August 28, 2015

Four Things to Know About Lis Pendens

Lis pendens is a long-standing, frequently misunderstood doctrine concerning unorthodox interests in real estate. The doctrine of lis pendens literally means “pending suit,” and lis pendens notices are the machinery whereby a party with an unrecorded or unperfected claim to real property can put third persons interested in the property on notice of the claim or interest.

Parties who work in real estate should know these four things about lis pendens:

1. The content of the lis pendens notice matters.

In many states, lis pendens notices are governed by statute. That means that, as a statutory interest, a party serving the notice needs to adhere to the requirements in the notice that the statute requires or the notice is invalid. Even in jurisdictions where lis pendens is a common law doctrine, many disputes involving lis pendens address whether the notice is sufficiently adequate to be of any technical effect.

2. Lis pendens notices can be a powerful tool.

Because lis pendens are typically recorded in the real property records, the effect of lis pendens is that it puts others on notice that there is a dispute concerning the real property. Anyone who purchases or takes an interest in the property after the lis pendens is of record takes their interest subject to the lis pendens. A lis pendens notice therefore enhances the leverage of a party with ambiguous rights or interest in real estate. For example, where there is a dispute about the enforceability of a letter of intent to acquire real estate, the prospective purchaser can add heft to its claim by using a lis pendens notice, provided that the purchaser is confident that it has a binding, but as yet unrealized, right to buy the property. Similarly, if there is a question about the enforceability of a real estate development contract, the prospective developer may protect its interests in the property and forestall further activity involving the alternative use of real estate through a lis pendens notice.

3. Improper use of lis pendens notices carries risk, too.

Recording lis pendens notices in the wrong context, prematurely, or for an improper purpose can create liability for the party asserting the interest. Overzealous use of a lis pendens notice can constitute slander of title. In many jurisdictions, that can expose a party to significant consequential and derivative liability, as well as, in many jurisdictions, liability for the slandered party’s attorneys’ fees. 

4. Understanding local practice and law as to lis pendens matters.

Lis pendens law and practice differs — sometimes dramatically — between jurisdictions. A recent federal case underscores the risk of using lis pendens in an unfamiliar jurisdiction. There, a New York-licensed attorney appeared pro hac vice in Wisconsin federal court and filed a lis pendens notice relating to his clients’ claim. The disputed claim that was the basis for the notice concerned a claim concerning personal property that had not yet been reduced to judgment. Because the claim was unrelated to the real estate that was the subject of the notice and because of other technical defects in the notice under Wisconsin law, the claimant’s strategy backfired and the federal district court set aside the notice and sanctioned the attorney as well as the attorney’s client. The attorney also lost his pro hac vice status and was unable to continue representing his client in the primary dispute between the parties.

Lis pendens is a useful resource when used properly and one that parties are using more often and in new contexts. Faegre Baker Daniels’ construction and real estate professionals regularly work on issues and disputes concerning lis pendens notices every day and in many jurisdictions.

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