant’s home to recover the debt.

Pursuant to the statute, if a creditor, being the plaintiff, were to force the sale of the homestead, the first $35,000 in profits realized from such sale would remain with the defendant, assuming the he did not waive his homestead exemption. Any remaining profits would then be allocated toward satisfaction of the judgment. While Louisiana law imposes limitations on the right of a judgment creditor to seize or force the sale of the homestead, these limitations apply solely in the context of judgments arising out of consumer credit card charges. See La. Rev. Stat. § 13:3851.1. The protection of the homestead does not extend to those whose debt arises out of tort claims, and therefore personal injury creditors may seek to satisfy a judgment through the seizure of the defendant’s home.

There are two vehicles by which a judgment creditor may seize the homestead of the judgment debtor. The first is actual seizure under La. Code Civ. Proc. art. 2291. Through a writ of fieri facias, the judgment creditor may direct the sheriff to seize the property. La. Code Civ. Proc. art. 2293. The sheriff is then required to provide the judgment debtor with notice before the property may be sold at a sheriff’s sale, with the proceeds (in excess of the $35,000 homestead exemption) allocated toward satisfaction of the plaintiff’s money judgment. Id.

The second, and less drastic, vehicle through which a judgment creditor may seize a debtor’s property, including the homestead, is through constructive seizure. Pursuant to Louisiana Revised Statutes §§ 13:3851-3861, the creditor may assert his right over the property, thereby entitling him to proceeds of any subsequent voluntary sale, without causing actual seizure or forced sale of the home. Through this process, the judgment creditor asserts his legal right by providing notice to the sheriff, who then enters a description of the property to be seized in a “Seizure Book,” and files for recordation in the parish where the property is located.

In the most extreme instances, Louisiana law clearly permits a tort plaintiff who obtains an excess judgment to oust a defendant from his home if the defendant has no other meaningful assets to satisfy a judgment against him. The law affords a judgment creditor enormous power in this respect, and it should be wielded judiciously. On one hand, it is a drastic remedy to force a defendant out from his home. On the other hand, it may not be financially feasible for a severely injured plaintiff to merely assert her legal right to the home through constructive seizure. When substantial medical bills and other expenditures accrue against your client, it may simply be impracticable to wait to enforce a judicial mortgage following a voluntary sale of the defendant’s home at an uncertain time in the future.

Under the right circumstances, there is a third option available to a judgment creditor that allows for prompt satisfaction of the judgment without evicting a defendant from his home. To proceed with this option, the defendant must have sufficient equity in the home so that he may take out a home equity loan to satisfy the judgment. As a practical matter, the procedure would occur as follows: Before a plaintiff may force the sale of the home through an actual seizure, the plaintiff must wait to execute the judgment until after the delay for appeal from the judgment has elapsed. La. Code Civ. Proc. art. 2252. The defendant must then take the suspensive appeal. While the suspensive appeal is pending, the defendant who wishes to avoid the seizure of his home may be encouraged, and agree, to take out a home equity loan and use the funds to satisfy the judgment debt.

Though it requires additional effort and cooperation from the parties and their counsel, this third avenue is the most mutually advantageous, as it allows for prompt satisfaction of the plaintiff’s judgment and does not force the defendant out of the residence which he calls “home.” Regardless of the path you and your client decide to tread, proceed with caution, as the decision to pursue a defendant individually in light of an excess judgment is not one that should be made lightly.

***Original article edited by Rachel Naquin for purposes of this blog.