Can outstanding judgments against the seller attach to assets I'm about to buy?
They can, if the judgment creditor has registered its judgment against the seller's property before you close, and this is a real risk that's easy to miss if your due diligence stops at reviewing contracts and financial statements. A judgment against a person or corporation can be registered and enforced against property they own, including equipment, receivables, and real property, and a registered judgment can take priority in ways that affect a buyer who closes without checking for it.
This is exactly the kind of exposure a proper pre-closing search is meant to catch, alongside a Personal Property Security Act search for registered security interests and, where real property is involved, a title search. Seller representations that there are no outstanding judgments, backed by an indemnity, add contractual protection but don't replace an actual search — representations tell you what the seller says is true, while a search confirms what's actually registered against the property.
Have your lawyer run the appropriate searches before closing rather than relying solely on the seller's word, and structure the purchase agreement so any judgment that does turn up gets satisfied out of proceeds at closing. A Treadstone business lawyer can coordinate these searches.
Key takeaways
- A judgment creditor's registered claim can attach to assets you're buying if not cleared before closing.
- This is separate from, and just as important as, checking for registered security interests.
- Seller representations are useful but don't replace an actual pre-closing search.
- Have any judgment satisfied out of sale proceeds at closing, not left for later.