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The Use of the Lis Pendens in Business Litigation

Jesse Fulton

When people buy property, they often do public record checks, to make sure that the owner of the property actually owns the property. When such a search is done, it may reveal a lis pendens.

What is a Lis Pendens?

A lis pendens is a document that is filed in the public records, that tells the world (and any potential future owners of the property) that the property in question, is the subject of a lawsuit, and that it could change hands by court order. It serves as a cloud on title, because when it comes up on a public records search, the potential buyer (or whomever is set to receive the property) is on advance notice of the lawsuit or legal issues surrounding the property.

Common examples of litigation that may affect property, and thus, would warrant the filing of a lis pendens, is a foreclosure, the property being the subject of a probate dispute, contractual disputes related to the lawsuit, property being part of a business where owners are contesting ownership of business property, or divorces.

The Effect of the Lis Pendens

When a lis pendens exists, most buyers won’t buy property, and most lenders won’t lend against the property. Buyers know that they could lose the property if they buy it after the lis pendens is filed.

Notice that a lis pendens is not the same thing as a lien you would put on property pursuant to a judgment. A lis pendens does not say that anybody actually owes any money. It just announces the property’s involvement in and connection with the outcome of a pending lawsuit.

You can legally sell and buy property subject to a lis pendens. But because the outcome of the case could affect the buyer’s right to actually keep the property, potential buyers need to do some research into the nature of the lis pendens, and the risks involved before completing a purchase in the face of a lis pendens.

When Can You File a Lis Pendens?

Because a lis pendens can seriously affect or altogether prohibit the transfer of real estate, it cannot be used lightly—using it can be an effective collection tool, but can also get you sued, if it is not used properly.

To legally file a lis pendens, there must be either a recorded instrument related to the property (which is most often a mortgage or lien directly on the property), or else, a case where there is a connection between ownership of the property and the issues in the case.

In the latter situation, if the lis pendens is challenged, the party filing may have to demonstrate to the court that there is a valid nexus between the issues in the case and the property.

When used properly, the lis pendens can ensure that property subject to litigation isn’t “sold out from under you” by the other party, and can help bring parties to the lawsuit, to the negotiating table.

Call the West Palm Beach business litigation attorney at Pike & Lustig today for help with your businesses litigation needs.



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