What is a Lis Pendens
Lis pendens is an official notice to the public that a lawsuit involving a claim on property has been filed. Lis pendens refers to the concept that the buyer of a property must assume any litigation relating to the property. If a bank sues the owner of a lot and a buyer buys the lot, the new owner must face the lawsuit; the sale of the property does not prevent the plaintiff from seeking redress by way of litigation. It can represent a contingent liability.
BREAKDOWN Lis Pendens
Lis pendens is literally translated from Latin as “a trial in progress”. This condition can negatively affect the sale price or the possibility of a sale. The term is generally abbreviated “lis pendens”.
Lis pendens provides constructive advice, or warning, to potential home buyers that the ownership of a property is in dispute and that a dispute is pending. The lis pendens can only be filed if a complaint specifically concerns the property. By filing a lis pendens, a person or entity protects their title claim pending the outcome of the trial. A lis pendens is not lifted until the trial is settled. Because an ongoing litigation can take months and sometimes years, buyers are often advised to stay away from these properties.
When a Lis Pendens is used
Lis pendens are often filed in divorce cases where the distribution of real estate has not been settled. It is particularly common in cases where an asset is registered in the name of a spouse and the other spouse is looking for part of the assets. The spouse whose name appears on the title would have trouble selling the property in the context of an ongoing dispute.
Lis pendens is almost always used by lenders who have filed a notice of default on a defaulting borrower. Banks use the procedure to warn the public that a property is under foreclosure. Other types of creditors whose debt is secured by a property can also foreclose on a property. This often happens when a homeowners association initiates foreclosure for late fees.
It is not uncommon for lis pendens to arise in the event of a contractual dispute, when a buyer feels wrongly excluded from the purchase of a house. For example, if buyer A and a seller conclude a contract for the sale of a house and the seller decides to sell the house to buyer B, buyer A can sue the seller to enforce the sale. The buyer can file a lis pendens, which makes it difficult for the seller to actually sell the house. If buyer B makes the purchase and the courts determine that buyer A has the right to execute the sale, buyer B loses property in favor of buyer A and must go to the seller to get his money back.