In real estate, various legal terms can significantly impact property transactions. One such term is Lis Pendens—a legal notice that can seriously affect property owners, buyers, and sellers. This article delves into Lis Pendens, how it works, its effects on property transactions, and what to do if you encounter one.
What is Lis Pendens?
Lis Pendens is a Latin term meaning “suit pending.” In real estate, it refers to a formal notice filed in the public records indicating that a lawsuit involving a specific property is pending. The notice warns anyone interested in the property that there is ongoing litigation that could affect ownership or title to the property.
The Purpose of Lis Pendens
The primary purpose of a Lis Pendens is to alert potential buyers, lenders, and other interested parties that the property in question is subject to legal proceedings. It effectively shows the world that the lawsuit’s outcome may significantly impact the property’s ownership or title. This legal notice ensures that any transaction involving the property during the litigation period is done with full knowledge of the potential risks.
Common Scenarios Leading to Lis Pendens
Lis Pendens can be filed in various situations, typically involving disputes over property rights. Some common scenarios include:
- Foreclosure Proceedings: When a lender initiates foreclosure proceedings against a property owner who has defaulted on a mortgage, they may file a Lis Pendens to inform other parties of the pending legal action.
- Disputes Over Property Ownership: If there is a dispute over who has rightful ownership of a property, a Lis Pendens may be filed to ensure that the property’s title cannot be transferred until the dispute is resolved.
- Divorce and Property Division: During a divorce, if there is a disagreement over the division of marital property, one party may file a Lis Pendens to prevent the other from selling or transferring the property until the court determines the rightful ownership.
- Contract Disputes: If a breach of contract occurs related to the sale or purchase of a property, the aggrieved party may file a Lis Pendens to protect their interest in the property while the lawsuit is ongoing.
The Impact of Lis Pendens on Property Transactions
The filing of a Lis Pendens can have significant effects on property transactions, both for the seller and the buyer:
- Effect on Sellers
For property owners, having a Lis Pendens filed against their property can be a significant obstacle to selling the property. Since the notice is public and becomes part of the property’s records, it can deter potential buyers who may want to avoid purchasing a property embroiled in legal issues. Additionally, many buyers cannot afford financing for a property with a Lis Pendens because lenders are typically unwilling to lend on properties with unresolved legal claims.
- Effect on Buyers
A property with a Lis Pendens presents a substantial risk for potential buyers. Purchasing such a property means entering into ongoing litigation, which could result in losing the property or facing additional legal and financial challenges. Buyers must be cautious and thoroughly investigate the nature of the legal dispute before proceeding with the purchase.
- Effect on Title and Financing
A Lis Pendens clouds the property’s title, making it challenging, if possible, to obtain title insurance. Title insurance companies generally will not issue a policy on a property with a Lis Pendens until the litigation is resolved. Buyers and lenders are exposed to potential risks without title insurance, making the property less attractive for purchase or financing.
How to Remove a Lis Pendens
Removing a Lis Pendens is essential for clearing the title and proceeding with property transactions. There are a few ways to remove a Lis Pendens:
- Resolving the Underlying Dispute
The most straightforward way to remove a Lis Pendens is to resolve the underlying legal dispute that led to its filing. Once the dispute is settled, the party who filed the Lis Pendens can voluntarily remove it by filing a notice of withdrawal with the court and public records office.
- Motion to Expunge
If the Lis Pendens was wrongfully filed or if there is no legitimate basis for the lawsuit, the property owner can file a motion to expunge (remove) it. The court will review the motion, and if it finds that the Lis Pendens was improperly filed, it may order its removal.
- Posting a Bond
Sometimes, the court may allow the property owner to post a bond to remove the Lis Pendens. The bond is a financial guarantee that compensates the party who filed the Lis Pendens if they prevail in the lawsuit. Once the bond is posted, the Lis Pendens can be removed, allowing the property transaction to proceed.
Protecting Yourself from Lis Pendens
Whether you are a buyer or a seller, there are steps you can take to protect yourself from the adverse effects of a Lis Pendens:
- Conduct Thorough Due Diligence
Before buying a property, conduct thorough due diligence, including a comprehensive title search. This search will reveal any existing Lis Pendens or other encumbrances that could affect the property’s title. If a Lis Pendens is discovered, consult a real estate attorney to understand the nature of the dispute and the potential risks involved.
- Include Contingencies in Purchase Agreements
If you decide to purchase a property with Lis Pendens, include contingencies in the purchase agreement that protect you if the legal dispute is not resolved favorably. For example, include a clause that allows you to withdraw from the purchase or renegotiate terms if the Lis Pendens is not removed by a specified date.
- Seek Legal Advice
If you are a property owner facing a Lis Pendens, seek legal advice immediately. An experienced real estate attorney can help you understand your options, represent your interests in court, and work towards resolving the dispute or removing the Lis Pendens.
Conclusion
Lis Pendens is a powerful legal tool that can significantly impact real estate transactions. While it protects the interests of parties involved in property-related lawsuits, it can also create substantial challenges for property owners and buyers. Understanding what Lis Pendens is, how it affects property transactions, and the steps to address it is crucial for anyone involved in real estate. Whether you are buying or selling property, being informed and seeking professional legal advice can help you navigate the complexities of Lis Pendens and protect your investment.
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