April 2004

Real estate has become one of the most important assets for businesses and individuals in Southern California. Present market conditions and the availability of historically cheap financing have fueled a boom in both the residential and commercial markets. The stock market’s recent lackluster performance adds fuel to this fire as more and more money moves from the financial markets to the real estate markets. Simultaneously, personal and business foreclosures are at an all-time high. The confluence of these factors has led to an almost “perfect storm” of disputes over the ownership of and rights in real estate.

The blunt instrument of real estate litigation is the lis pendens or notice of pending action. This tool allows a plaintiff to effectively create a lien against real property with the potential to frighten off purchasers, lenders and all others interested in that property. The lis pendens also creates a powerful inducement to settlement and can be the bane of a defendant’s existence. This article will briefly describe the appropriate times to use a lis pendens, its effect, and the steps necessary to have a lis pendens removed from real property.

A purchaser or encumbrancer who takes title to or records a lien on real property without actual or constructive notice of pending litigation affecting title to that property is not bound by any judgment in the litigation entered after title was received or the lien recorded. Thus, a plaintiff receiving a specific performance decree takes the property subject to title vested or a lien created in a third party who did not have actual or constructive notice of the specific performance action. Such a result completely vitiates a specific performance decree.

A lis pendens is designed to provide actual or constructive notice “to the world” of a pending action that affects title to or an interest in real property. The lis pendens is recorded with the County Recorder and is considered a “conveyance” or a “transfer” within the provisions of the recording laws. After a lis pendens is recorded, all purchasers, encumbrancers, or other interested parties have constructive notice of that action. A lis pendens effectively clouds the title to the property described in the notice and impedes or prevents a sale or encumbrance of the property until litigation is resolved or the lis pendens is expunged.

A lis pendens is not effective if improperly used. It is appropriate only where there is in fact a pending litigation matter of the type in which a lis pendens is authorized. A lis pendens recorded in support of an action that does not allege the appropriate type of real property claim does not give constructive notice of the pending litigation to subsequent third parties, even if those subsequent third parties have actual knowledge of the litigation. In short, a recorded lis pendens in the correct kind of action gives notice to the world that a claim exists which affects title to or an interest in that specific real property. A real property action without a lis pendens or the filing of a lis pendens in the wrong kind of action does not give actual or constructive notice to anybody of the real property claim.

A lis pendens may be recorded by a party who asserts a “real property claim.” A “real property claim” is a cause of action that would, if meritorious, affect the title or the right to possession to specific property or the use of an easement other than an easement acquired by statute by a regulated public utility.

There are certain types of actions in which the filing of a lis pendens is mandatory: an action to quiet title; the partition of real property; to establish land records that have been destroyed against an estate based on a rejected claim; for the enforcement of an improvement bond; or to determine adverse interests in real property arising from the enforcement of an improvement bond.

In all other cases that affect the title to or possession of real property, the claimant may record a lis pendens, but is not required to do so. There are numerous types of actions appropriate for recording a lis pendens, including: an action for specific performance of a contract to acquire title to real property; an action to rescind a contract to purchase real property; an action to cancel a deed or other instrument affecting the rights of ownership or possession of real property; an action to set aside a fraudulent conveyance; an action to enforce a lien on real property, including a deed of trust or mechanics’ lien; actions between a landlord and tenant to cancel a lease, for unlawful detainer, or for ejectment; actions regarding easements; an action for adverse possession; a marital dissolution action where real property is involved; and a governmental action for eminent domain.

While this is a fairly wide-ranging list, there are common misperceptions about when a lis pendens can be filed. There is a common misperception that a lis pendens is appropriate where the parties to an action have some joint interest in real property even if the action does not affect title to or possession of that real property. It is only when the real property interest of the parties is at issue that a lis pendens is appropriate.

Another common misperception is that a lis pendens can be put on real property owned by a defendant as a tactic to exert pressure on that defendant to pay an unrelated debt or claim. Lawyers are regularly told that the defendant in a lawsuit owns real property and asked to put a lis pendens on that property to help enforce a claim. The answer to that kind of question is a resounding “no.” A lis pendens is only appropriate where the underlying action affects title to or possession of real property – it is never appropriate to use to secure payment of an unrelated debt. Any plaintiff seeking to tie up a defendant’s real property to be sure the equity is there to pay a later judgment needs to seek an attachment or other provisional remedy, not a lis pendens.

A lis pendens is critical in a proper case. A properly recorded lis pendens gives constructive notice to all potential purchasers and encumbrancers of the claims of the parties in the pending litigation so that the judgment in that action will be binding on subsequent parties even if they acquire their interest before judgment is actually rendered. A judgment in that pending action that determines the rights in the property in favor of the claimant relates back to and gets its priority from the date the lis pendens is recorded. That judgment is senior and prior to any interests in the property acquired after that date and precludes a subsequent purchaser from acquiring a superior interest. The practical effect of the lis pendens is that the vast majority of lenders and potential purchasers will not touch a property that has a lis pendens recorded against it. It thus preserves the claimant’s ability to receive title to or possession of that real property should the claimant be successful in litigation.

The conclusion of Mr. MacNaughton’s article on proper use of lis pendens will focus on removing lis pendens and other considerations and will be printed in the June 2004 issue of the Real Estate Reporter.

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.

Real Estate Reporter

Proper Use Of The Lis Pendens – The Best Way To Protect Your Real Property Interests – Part I