THE JERUSALEM INSTITUTE OF JEWISH LAW 
Rabbi Emanuel Quint, Dean 

Lesson # 87 • Lien Created by a Written Loan (part 1)

An oral loan does not effect a lien on the realty of the borrower. When the lender comes to collect he may collect the repayment of the loan only from the assets in the hands of the borrower, whether the assets are realty or personal property, even if the assets were purchased by the borrower subsequent to the loan. The lender may not levy on the realty that the borrower had sold or had given away as a gift prior to collection. Even if the debtor has an instrument of indebtedness against the debtor, he must first enforce collection of the debt due to him from the debtor by levying on the assets in the hands of the borrower when the time to collect has arrived, whether the borrower had the assets in his possession at the time that the loan was made or they were after-acquired. 

If the lender has a written instrument of the loan, whether an instrument of indebtedness or an instrument of admission, or if a kinyan was made, it effects a lien on the realty owned by the borrower at the time the loan is made. Only if there are not sufficient assets to pay the loan may the creditor trace the realty of the borrower that he owned at the time the loan was made and transferred to others, whether by way of sale or by way of gift. The realty may be traced even if the instrument does not so state, since it is assumed that if the instrument fails to state that the loan has effected a lien on the realty of the borrower, the omission was an error of the scribe. It is only if the instrument specifically states that the instrument does not effect a lien on the realty of the borrower that no lien is effected. 

Realty that was sold or transferred before the loan took place is not subject to the lien of the instrument unless it can be shown that the purpose of the transfer is to defeat the rights of the lender and it was a fraudulent transfer. 
If a deed transfers realty and does not contain a warranty that the seller has good title free of any liens and the seller will reimburse the purchaser if he loses the realty to one who has superior title to that of the seller, or to a creditor of the seller, it is deemed a scribe's error of omission and will be given effect as if it had been included in the deed. This lien creates a lien on the seller's other realty from the date of the deed to the purchaser. Just as the creditor may trace the assets of the debtor and the purchaser may trace the assets of the seller, the donee of a gift may trace the assets of the donor. 

The lien of the creditor cannot be extinguished by the sale or other disposition of the realty by the purchaser or any subsequent owner of the realty. If the purchaser who purchases realty subject to the lien of the creditor disposes of the purchased realty. whether by sale or gift or bequest to his heirs, the lien of the creditor follows the realty. And in those situations where the creditor may trace the realty he may trace it to the then-current owner of the realty, no matter how many transfers may have been made of the realty.

The debtor is about to sell liened realty to a Gentile, or to a powerful person, and the beth din will not be able to enforce the levy against the Gentile or the powerful person. The creditor may not obtain an injunction from beth din to prevent the debtor from selling the liened realty to the Gentile or the powerful person, unless beth din feels that the chances of the creditor ever getting paid by the debtor are very remote if he sells the realty to the Gentile or the powerful person. 

The debtor is about to sell to Reuven realty on which the creditor has a lien. and Reuven is aware of the fact that the creditor has a lien on the realty. The creditor is one of the two witnesses who sign the deed. When the creditor comes to collect the debt from the debtor, the debtor has no assets. The creditor may trace the realty to Reuven. Moreover, if the creditor was present when the debtor sold the house to Reuven and Reuven then razed the house and built a new house on the realty, the creditor can trace his claim to the new house to make his levy if the debtor has no assets to pay the creditor. 

The debtor has several creditors and assets sufficient to pay only one creditor. The creditor who was earliest in time has priority to make the first levy, but he must take an oath that he was not paid the debt, or any part of it. The oath is the same as the creditor takes when he seizes from a purchaser property that had been liened to him by the debtor and then sold by the debtor. 

The creditor of the debtor may levy on realty on which he holds a lien even after the debtor sells the liened realty to a purchaser. The creditor can levy on the realty in the hands of the purchaser only if the debtor does not have sufficient assets to pay the creditor. But if the debtor has adequate assets to pay the creditor, the creditor may not trace the realty to the hands of the purchaser. The result is the same even if the debtor transferred the realty to the donee by gift rather than by sale. 

A debtor has more than one parcel on which there is a lien in favor of a creditor and he sells all the parcels one after the other to different purchasers. When the time comes to repay the loan to the creditor, the debtor has no assets left. The creditor will have to levy on the purchasers in inverse order in which the realty was sold. The order is inverse since when the first purchaser bought realty from the debtor, the purchaser knew that there was a creditor who had a lien on the realty but that the debtor still had sufficient assets in his hands to pay the creditor. The same holds true for every subsequent purchaser. As long as he leaves sufficient assets in the hands of the debtor to pay the creditor, the realty he purchased cannot be traced, unless some of the remaining assets depreciate in value prior to creditors collecting, or if personal property is used up. 

A donor, Naftali, who is also a debtor, has realty worth $900 on which the creditor, Yehudah, has a lien for $600. The donor/debtor Naftali has no other assets. Naftali simultaneously gives a gift to three persons, as follows: to Reuven $200, to Shimon $300, and to Levi $400. Since Naftali has no other assets, the three- Reuven, shimon, and Levi- will proportionately share in the $900 they will realize from the sale of the realty, or if they keep the realty, each will own a proportionate share according to the gift of the donor. When the time comes for Yehudah, the creditor, to collect on his debt, and Naftali still has no assets to pay him, Yehudah, the creditor, may levy on Ruven, Shimon, and Levi to the extent to which they received the gift from Naftali. However, if the gift stated that first Reuven should receive $200 and then Shimon $300 and then Levi $400, then they will receive their gifts in that order. Now when the creditor comes to collect his $600 he will first collect $400 from Levi, and then $200 from Shimon, in the inverse order in which they received their share in the liened realty. 

Naftali, a debtor, simultaneously sold to two or more purchasers two or more parcels of realty on which the creditor, Yehudah, had a lien. When Yehudah came to collect his debt from Naftali, Naftali had no assets.
Yehudah may trace the assets to any of the purchasers he desires and need not make a proportional levy on all the purchasers. The purchaser from whom the realty was taken has no claim against the other purchasers. It is suggested that if each of the purchasers purchased more than one parcel, the creditor levy proportionately on each purchaser. (part 2 next week, IY"H)

The subject matter of this lesson is more fully discussed in Vol. IV, Ch.111 of A Restatement of Rabbinic Civil Law by E. Quint, published by Jason Aronson, Inc. and on sale at local Judaica bookstores. 
Questions to quint@inter.net.il