“Lis pendens” is a term that may come up in relation to foreclosure, or in short sales or other real estate sales. But what does lis pendens mean?
Lis pendens is the term that lawyers use for a pending lawsuit that is related to the title (ownership) of the property. The term “lis pendens” is Latin, and it means Lawsuit pending.” A lis pendens is essentially a notice to the public that the property’s ownership is in dispute.
What is the purpose of a lis pendens?
The purpose of a lis pendens is to provide a “constructive notice” (in other words, a warning) to potential purchasers of a property that its ownership is in dispute: if they choose to purchase it, they are buying it subject to the outcome of that lawsuit.
The lis pendens is an alert that title to the property is clouded. The purchaser is not acquiring a “fee simple absolute” ownership interest in the property. The lis pendens means that any purchasers would be wary of purchasing such a property, where its title is not certain.
The lis pendens is a form of protection to the person or entity that files it. It means that even if the property is sold, they do not automatically lose their claim to title. The lawsuit still must be resolved, and the new owner is subject to the results of that suit every bit as much as the person who sold it would have been.Why would someone file a lis pendens on a property?
There are several reasons that a lis pendens may be filed:As part of divorce proceedings
In the case of divorce, where distribution of property has not yet been completed, and ownership of a piece of real estate in in the name of one spouse only, the other spouse may file a lis pendens. The purpose of the lis pendens is to discourage the spouse who is on title from trying to sell the property until distribution of property between both parties has been settled.
For example, if the main asset the divorcing couple own is their home, and there are few other assets to distribute, the home may have to be sold so the sales proceeds can be split in an equitable way. The spouse who is not on title will file the lis pendens to keep their spouse from selling or transferring ownership of the home subject to distribution of property through divorce settlement. The lis pendens notice will discourage buyers, and it also makes title to the property uninsurable.Because of the lender foreclosing
Foreclosure is the process where a lender seizes a property that was used as security (in other words, collateral) on a mortgage loan. One of the first steps a lender takes in the judicial foreclosure process is to send the delinquent borrower a Notice of Default.
Once the borrower is three months delinquent, a lender will usually initiate the foreclosure process. That process includes filing a lis pendens: the notice that ownership of the property is under dispute, because the lender is attempting to seize ownership of the property that was used as collateral for the loan that the borrowers have defaulted on.In other cases of foreclosure
Mortgage lenders are not the only entities that can foreclose on a property. Other creditors whose debt is secured against a piece of real estate may also foreclose.
We see this a lot with Homeowner Associations or Condo Associations initiating a judicial foreclosure for delinquent dues - especially in states where delinquent HOA fees are given “super-lien status.” After the HOA files the foreclosure complaint against the individual unit owner, it will record a lis pendens with the county recorder/auditor letting everyone know that there is a pending judicial foreclosure action affecting the title to the condo unit. Again, this discourages potential purchasers, and makes it more difficult for the condo owner to sell the unit until claims are resolved.How to remove a lis pendens
A lis pendens may be removed in several ways.
If a party who has an interest in the property (usually the owner) believes that filing of the lis pendens is improper or unjustified, they can file a suit to have it expunged. State laws regarding lis pendens vary. In some states, if the owner challenges the lis pendens, the filer must present evidence that they have probable cause or a good likelihood that their suit will succeed.
In the case of divorce, the lis pendens will be removed once distribution of the assets and ownership of the home has been resolved.
In the case of foreclosure, it is possible to have the lis pendens removed by convincing the mortgage lender to stop the foreclosure proceedings. If the homeowner has the resources to pay all overdue mortgage payments (and other fees or penalties owing), they may stop the foreclosure process and have the lis pendens removed simply by making these payments.
The other option for removing a lis pendens filed by a foreclosing lender is to negotiated a short payment on the mortgage. This means that the delinquent homeowner and the lender work together to negotiate a reduced payment of the loan through a short sale. Although the lender ends up taking a loss on their loan, in most cases they are willing to do this because they lose far less than they would if they proceeded with the foreclosure.
Typically, the homeowner has tens or even hundreds of thousands of dollars of mortgage debt forgiven by the lender through the short sale, and the lender removes the lis pendens and abandons the lawsuit. Although the homeowner does not receive any of the proceeds from the sale, they may be eligible for thousands of dollars in cash incentive payments through government short sale programs, or directly from their lender. Foreclosure is avoided - saving the lender money, and saving the homeowner from a black mark on their credit report - and the homeowner walks away from their underwater home free of any mortgage debt.
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