Real Estate Litigation 101: The Lis Pendens
The lis pendens is one of the least understood tools in real estate litigation in California. Clients in real estate litigation often ask that their real estate attorney put a lis pendens on the opponent’s property, usually as a way to put pressure on the opponent to settle the lawsuit. However, every client (and every real estate litigation attorney) should understand when a lis pendens is supportable and when it is not.
What Is A Lis Pendens?
A lis pendens is a Notice of Pending Action. It is a document recorded with the County Recorder as a means of notifying potential purchasers of a property that there is a lawsuit involving the property. However, a party may not file a lis pendens in every case having to do with property. The lawsuit must involve a ‘real property claim’. California’s Code of Civil Procedure defines a real property claim as a cause of action which would, if meritorious, affect (1) title to, or the right to possession of, specific real property or (b) the use of an easement identified in the pleading, other than an easement obtained pursuant to statute by any regulated public utility.
The most common example of a lawsuit in which a lis pendens is appropriate would be a breach of contract action involving the purchase and sale of a property. In the event that a purchaser enters into a contract to purchase a building and the seller breaches that contract, the purchaser is entitled to specifically enforce that contract. While most breach of contract actions are actions for money, real estate is considered unique in California. A party may therefore ask the court to actually force the other party to complete the sale rather than just awarding money damages. This is called specific performance.
The Effect Of A Lis Pendens
A lis pendens itself is just a two page document that states that there is a lawsuit involving a particular property. However, the effect of the lis pendens can be devastating. Practically speaking the lis pendens will prevent a party from selling or refinancing his or her property. In any purchase and sale transaction the title search on the property will reveal the lis pendens. Regardless of the validity of that lis pendens, any potential purchaser or lender will require that the lis pendens be released before the transaction can be completed. More often than not, the purchaser will simply cancel the transaction and look for another property to purchase. For an investor, each month that a property sits empty and unsold can involve thousands of dollars in carrying costs. For the seller who has already entered into a contract to purchase another property, the lis pendens can prevent the sale of the first property and therefore derail the purchase of the new property.
Abuse of the Lis Pendens Statute
Because of the devastating effect that a wrongfully recorded lis pendens can have, the courts recognize that a party may abuse the lis pendens statute by filing a lis pendens in a case that does not involve a real property claim. The Code of Civil Procedure provides for a process to expunge (remove) a lis pendens and for the recovery of attorney fees. However, even this process involves six to eight weeks of additional litigation before the lis pendens is released and the property is cleared to be sold. Even a party who successfully expunges a lis pendens will have been blocked from selling the property for up to two months.
Real estate attorneys who litigate property issues should understand when a lis pendens is appropriate and when it is improper. A lis pendens should not be used to put pressure on a property owner but it is clear that the statute is repeatedly abused in real property litigation.