Lis Pendens Locks Real Estate

 

 

 

 

Joshua Taylor, Partner at Keystone Law Group, discusses the Lis Pendens (also referred to as a Notice of Pendency Action). Read the complete article below for more details. Click the YouTube Channel subscribe button to be notified when new videos are published.

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Putting a cloud against real estate that is the subject of an ownership dispute is simple, and removing it is complex. This is why the lis pendens is a tool often used by probate attorneys as a means of securing a client’s potential interest in an adverse party’s real estate. And this tool can be especially useful for attorneys who must secure a beneficiary’s interest in real estate during the pendency of a probate dispute.

However, a lis pendens is not invincible, as there is a process for a lis pendens removal even if it was properly recorded so that, for example, real estate can be sold or a loan can be taken against it.

What is a Lis Pendens?

The purpose of a lis pendens is to give notice of a claim affecting the subject real estate, to any persons who subsequently acquire an interest in that property (e.g., subsequent purchasers or lenders on the property), so that any judgment in the underlying action will be binding upon such persons – even if they acquire their property interest before that judgment is actually rendered.[1]

But a lis pendens does not prevent the actual sale of real estate, per se. Rather, due to the ubiquitous use of title insurance by prospective purchasers to insure title on real estate sales (and the certainty that any potential lender will check title before approving any loan against property), the cloud created on title from a recorded lis pendens generally acts to preclude both the sale and any further encumbrances of the affected property for the duration of the underlying action.

A Showing of a “Real Property Claim” is Mandatory

To file and record a lis pendens against real estate, the claimant must have made a “real property claim” in the underlying litigation.[2] A “real property claim” includes a cause of action in a pleading which would, if meritorious, affect

  1. title to, or the right to possession of, specific real property or
  2. the use of an easement identified in the pleading, other than an easement obtained pursuant to statute by any regulated public utility.[3]

Conversely, if the claimant’s only “interest” in the subject real property is simply an attempt to secure the monetary value of the property as potential payment for a future judgment (as opposed to a claim which may directly affect the property’s ownership or possession itself), a lis pendens is not proper and may be expunged.[4] Once a lis pendens is recorded, notice of lis pendens must be given.

A Lis Pendens Can be Removed, Foreclosed or “Expunged”, Even if it was Validly Recorded

Under California law, a lis pendens may be expunged by filing a motion with the court based upon a showing that:

  1. the claimant has not made a real property claim in their underlying lawsuit, or
  2. the court determines that the claimant’s interest in the subject real property may be adequately protected by the posting of an undertaking, or bond.[5]

If the claimant has not made a real property claim in the underlying lawsuit, then the court shall expunge the lis pendens and shall not order an undertaking as a condition of the expungement.[6]

If, however, the claimant has made a real property claim in the underlying lawsuit, the court may still order the lis pendens expunged, if adequate relief can be secured to the claimant by the giving of a bond or undertaking.[7] Any such expungement order shall be conditioned upon the giving of an undertaking of such nature and amount as will indemnify the claimant for all damages resulting from the expungement which the claimant may incur if the claimant prevails upon the real property claim.[8]

Determining the Amount of the Bond

With respect to bonds (or “undertakings”) in lieu of a lis pendens – former Code of Civil Procedure (“CCP”) section 409.2 broadly stated that the amount of any such undertaking shall “be to the effect that such prevailing party will indemnify the other party for all damages which he may incur if he ultimately prevails in the action.” (Emphasis added).

But despite the broad language of former section 409.2, courts interpreted this language to only include damages that would actually result from the expungement or non-expungement of the lis pendens.[9] In contrast, the current section 405.33 narrows the applicable language to “all damages proximately resulting from the expungement which the claimant may incur if the claimant prevails upon the real property claim.” (Emphasis added.)

Thus, the Legislature, in amending the language of the statute, followed the holding in Elder and confirmed that the amount of the undertaking extends only to claims for damages resulting from the expungement which are related to the real property claim and not for any unrelated claims for money damages.[10]

Mistakes to Avoid to Recover Your Attorney’s Fees

Finally, attorney’s fees are recoverable on a motion to expunge a lis pendens. CCP section 405.38 provides that the court shall award to any party prevailing his reasonable attorney fees and costs of making or opposing the motion, “unless the court finds that the other party acted with substantial justification or that other circumstances make the imposition of attorney fees and costs unjust.”

The determination of the prevailing party for the purpose of awarding attorney’s fees regarding the expungement of a lis pendens is not simply a matter of determining whether or not the lis pendens was expunged or withdrawn. California courts have adopted a practical approach to the determination of the prevailing party and under such approach, the courts look to the totality of the circumstances involved in the recording of the lis pendens and the filing of a motion to expunge.

Indeed, even in circumstances where a lis pendens is withdrawn while a motion to expunge is pending, California courts have determined that the moving party is not automatically entitled to attorney fees as the prevailing party, nor automatically denied attorney fees; instead, the trial court has the discretion to award attorney fees based on a determination of which party would have prevailed on the motion, and whether the lis pendens claimant acted with substantial justification in withdrawing the lis pendens, or whether, in light of all of the circumstances, the imposition of fees would otherwise be unjust.[11]

And even in circumstances in which a court orders a lis pendens expunged on the condition that an undertaking be posted in its stead, attorney’s fees may still not be awarded to the moving party. If the party moving to expunge the lis pendens offers to furnish a proper undertaking in an amount the court finds adequate and the expungement motion is granted over the resistance of the party recording the lis pendens, the moving party may fairly be said to be the “prevailing party” for purposes of an award of attorney fees. But where the security offered is determined to be inadequate and the motion is granted on condition that greater security must be furnished, then the moving party may not be classified as the prevailing party.[12]

Conclusion

Thus, the foregoing makes clear that whether and in what circumstances a lis pendens is appropriate, can be a complicated decision fraught with significant risks if a lis pendens is misused (including the potential payment of your adversary’s attorney’s fees).

For these reasons, and for the purposes of recovering attorney’s fees, a party who moves to expunge a lis pendens should always, concurrent with the filing of their motion, propose to post an undertaking sufficient to protect the interests of the recording party, if that party’s lis pendens is expunged.

Contact us to determine how we can help.

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[1] Bishop Creek Lodge v. Scira (1996) 46 Cal.App.4th 1721.

[2] Such claim may be filed with the court along with the filing of the lis pendens.

[3] Code Civ. Proc. § 405.4.

[4] The proper procedure is a motion to expunge lis pendens. As an alternative (or in addition) to seeking expungement, the parties to the litigation may always contract around the lis pendens, by, for example agreeing to withdraw the lis pendens so long as the proceeds from the sale of the subject real property are secured. Contact us for a withdrawal of lis pendens form.

[5] Code Civ. Proc. §§ 405.31, 405.33.

[6] Code Civ. Proc. § 405.31 (emphasis added).

[7] Code Civ. Proc. § 405.33.

[8] Id.

[9] See Elder v. Carlisle Insurance Company (1987) 193 Cal.App.3d 1313 (finding that an undertaking given as a condition to the expungement or non-expungement of a lis pendens serves to protect only against damages that actually result from the expungement or non-expungement and that a judgment on unjust enrichment did not support the recordation of a lis pendens).

[10] The current statutes governing the expungement of a lis pendens can be found in Code of Civil Procedure (“CCP”) sections 405.30, et seq, but primarily sections 405.32 and 405.33. The precursors to such sections were CCP sections 409.1 and 409.2.

[11] Castro v. Superior Court (2004) 116 Cal.App.4th 1010.

[12] Trapasso v. Superior Court of Orange County (1977) 73 Cal.App.3d 561.