California Lis Pendens: A Chilling Effect On the Sale of the Real Estate

Written by Adam Peck Category: Injury Law January 14th, 2013 3 min read

NATURE OF A LIS PENDENS
In real estate law, one of the most potent weapons a plaintiff has when filing an action affecting title or possession to real property is to record a lis pendens. With the anemic economy, expect to see many more of them.

A lis pendens is a document which is recorded with a County Recorder following (but never preceding) the filing of a lawsuit in which the plaintiff (i.e. the person who is suing) asks the court to issue an order or other judgment which affects title or possession to a specific piece of real property.

The purpose of the lis pendens is to impart notice (more technically, “constructive notice”) to everybody in the world who might be interested in the property which is the subject of the litigation. The technical name of a lis pendens is a “Notice of Pendency of Action.”

Once the lis pendens is recorded with the County Recorder in the county in which the real estate is located, all persons who thereafter deal with the property are bound by all past and future rulings of the court in the subject litigation.

By comparison, a lis pendens is a little bit like a first trust deed. Anybody who thereafter loans money and secures the loan with a second trust deed against the property, is bound by the terms of the previously recorded trust deed. Similarly, a lis pendens constitutes an encumbrance against the owner’s title to the property. If he/she sells it or refinances it after the recordation of the lis endens, the new buyer or lender will be subject to and bound by any decision of the court The most frequent occurrence of the recordation of a lis pendens is by a buyer who contends that he and the property owner are parties to an enforceable contract, whereas the seller maintains that the contract was cancelled or is otherwise unenforceable. Thus, the proponent of the lis pendens maintains that he has the right to purchase the property, whereas the property owner asserts that the contract is no longer effective.

One such scenario might occur where the selling property owner cancels the escrow based on a contention that the buyer did not timely perform. The seller then seeks to resell the property to a new purchaser. The original buyer, who disputes the seller’s position, then files a lawsuit and records a lis pendens before the seller is able to consummate an escrow with a new purchaser.

If the new purchaser then proceeds to accept title to the property and close the escrow, he acts at his own peril. That is because if the court finds that the contract with the first buyer was enforceable, the court will remove the title from the new purchaser and reconvey it to the original buyer upon the buyer’s payment of the purchase price to the seller.

Thus, the recordation of a lis pendens has a chilling effect on any resale or refinancing of the property pending the conclusion of the litigation.

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Written by Adam Peck

Expertise: Personal Injury

Adam J. Peck, ESQ is a principal with Peck Law Group, APC. In 2008, Mr. Adam Peck received his Juris Doctorate from Whittier Law School where he graduated Cum Laude. His practice is primarily dedicated to representing Elders, Dependent Adults, along with their loved ones and family members, who have suffered horrific personal injuries.