‘Lis pendens’ is sign of considerable risk

Q While researching properties to purchase for investment, I have come across some properties that have a “lis pendens” filed in the land records related to them. What is this and does this mean the properties cannot be bought?

A In English, “lis pendens” (a Latin phrase) means literally “suit pending.” A lis pendens is a recorded notice to the world, particularly prospective purchasers of property, that a lawsuit related to or otherwise involving the property, has been filed.

The lis pendens does not prevent the property from being sold, nor does it act as a lien on the property that must be resolved prior to sale. Instead, it simply gives notice to everyone who is not a party to the lawsuit that the property will be subject to any judgment entered in the pending action.

A lis pendens can only be validly recorded when the real property is actually and directly brought into litigation by the pleadings in a pending suit and when some relief is sought respecting that particular property.

For example, a suit to quiet title, where there are competing claims to ownership and title to the property, would support the filing of a lis pendens. Conversely, a lis pendens would not be authorized in a suit for fraud on a real estate contract where only a money judgment is sought.

Common cases in which a lis pendens is filed are divorce actions where property is being divided between the divorcing spouses and quiet title cases where clouds on title are sought to be cleared.

As stated above, a lis pendens does not prevent the property from being sold to a third-party purchaser while the lawsuit remains pending. However, most lenders are hesitant to make loans to purchasers for property that is subject to a lis pendens due to the real potential of good title not passing to the purchaser in the event of an adverse judgment as a result of the pending litigation.

Further, most title insurance companies will not issue policies on property upon which a lis pendens is recorded.

If you wish to “carpe diem” and purchase the property despite the potential encumbrance, you do so at your own peril —- “caveat emptor” —- and will be conclusively bound by the outcome of the litigation. If it is determined in the litigation that your original seller was not entitled to ownership and title to the property, you also will not have such title.

In most cases when you come across a lis pendens, it is a better practice to keep looking for other investments or keep an eye on the property until after the litigation concludes.

Before purchasing encumbered property or any property for that matter, consider seeking the advice of a real estate attorney.

Stephen A. Winter, attorney of Weinstock & Scavo P.C.; sawinter@wslaw.net, www.wslaw.com. This column is designed to provide information in regard to the subject matter covered. It is not intended to render legal advice. Have a question you would like answered in this column? Please contact James J. Scavo c/o Weinstock & Scavo P.C., 3405 Piedmont Road, Suite 300, Atlanta, GA 30305

A legal notice that a property can be affected by the outcome of a lawsuit is a red flag to most lenders.