Q: I represent a buyer in a transaction where the seller has refused to close the escrow and has threatened to sell the real property to another buyer. The purchase agreement requires mediation of the dispute and the parties have agreed to arbitration, but what can be done to impede or prevent the seller from selling the property while the mediation and arbitration are pending?
A: Although the standard California Residential Purchase Agreement requires an attempt to mediate any dispute between the buyer and seller as a condition of recovering attorneys’ fees and may require arbitration to resolve any disputes, a court action is allowed to enable the recording of a notice of pendency of action, also known as a lis pendens, in order to preserve the status quo pending a resolution by the mediation or arbitration. Upon recording the lis pendens, notice of the legal action is provided to all persons who may search the title to the property, including prospective buyers.
Recording a lis pendens requires a real property claim that is a cause of action that would, if meritorious, affects the title or the right to possession to the property. It must be recorded in an action to quiet title to real property, for partition of real property, and in other specified circumstances. It is optional in an action for specific performance of a contract for the sale of real property, an action to rescind a contract for the purchase or sale of real property, an action to cancel a deed or other instrument affecting the rights of ownership or possession, an action to set aside a fraudulent conveyance, an action to enforce a lien, actions between landlord and tenant such as unlawful detainer or ejectment, and actions regarding easements and adverse possession. It cannot be recorded in support of any action that is limited to the recovery of a money judgment and that does not include a cause of action alleging a real property claim.
The lis pendens is considered a conveyance or transfer under the recording laws. After its recording, all prospective purchasers, encumbrancers such as lenders, are deemed to have constructive notice of the pending legal action. The recording effectively places a cloud on the title to the property and it can impede or prevent a sale or encumbrance until the legal action is resolved or the lis pendens is expunged. The rights and interest of the claimant in the property, as ultimately determined in the lawsuit or arbitration, relate back to the date of the recording of the lis pendens.
The lis pendens gives constructive notice only if the legal action is the type that supports it. If the legal action does not allege a real property claim, then the lis pendens is not deemed to give constructive notice. There is an absolute privilege to record a lis pendens if the underlying legal action alleges a legal real property claim as authorized by statute and it cannot be a basis for an action for slander of title.
If the lis pendens does not relate to a property claim, a motion to expunge the lis pendens can be filed, there is no privilege, and the property owner can file an action for slander of title and for interference with prospective economic advantage. Therefore, care should be given before recording a lis pendens to make sure that the underlying legal action alleges a real property claim.
The typical confusion arises because of an erroneous belief that the lis pendens bars or prevents the property owner from the use and benefits of his ownership, including marketing the property. While the lis pendens is a cloud on the title that may impede or prevent a sale or encumbrance by prospective buyers or encumbrancers, it is only as effective as the underlying legal action that supports it. It is intended to give notice to subsequent persons who may seek an interest in the property, but it does not affect the rights of any person who has a prior recorded interest in the property
The requirements to record a lis pendens include stating the names of the parties to the legal action and the nature of the action that permits proper recording. It should be signed by the attorney who files the legal action, and it must include an adequate description of the property so that a search of the public records will disclose the identity of the property. The best practice is to include the street address, the legal address, and the tax assessors’ number, information that can usually be obtained from the last deed in the chain of title to the property. Before recording, a copy of the lis pendens must be mailed by registered or certified mail, return receipt requested, to all known addresses of the parties to whom the real property claim is adverse and to all owners of record of the real property affected by the claim. Immediately after the recording, a copy of the notice must be filed with the Court where the action is pending.
Any person who has entered into a contract to transfer an interest in the property must inform all prospective transferees of the lis pendens. Any person who willfully or negligently fails to provide such notice is liable for all actual damages suffered by the transferee.
The constructive notice of a recorded lis pendens continues until it is expunged, or a judgment is rendered for either party and the period of appeal expires. If the action is settled, abandoned or dismissed without a judgment being entered, the lis pendens terminates. Although the signature of the attorney on the lis pendens does not have to be notarized, any withdrawal of the lis pendens, typically as a result of a settlement, must include a notarized signature or it cannot be recorded.
Therefore, if the seller is not responding to attempts to resolve the dispute informally, a lawsuit can be filed for specific performance of the purchase agreement, and a lis pendens can be recorded to create a cloud on the title of the subject property. A request for mediation should then be made to preserve the right to recover attorneys’ fees, and if the mediation is not successful, the parties can proceed to arbitration. Throughout the time required to mediate and arbitrate, the lis pendens should be effective in preventing the seller from selling the property to a new buyer.
The opinions expressed in this article are those of the author, and they do not create an attorney-client relationship or constitute legal advice. Individual circumstances may vary and professional advice is recommended before making any decisions concerning legal matters.
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