You often hear that you can lose your house if you get sued and lose. There is some truth to this, but no one can just take your house except in one specific circumstance.
What Happens When You Lose a Lawsuit?
When you lose a lawsuit, the judge will order you to pay a specific amount by a specific time. In some cases, you might be able to make payments over several years instead of paying all at once.
If you can’t or won’t pay, the plaintiff can get a judgment against you. A judgment allows them to get a court order to seize your assets like money in your bank account, your house, or other property.
You may be able to delay paying if you appeal the lawsuit. When you file an appeal, you usually don’t have to pay until the appeal is decided.
How Do You Have to Pay a Lawsuit?
When you lose a lawsuit, you usually don’t have to pay in a specific way. You just need to give the plaintiff the right amount of money. It generally doesn’t matter if you have cash savings, sell your stocks, sell your house, or even get the money from someone else.
The plaintiff can say they’ll take your house as payment, but you have to agree. If you don’t have enough money to pay the lawsuit, it’s your decision what you want to sell.
What if You Can’t Cover the Lawsuit?
If you can’t cover the amount you lost in the lawsuit, the court will usually order you to pay as much as possible. In many cases, this may include having to sell your assets.
Any remaining amount will remain as a judgment against you. The judgment might allow the plaintiff to garnish your future wages or to have a court order you to sell any assets you receive in the future.
What Protections Does Your House Have?
One of the biggest protections that comes with your house is if you have home insurance, it may have a liability policy that covers lawsuits against you. The point of this protection is to keep you out of situations where you might lose your house. If the insurance company pays off the lawsuit, you don’t have to give them your house — the lawsuit is covered by your insurance premiums the same way car accidents are covered by your car insurance.
Many states also have homestead exemptions. A homestead exemption is a special rule that exempts your primary home from lawsuits. If a homestead exemption applies, the plaintiff can’t take your house or force you to sell it. Sometimes, the exemption covers the total value of your primary home. Other times, there is a limit.
If there is a limit to the homestead exemption, you may have to sell your home or take a loan out for part of its value. For example, if you have a home worth $200,000 but the homestead exemption in your state is limited to $100,000, the plaintiff can receive $100,000 in value from your home. If you have to sell your home to pay the lawsuit, you can keep the exempted $100,000 to find new housing.
When Can the Plaintiff Force You to Give Up Your House?
Generally, the only time a plaintiff can specifically force you to give up your house and not just come up with money is when you were under contract to sell it and broke the contract. In that case, a judge may force you to complete the sale at the agreed terms and pay any damages. Otherwise, the plaintiff only has the right to a certain amount of money not to decide what they can take.