When May A Lis Pendens Be Recorded?

David Allen

Partner

Jaburg | Wilk Attorneys at Law

It is not uncommon for litigants in a case that in any manner involves real property to want to record with the County Recorder in the county in which the property is located a “Notice of Lis Pendens,” in order to give “constructive notice” to everybody of the pending lawsuit. Unfortunately, however, the right to file a Lis Pendens is not nearly that broad, and is instead limited to instances when there is a pending lawsuit that not only in some manner “involves” real property, but where the outcome of such lawsuit may “affect the title” of the real property at issue.

The classic case, where there can be no dispute about the entitlement of a party to record a Lis Pendens, is when a seller has entered into a contract to sell their real property, and then, for whatever reason, fails to do so, resulting in the buyer with whom the seller contracted filing a lawsuit for “specific performance” of the contract, asking the Court to force the seller to complete the contemplated transaction. The reason for recording a Lis Pendens under such circumstances is obvious; without providing such “constructive notice” to third parties through such recording, the Seller would otherwise be able to transfer its property to an innocent third-party second buyer, who has no knowledge of the pending lawsuit, and whose title will thus not be disturbed by a specific performance judgment entered in favor of the first buyer.

But what if “Owner” enters into a lease with “Tenant” to lease its property for one year, but then later decides that because of the rapidly increasing value of its property, it would rather sell it instead of lease it, and so informs Tenant that it will not perform under the terms of the lease? While Tenant would clearly have the right to sue Owner for “specific performance” of the lease, does Tenant have the right to also record a Lis Pendens against the property, to assure that Owner does not sell it to a third-party who has no knowledge about the lease? The answer to that question depends upon whether such a lawsuit by Tenant “may affect title” to the property. In making that determination, the Courts have looked to whether there is at last “some basis” that the action is one whereby a judgment entered would expand, restrict, or burden the property owner’s rights as bestowed by virtue of such owner’s title. In that Owner’s right to possession of the property is clearly restricted by the lease that it entered into, it would seemingly follow that the recordation of a Lis Pendens by Tenant would be allowable, even though Tenant does not have any basis to claim any ownership interest in the property.

In other instances, where only money is at issue, as opposed to ownership, or one of the incidents of ownership, a Lis Pendens may not be recorded. For example, if at the end of a lease term the landlord fails to properly refund a security deposit, and the tenant to whom the deposit is owed files a lawsuit to collect it, a Lis Pendens may not be recorded against the landlord’s property, as the outcome of such litigation will not in any manner affect the title to such property.

A properly recorded Lis Pendens is a powerful tool, but it must be done only when appropriate in order to avoid potential liability for wrongfully clouding a property owner’s title.