Home Buying: Think That Title Report is Trivial? Then You’ve Never Heard of Lis Pendens.
When the Title Company was chosen to handle your Real Estate Transaction you probably didn’t care much who they were. You may have been blissfully unaware of their purpose or their process. In most cases, the first time a Home Buyer or Home Seller takes notice of the Title Company is when they need to find the office to sign documents on closing day.
We recently stumbled upon an issue with a preliminary title report. More accurately, the Title Company discovered it and it has the potential to delay the transaction. Both my Home Buyer client and the Home Seller will be seriously hampered by a lengthy delay so it’s critical that we trust the competency of the Title Agency we’re dealing with. We do.
Our particular point of agony has to do with an IRS lien, but there are a torrent of plagues that can befall a transaction including liens and Lis Pendens, and the Preliminary Title Report reveals most of them.
Ever hear of Lis Pendens? Not something many Realtors hear outside of licensing class so it’s highly unlikely that Home Buyers or Sellers are familiar with the term.
Though discovery of Lis Pendens is unusual in a transaction it’s not unheard of, so here’s what you need to be aware of and how your Title Company will handle it.
Understanding Lis Pendens
Confusion can develop when you’re faced with a surprise. How about when a Lis Pendens is found in your preliminary title report? It can, without a doubt, bring on the panic. So before this happens to you, let’s take a closer look at the Lis Pendens, what it is, what it does, and most importantly, what it means to the transaction and your title insurance.
What Is Lis Pendens?
A Notice of Pendency of Action, commonly known as a “Lis Pendens”, is a recorded legal document that, in simple terms, provides notice that there is pending litigation which would, if meritorious, affect title to, or the right to possession or use of, specific real property or easements identified in the action. The term “Lis Pendens” is Latin for “pending lawsuit.” Court files and records are generally not picked up in the constructive notice system of public recordkeeping. The County Recorder’s Office is where documents are recorded that impart constructive notice, which is the same place that all documents affecting real property are recorded and filed, such as Deeds, Deeds of Trust, Notices, Easements, etc. As court records are not a part of this system, the Lis Pendens serves to bridge the gap between the systems. The Lis Pendens, once recorded, serves to notify the public, including prospective buyers and their lenders that litigation exists which may affect title to the real property described in the Lis Pendens.
What Lis Pendens Is Not
Now that you know what Lis Pendens is, let’s look at what it is not. A Lis Pendens is not a lien. It is not a collection notice or anything regarding payment of money. It does not prevent a sale or loan from occurring with respect to the real property to which it pertains. Yes, you read that right…a Lis Pendens does not in and of itself stop sales or loans. What may deter sales and loans is the potential outcome of the litigation, and the risk that the buyer’s acquired title and/or the lender’s security interest in the property could be later encumbered or otherwise affected; which is why serious attention should be given to a Lis Pendens for its potential as a deal killer.
What Your Title Company Does
Title companies will look at documents filed in the court case and determine if the litigation is active or resolved. If it is still active, the transaction may be put on hold pending an outcome, or the parties may decide to take title subject to the Lis Pendens. If resolved, your title company may help you get the Lis Pendens removed, depending on the facts and documents in the court case. There is no expiration time for a Lis Pendens; it remains in full force and effect until withdrawn or expunged, but getting it removed from the record may be a challenge.