Lis pendens in california
Lis Pendens in California
What the Heck Is It? by Robin P. Wright, Esq. for REO Magazine
A notice of pendency of action, commonly called a lis pendens, is a recorded document giving constructive notice that an action has been filed affecting the rights in the real property described in the notice. In other words, somebody has filed a lawsuit and that lawsuit concerns the bank’s property. Any judgment awarded in that lawsuit will have priority as to subsequent recordings as of the date of the lis pendens. The filing of a lis pendens creates a cloud on title, and will render the property virtually unmarketable. But, despite the intent of the filing party, not all lis pendens affect the bank’s ability to foreclose.
If during the foreclosure the trustee learns of a lis pendens recorded from the Trustee Sale
Guaranty (“TSG”), the lender should first ask the trustee to obtain a copy of the lis
pendens. The caption page of the lis pendens will show who is suing whom. Often, it can
be determined by reviewing the lis pendens whether it will affect the lender’s ability to
proceed with foreclosure. For example, if the borrowers, husband and wife, are suing
each other in divorce and place a lis pendens on the property in the process, their lawsuit
should not have any effect on the bank’s ability to foreclose. Or, if a junior lien holder is
commencing a judicial foreclosure which entails placing a lis pendens on the property,
that action should not have any effect on your foreclosure action. However, if you have
any doubt as to the nature of the action, or how it may impact the bank’s interest, you
should have an attorney review it. The attorney can obtain a copy of the complaint from
the court, and the attorney will review the complaint to evaluate the suit and its possible
effects on the bank’s interest.
There are circumstances involving a lis pendens in which the bank definitely does not want to immediately proceed to foreclosure sale. One such situation is when the bank and/or the trustee are defendants in the lawsuit. In such cases, have counsel pull the complaint to see whether or not proceeding with the foreclosure sale is going to exacerbate the plaintiff’s alleged damages, thereby subjecting the lender to more exposure. A lender would also not want to proceed with sale when the government has filed a lis pendens on the property. For example, the government will file a lis pendens when the government is condemning the property. The government will also record a lis pendens when it seeks a forfeiture of the property (forfeiture action) because the borrower has allegedly done something criminal. In both of these scenarios, the bank is prevented from foreclosing as the government has acquired a substantial interest in the property.
Another situation in which the lender would not wish to proceed with foreclosure is when a lis pendens and lawsuit shows that the plaintiff claims that the lender’s borrower never had valid title in the first place. In that case, not only do you not want to proceed with the
foreclosure, but the bank should immediately contact its insurance carrier and make a title claim.
Generally, a foreclosing lender would not wish to incur the fees and costs to employ counsel to expunge the lis pendens prior to going to sale (that is, if the underlying lawsuit does not affect the ability to go to sale). Because a third-party could purchase the property, the bank usually would not want to incur the legal expense to clear the third party’s title. Generally, a lender would consider expunging the lis pendens before the foreclosure sale only when the bank is named in a lawsuit which the lender must defend anyway. As the expunging of a lis pendens essentially requires a hearing establishing that the plaintiff who filed the lis pendens on the property is unlikely to prevail, it is often more cost effective to defend the action successfully, which will ultimately result in a removal of the lis pendens.
If the foreclosure proceeds, and the lis pendens remains on title after the property reverts
back to the lender, the lender at that point should contact counsel to expunge the lis
pendens. Before doing this, however, you can try contacting the attorney who filed the lis
pendens on the property (whose phone number is on the upper left-hand corner of the lis
pendens and complaint). Often, the plaintiff was not aware that a foreclosure action was
pending. Now that the property that plaintiff was fighting over belongs to the bank, the
plaintiff should be willing to voluntarily release the lis pendens so that the title is not
clouded. Wrongfully clouding title with a lis pendens is actionable, and a court will
award attorney fees to the successful party in a motion to expunge a lis pendens. If the
plaintiff will not remove the lis pendens voluntarily or is slow about doing it, then refer
the matter to counsel. Also, contact the title insurance company to see what measures can
be taken to insure around the lis pendens so the property is marketable.
If the lis pendens has been filed wrongfully and the plaintiff refuses to release it voluntarily, and the title company will not want to take the risk of insuring around the lis pendens, the bank should contact counsel to expunge the lis pendens and should seek to recover from the plaintiff its costs and fees incurred in doing so.
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