June 2004
Proper Use Of The Lis Pendens – The Best Way To Protect Your Real Property Interests
Part II
By Barry MacNaughton
In the April 2004 issue of the Real Estate Reporter, we discussed the effective use of a lis pendens offensively and the types of actions in which this remedy is available. This issue will provide the defense perspective on how to attack and remove a wrongfully filed lis pendens. It will also discuss how to make a property “free and clear” for sale after the lis pendens has been removed.
How Do I Remove A Lis Pendens From Property?
The procedure for expunging a lis pendens is a creature of statute, as is the lis pendens procedure itself. Complete compliance with the statutory requirements is necessary for an effective expungement of a lis pendens.
After the lis pendens is recorded, any party to the litigation, or for that matter any non-party who has an interest in the affected real property, may apply to the court to expunge the lis pendens. There are four grounds on which the court may expunge a lis pendens: (1) the lis pendens is “void or invalid” if the requirements of service or recording an affidavit of service are not satisfied, claim, (3) the claimant has not proven the probable validity of the claim by a preponderance of the evidence, or (4) monetary relief is adequate.
The most common ground asserted for expunging a lis pendens is that the claim does not set forth an appropriate real property claim or that the claimant cannot prove the validity of that claim by a preponderance of the evidence. When a motion to expunge is made on either of these grounds, the claimant, i.e., the person who created the lis pendens, bears the burden of proof to show that the appropriate real property claim exists and that the claim is “probably valid.” This standard means that there is a preponderance of evidence in support of the claim, generally viewed as at least a 50.1% chance that the claim is valid. A claimant who files declarations purporting to show the action alleging a real property claim, and has probable validity, satisfies its burden of proof even if the defendant’s evidence raises serious questions of fact on either element. The court’s function at an expungement hearing is not to determine who is likely to win the case; it is only to determine whether the evidence is sufficient to allow a jury to find in favor of the claimant.
Sometimes there are circumstances where a properly filed lis pendens can be expunged even if a real property claim has probable validity. The statute allows for a conditional expungement when a court finds that, even though the claim has probable validity, adequate protection can be secured to the claimant through a bond or undertaking. This type of conditional expungement is only available in a commercial setting. The law presumes that residential real property is sufficiently unique and that money is almost never an adequate remedy. Where conditional expungement is granted, the party seeking expungement must post a sizeable bond to cover the potential loss to the claimant. Most bonding companies require cash collateral for the bond, which effectively ties up significant cash assets of the defendant.
How Do I Sell My Property After The Lis Pendens Is Removed?
Many litigants believe that once the court grants expungement, they have been given the “all clear” to sell or encumber the property at will. That assumption is wrong. There is a significant trap for the unwary that can undo all the good done at an expungement hearing.
The statutes are very specific on when a party who purchases after expungement holds title free and clear of the underlying litigation. The party getting the expungement order must provide written notice of the entry of that order. That notice commences a 20-day period within which the claimant may seek appellate relief from the expungement order. The expungement order is not effective until after the later of two times — expiration of the period for the appeal or, if the claimant does appeal the expungement order, when the an appellate court resolves the issue. Any third party who purchases or lends against real property before the expiration of this period takes possession with notice of the pending litigation and is subject to a judgment in that litigation.
Conversely, if the party seeking and receiving expungement follows the statutory procedure, a subsequent purchaser or encumbrancer receives the property free and clear of notice of the underlying action as a matter of law. In other words, once the appropriate steps are taken after an expungement order is issued, a subsequent purchaser takes possession free and clear of any judgment in the underlying lawsuit even if the purchaser knows of the lawsuit and the claims to title on the property.
Conclusion
A lis pendens can be an effective tool for anyone claiming title to or the possession of real property to preserve his or her potential rights in the property until litigation is completed. The procedures surrounding a lis pendens are complex and a single misstep can destroy the value of the lis pendens or the value of an expungement order received after countless hours and thousands of dollars. A lis pendens is an absolute necessity whenever litigation affects the title to or possession of real property and can be an extremely effective tool to retain rights in that property; conversely, a well-planned expungement motion may put the property holder in a position to sell or encumber the property “free and clear” of any claim that might affect that title.
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If you have any questions regarding this bulletin, please contact Barry MacNaughton, Esq., Editor and author of this publication and a partner in ECJ''s Litigation Department, at 310.281.6342 or bmacnaughton@ecjlaw.com. If one of your colleagues would like to be a part of the Real Estate Reporter mailing list, or if you would like to receive copies electronically, please contact Cynthia S. Kaiser at 310.281.6328 or ckaiser@ecjlaw.com.
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