Understanding the power of lis pendens

Published on


A lis pendens is a powerful legal tool, which unfortunately is often misunderstood by professionals and lay persons alike. It does not prevent the sale or transfer of title to real property, does not make such transfers void or even technically encumber real property. It simply gives notice to the world of a pending legal action involving real property. Latin for ‘suit pending’, use of the term lis pendens is a holdover from legal concepts first conceived in ancient Rome. Modernly, the terms ‘notice of pendency of action’ or even ‘notice of pending action’ while still clumsy, are more readily recognized. Giving notice of a pending legal action can be essential to effectively safeguarding real property during litigation, despite the awkward language.

The significance of a Notice of Pendency of Action is that, by giving notice of a pending legal action involving claims affecting real property identified in the Notice, it protects the interests of the named parties. Once recorded against the property, making the Notice apparent to those who review property title records, the Notice also gives priority to any judgment obtained by the party who recorded the Notice as of the date the Notice is recorded, over subsequent interests obtained which affect the real property. California Civil Procedure Code (CCP) §405.01 et seq.

Thus, the Notice can effectively deter subsequent transfer or encumbrance of the identified real property, since it indicates that property ownership rights are in dispute, and the rights of the party who recorded the Notice will have priority, if successful in their claims. However, recording a Notice of Pendency of Action does not legally prevent transfer of the identified real property, nor does it make transfer despite the Notice, void.

Consider a hypothetical situation where during an economic downturn, a struggling auto dealership owner (“Owner”) enters a contract to sell vacant dealership property (“Property”) to purchaser (“Purchaser”). Owner delays and although they eventually enter escrow, Owner fails to close on the sale and deliver title to the Property to the Purchaser. Purchaser pursues the sale, but after months of unsuccessful negotiations, Purchaser files a lawsuit against Owner for damages for breach of contract and for specific performance of contract (i.e., to compel the agreed upon sale to Purchaser), and records a Notice of Pendency of Action. During the time since the breach, the Property value appreciated considerably due to redevelopment in the area. Nearly a year after the complaint is filed, Owner seeks to take advantage of the increase in value and negotiates an all cash ‘As Is’ sale with a third party (“Third Party”). In most situations, Third-Party would not proceed with the sale upon learning of the pending action, especially if a title company would not issue a title policy insuring clear title, thus inhibiting the sale.

However, Third-Party may nevertheless assume the risk of the “cloud” on title and close on the purchase despite the Notice. In such situation, although the Notice didn’t prevent the sale to Third-Party, Purchaser could still prevail on the claim against Owner for breach of contract and enforce the resulting money judgment against Owner amounting to the loss of the increased value. To guard against this, upon learning of the sale to Third-Party, Purchaser could join Third-Party as an additional defendant in the specific performance action before the judgment is entered. See Cal. Civ. Code § 3395. Purchaser could then also demand specific performance in reliance on the Notice, and obtain a decree for specific performance against both the Owner and Third-Party who had Notice of Purchaser’s claimed interest before seeking to buy the Property.

Many types of claims support the recording of a Notice of Pendency of Action. Parties should promptly record a Notice of Pendency of Action if they file a complaint containing legal claims involving ownership or possession of real property, such as quiet title, specific performance of a contract for sale of real property, action to cancel a deed or set aside a fraudulent conveyance, partition, divorce, real estate fraud, easement and boundary disputes as well as an action to foreclose a deed of trust or mortgage by judicial proceedings. Doing so will ‘put a cloud on title’ and thereby increase the likelihood that the identified property is not sold or encumbered during litigation, or if sold, remains subject to the interests of the claimant. Prompt recording of Notice, where proper, is important since Notice does not operate retroactively and only effects transfers or encumbrances obtained after recording.

Bear in mind however, some claims which may appear to involve real property, are inadequate to support a Notice of Pendency of Action. For example, equitable liens, claims of trespass and nuisance, and causes of action seeking principally monetary damages combined with constructive trust, do not suffice because they do not sufficiently affect title or possession. Goens v. Blood (2020) 437 F.Supp.3d 793. The risk that the Notice – which deters purchasers – will improperly be used offensively in such cases, weighs strongly against finding an adequate real property claim. BGJ Associates, LLC v. Superior Court (1999) 75 Cal. App. 4th 952.

Any party to the legal action (whether plaintiff or defendant) who asserts an appropriate real property claim may record a Notice of Pendency of Action. Procedurally, the Notice should be prepared showing the street address as well as legal description and assessor’s parcel number, signed by counsel or notarized, served by registered mail with a proof of service, recorded with the proof of service at the county recorder’s office for the county in which the property is located, and then filed with the court where the action is pending.

While securing a Notice may appear straightforward, the procedural requirements must be strictly followed. Failure to properly record, serve and file a Notice of Pendency of Action may render it “void and invalid”. CCP §405.23. Rey Sanchez Investments v. Superior Court (2016) 244 Cal.App.4th 259, 263. The importance of careful observation of the procedural requirements can’t be understated. Once recorded, there are no provisions to correct a failure to comply with the procedural requirements. If not properly obtained, a motion to have the Notice expunged/removed may be made. Where the Notice is flawed (not properly served or properly recorded, or the pending action does not include a claim which affects ownership or possession of real property, or the probable validity of the claim cannot be shown) and the motion granted, the court may award attorney’s fees and costs from the party recording the Notice, for the cost of bringing a motion to expunge the defective Notice. CCP § 405.30 et seq. Even if the Notice is voluntarily withdrawn after the motion to expunge is filed (allowing the claimant to freely record another Notice), attorney fees may still be awarded. Castro v. Superior Court (2004) 116 Cal.App.4th 1010. Once the Notice is expunged however, another Notice may not be recorded without obtaining the permission of the court. Id.

A properly obtained Notice remains in effect until the judgment in the case is final, or the case dismissed, and the Notice withdrawn. In fact, a title company involved in any subsequent sale would typically require a formal withdrawal of a Notice by the recording party, even if the case was concluded years earlier, so it is useful to immediately record a Notice of Withdrawal every time a legal action involving a Notice is concluded. However, even if not formally withdrawn, the Notice is without legal effect, as no pending action remains. A certified copy of the final judgment, or notice of entry of dismissal can be used to establish the Notice no longer clouds title.

Recording a Notice of Pendency of Action to protect an interest in real property during litigation can be critical to the practical outcome of the litigation as well as a legitimate strategy to promote resolution of the dispute. The hazards surrounding the procedural requirements of the Notice should be carefully considered, and accounted for when undertaking the preparation, service and recordation of the Notice, to secure its significant benefits. As always, litigants should consult qualified legal counsel about any particular situation when considering recording a Notice of Pendency of Action.