How does a Lis Pendens affect California Real Property?

I see questions all the time about Lis Pendens in online Real Estate discussion forums all the time.  Before diving into the information below please understand the following.  This information pertains to California Real Estate Law. This information was obtained with permission from the California Association of Realtors Legal Department.  I am not an attorney and this information is not intended to be legal advise from me, please seek professional legal help with this matter.

Q 1.  What is a Lis Pendens?

A: Lis Pendens is a Latin phrase which means a pending suit.  When people refer to a Lis Pendens they are generally referring to what Code of Civil Procedure Section 405.2 calls a “Notice of Pendency of Action” (hereinafter “Lis Pendens” and also “Notice”).  The Lis Pendens is recorded in the office of the county recorder and serves as a warning to prospective interest holders in real property that the real property is involved in a legal action (Cal. Code Civ. Proc. §§ 405.2, 405.4).  This means that the person who is asserting a real property claim (the claimant) must file a lawsuit prior to recording the Lis Pendens.

Q 2.  What is the purpose of a Lis Pendens?

A: The purpose of a Lis Pendens is to notify prospective purchasers, encumbrancersand other real property interest holders that any interest acquired by them in the property is subject to the outcome of a legal action currently in progress concerning the real property. Although recording the Lis Pendens doesn’t legally stop a buyer from purchasing the property, the buyer is subject to losing the property to the claimant should the claimant ultimately prevail in the litigation regarding entitlement to the property.  Therefore, for all practical purposes, the Lis Pendens assures the person recording it (the claimant) that the property in question will not be transferred before the lawsuit is resolved (See Question 3).

Q 3.  Can property be transferred if a Lis Pendens is recorded against it?

A: Yes, but if it is transferred or encumbered, the transferee or encumbrancer is deemed to have constructive notice of the legal action affecting the property and takes title subject to any rights or interests in the property the claimant subsequently obtains in the legal action. The rights of the claimant relate back to the date of recording of the Lis Pendens.  Thus, even though the property may be transferred, it is unlikely that any prospective transferees will take the risk that the legal action will be decided in favor of the claimant. Thus, recording a Lis Pendens effectively makes the property unmarketable.

Q 4.  Who can record a Lis Pendens?

A: A party to an action (lawsuit) who asserts a real property claim may record a Lis Pendens.  A real property claim is defined as a pleading which, if meritorious, affects (a) title to, or the right to possession of, specific real property or (b) the use of an easement.  (Cal.  Code Civ. Proc. § 405.4.)

Q 5.  Can a buyer record a Lis Pendens against a seller who refuses to close escrow?

A: Yes, if the buyer pursues a legal claim against the seller for specific performance of the contract.  If the buyer is only interested in return of the deposit or money damages then a Lis Pendens should not be recorded.

Q 6.  Can a buyer record a Lis Pendens against a seller who refuses to return a deposit?

A: No.  If the buyer is only interested in return of the deposit or money damages then a Lis Pendens should not be recorded.

Q 7.  Can a seller record a Lis Pendens against a buyer who breaches the contract?

A: No. A seller may pursue a breaching buyer by seeking either specific performance or damages. When a seller seeks specific performance against a buyer, the seller attempts to force the buyer to purchase the seller’s property. The seller makes no claim against property owned by the buyer and, accordingly, a Lis Pendens recorded against any property then owned by the breaching buyer would be inappropriate. Obtaining specific performance against a buyer is very difficult. More typically, the seller sues the buyer for damages. This is an action for money.  A Lis Pendens is inappropriate in such a case.

Q 8.  Does a liquidated damage clause affect a buyer’s ability to record a Lis Pendens?

A: No. A liquidated damage clause (like the one in the C.A.R. purchase contracts) sets limits on the monetary damages in the event a buyer breaches a contract.  Since a Lis Pendens would generally only be recorded when a breaching seller refuses to sell the property to the buyer, the liquidated damages clause has no effect on a buyer’s ability to record a Lis Pendens.

Q 9.  What does a Lis Pendens claimant have to do in order to record a Lis Pendens?

A: The claimant must do the following:

(1)   The claimant must file a lawsuit which asserts a real property claim (Cal.  Code Civ. Proc. § 405.4).

(2)    A Notice of Pendency of Action must be prepared which contains the names of all parties to the actionand a description of the property affected by the action (Cal. Code Civ. Proc. § 405.20).

(3)   The Notice must be signed by the claimant’s attorney of record. If the claimant does not have an attorney (is acting in propria persona) the claimant must have the Notice approved by a judge.  (Cal. Code Civ. Proc. § 405.21.)

(4)   The Notice must be mailed by registered or certified mail, return receipt requested, to all known addresses of the parties to whom the real property claim is adverse and to all owners of record of the real propertyas shown by the latest county assessment roll (Cal. Code Civ. Proc. § 405.22).

(5)   The Notice can then be recorded in the county in which all or a portion of the property is situated if it is accompanied by a proof of service that the Notice has been properly served on the persons listed in paragraph 4 (Cal.  Code Civ. Proc. §§ 405.20, 405,23).

Q 10. Can a Lis Pendens be recorded if the purchase contract requires arbitration and not litigation?

A: Yes. In the event that both parties to a dispute have initialed an arbitration clause, the party wishing to record a Lis Pendens,must first file a lawsuit and must, at the same time the action is filed, also present to the court an application that the judicial action be stayed pending the arbitration.  Then the claimant must take the steps needed to record the Lis Pendens as indicated in Question 12.

Q 11.  Once a Lis Pendens has been recorded, how can it be removed from title?

A: At any time after the Lis Pendens has been recorded by the claimant, any party to the action or a non-party with an interest in the property (“moving party”), may apply to the court in which the action is filed to “expunge” (remove from the record) the Lis Pendens (Cal.  Code Civ. Proc. § 405.30).  A person who is not a party to the action must first obtain permission from the court before bringing the motion to expunge (Cal.  Code Civ. Proc. § 405.30). The expungement order is not provided by the court unless there is “the giving of an undertaking” (i.e., the moving party must post a bond) in an amount that will indemnify the claimant for all damages resulting from the expungement which the claimant may incur if the claimant prevailson the real proeprty claim (Cal.  Code Civ. Proc. § 405.33).

There are three instances in which a Lis Pendens can be expunged.

(1)   The Notice shall be expunged if the pleading of the Lis Pendens claimant does not contain a real property claim (for example, the claimant is only seeking money damages) (Cal.  Code Civ. Proc. § 405.31).

(2)   The Notice shall be expunged if the Lis Pendens claimant has not established by a preponderance of the evidence the probable validity of the real property claim (Cal.  Code Civ. Proc. § 405.32).

(3)   The Notice shall be expunged, even if the claimant has established the probable validity of the claim, if the court determines that adequate relief is available by the property owner providing a bond in an amount sufficient to indemnify the claimant for all damages proximately resulting from the expungement (Cal.  Code Civ. Proc.§ 405.33).

Q 12.  What does “preponderance of the evidence” mentioned in the previous question mean?

A: Essentially, to show a “preponderance of the evidence” means that the evidence presented is of greater weight or more convincing than the evidence which is offered in opposition to it (Black’s Law Dictionary 616 (5th ed. 1983)).

Q 13.  What does “probable validity of the claim” mean?

A: It means that it is more likely than not that the claimant will obtain a judgment against the defendant.

Q 14.  Who has the burden of proof in a motion to expunge a Lis Pendens?

A: The Lis Pendens claimant (Cal.  Code Civ. Proc. § 405.30).

Q 15.  How long does a property owner or other party bringing the motion to expunge (“moving party”) have to post a bond if ordered to do so as a condition of granting the motion to expunge?

A: The court will set a date on which the moving partymust return to court and show that the bond has been obtained. If the moving party fails to demonstrate by that date that the condition has been fulfilled the court will deny the motion to expunge. (Cal.  Code Civ. Proc. § 405.33.)

Q 16.  Can a Lis Pendens claimant ever be required to post a bond in order to keep the Lis Pendens of record?

A: Yes. The court may require the claimant to post a bond in order to maintain the Notice. If the court issues such an order andthe claimant does not show compliance with the court’s order on the date established by the court, then the court will order the Notice be expunged.  (Cal.  Code Civ. Proc. § 405.34.)

Q 17.  What is the effect of a Lis Pendens if it has been expunged or released?

A: Once a Lis Pendens has been expunged or voluntarily released it is no longer considered actual or constructive notice of any of the information contained in the Notice. Subsequently, anyone who, for valuable consideration, becomes a transferee of an interest in the property shall not be deemed to have knowledge of the matter contained in the Notice whether or not that person had actual knowledge of the action. Thus, expungement or voluntary removal of the Lis Pendens allows the property to be transferred free of any cloud otherwise caused by the recording of the Notice.  (Cal.  Code Civ. Proc. §§ 405.60, 405.61.)

Q 18.  Can attorney fees be awarded as a result of a motion concerning expungement or maintenance of a Lis Pendens?

A: Yes. The prevailing party on any motion made to expunge shall be awarded reasonable attorney fees and costs unless the court determines that the imposition of these fees and costs would be unjust. The same rule applies to the prevailing party on a motion made to request that the claimant post a bond as a condition of maintaining a Lis Pendens.  (Cal.  Code Civ. Proc. § 405.38.)

Q 19.  What effect does expungement of a Lis Pendens have on any lawsuit between the claimant and the property owner?

A: None. While as a practical matter the expungement of a Lis Pendens affects the parties’ relative bargaining power in an action, the expungement does not otherwise affect the legal relationship between the parties to the dispute.

Q 20.  If a Lis Pendens has been expunged or removed, does a subsequent purchaser of the property take title subject to the outcome of any lawsuit still pending between the claimant and the property owner?

A: No. (See Question 17 above.)  That means that a subsequent purchaser does not have to give up the property regardless of the outcome of the lawsuit between the claimant and the property owner.