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Disclaimer: This article is meant for educational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice. HomeLight always encourages you to reach out to an advisor regarding your own situation.
You’d like to sell off a piece of real estate, but you’re severely behind on your mortgage payments, owe a bunch of property taxes to the county, or find yourself in the midst of a heated divorce. Any one of these situations could result in someone (such as the lender or your former spouse) suing you — in effect placing what’s known as a “lis pendens” on your home.
Desperate for a clean break from the situation, you’re wondering: can you sell a house with a lis pendens for a decent price — ideally before the bank forecloses or you rack up a bunch of legal bills?
We get that this is a stressful situation, so we put together this guide including:
- What is a lis pen den? A simple breakdown of the legal terminology
- Who files a lis penden and what’s their motivation?
- How a lis pendens affects your ability to sell the house
- The risk buyers see in pursuing a house with a lis penden
- The hidden opportunity in selling with a lis penden
- Who can help you resolve the lis penden — so you can sell free and clear
The basics: What is a lis penden?
Translated from Latin, “lis pendens” means “a suit pending.” So if you’re selling a home with a lis pendens, you have a formal notice of a pending lawsuit on a property that could interfere with the sale.
“A lis pendens is a written notice that a legal action has been filed involving real estate,” says David Reischer, Esq., real estate attorney and CEO of LegalAdvice.com. “Typically the claim involves either the title to the property or a claimed ownership interest in it. The notice is usually filed in the county records office, so there is a record of the action alerting any potential buyers of the dispute.”
A lis pendens is recorded on the title of the home, just like any other lien or mortgage. To find out whether one has been filed on your property, you can do a free search at the county clerk or recorder’s office, either online or in-person. You’ll just need your house’s parcel number.
In the event that you aren’t aware of the lis penden when you go to sell your home, it will eventually come to light when the purchasing process begins, as either the buyer, the agent, or the lender will most likely obtain a title report that will note the existence of the pending lawsuit.
According to Jeffrey L. Nogee, partner at Tully Rinckey PLLC, a lis pendens is only valid where the underlying dispute involves the real property. Filing a lis pendens for a case that does not involve an ownership interest in the house is not permitted and carries strict penalties if misused.
Why would anyone file a lis penden?
A few common scenarios can lead to the filing of a lis pendens on a property:
A mortgage foreclosure action is the most common reason for a lis pendens. This occurs when the lender, such as a bank or other financial institution, sues the homeowner who has defaulted on his or her mortgage. “When the lender brings the lawsuit, it files a lis pendens, which provides notice to other creditors and everyone else that the homeowner is in jeopardy of losing title to the property,” explains Nogee.
An imminent foreclosure doesn’t necessarily make a sale impossible, however. Steven Herzberg, Esq. with Vazquez & Associates notes that although a foreclosure creates a cloud on the title, the issue can usually be resolved with the bank if there is a buyer who is willing to pay more than what is owed. On the buyer’s side, purchasing a foreclosed house may take a bit longer, but it doesn’t necessarily carry more risk than any other sale.
A homeowners association (HOA) could file a property lien if a homeowner has a delinquent account. Same goes for a contractor who hasn’t been paid for their work (often referred to as a “mechanic’s lien”). In those cases, the outstanding amounts might be small compared to the overall home value.
“If there is a dispute of the validity of the claims but the seller wants to sell the home, they may have the option to bond off the lien and lis pendens,” says Herzberg.
For example, if a home is worth $500,000 and the dispute is over just $10,000, the seller could put an agreed-upon amount into the court’s escrow account, and then the lis pendens and lien would be removed from the property.
Battle of ownership
Whenever one or more parties are claiming ownership of the home, such as in the event of a divorce, a lis pendens could come into play.
Although laws differ by state, Herzberg says that in Florida, one party may seek to put a lis penden on a property as a way to freeze the sale before a judge can determine who owns the piece of real estate and therefore would be legally entitled to the proceeds.
This can also occur if multiple beneficiaries are contesting a will in an attempt to change the distribution of an estate’s assets.
Unpaid property taxes
If a seller is delinquent on their property taxes, the local government may file a lis pendens on the property. “Property taxes are one of the most basic items checked by any title agent,” says Herzberg. “All outstanding taxes always need to be paid at the time that a property is sold.”
How does a lis pendens affect a potential sale?
Technically, a homeowner can go ahead with selling a house under lis pendens, but it will likely be difficult to find a buyer — particularly because a bank will not usually agree to loan money for the purchase. If the buyer is able to purchase the home without getting a mortgage, the chances are greater that the sale will go smoothly, particularly if it’s an arm’s-length transaction.
“While the property can be sold with a lis pendens, the lien has to be satisfied for the lien to be removed,” explains Nogee. “The homeowner can enter into a contract to sell the property, but the claim of the person who has filed the lis pendens has to be paid or settled before title can pass free and clear to the buyer.”
If the house closes, the buyer would ultimately have to accept the outcome of the pending litigation. “In a scenario where there is a lis pendens due to a property line dispute, and a cash investor buys the home before the dispute has been concluded, the cash investor must accept the eventual outcome of the dispute,” says Herzberg.
One option would be to build a resolution of the lawsuit into the sale. For example, if the seller owes a contractor $20,000, the buyer’s and seller’s attorneys can work out an arrangement where $20,000 of the sale price would be used to pay the contractor, which would then allow the lis pendens to be removed from the property. In the case of a foreclosure, it’s also important to account for any legal fees incurred by the bank, which can quickly snowball.
What’s the risk to the buyer?
There’s a reason that buyers (and their agents) could be hesitant to pursue a lis pendens property. Zachary D. Schorr, the lead real estate attorney for Los Angeles-based Schorr Law, APC., typically advises against it.
“The buyer runs the risk of losing the property, or their interest in the property, if the lis pendens claimant prevails on their real property claim,” explains Schorr. “Moreover, the buyer will be taking the property subject to the underlying lawsuit, which could result in a bad outcome for the buyer if the claimant prevails in the underlying lawsuit.”
When a lis pendens presents an opportunity
Not everyone sees a lis pendens as an automatic deal killer. Santiago Valdez, a top real estate agent in Chicago, Illinois, doesn’t shy away from helping homeowners sell these types of properties. In fact, he recently sold a Chicago multi-family building with a lis pendens after just six days on the market.
In Illinois, as soon as a lis pendens is placed on a property, it goes on the public record. This means that in many cases, potential buyers and investors begin contacting the seller directly, angling for an amazing deal.
That’s how Valdez became the agent for the multi-family building: The client had started getting a barrage of low-ball offers. Before he accepted one, he wanted to consult with a trustworthy agent who could help him sell the property for the highest possible price, as he still had a decent amount of equity in the home.
“We took amazing photos and marketed the place extensively to buyers and agents,” said Valdez.
“We ended up getting multiple offers, and closed only a couple of weeks before the scheduled foreclosure sale.”
How to remove a lis pendens
To remove a lis pendens, the homeowner — typically with the help of an attorney — can make a motion to expunge it.
“To prevail on a motion to expunge the lis pendens, the homeowner will have to show that the holder of the lis pendens does not have a probable validity (a good likelihood) of prevailing on the lawsuit,” says Schorr.
“The burden is on the party who filed the lis pendens to show that they will likely win their lawsuit based on the law and facts of the case. The winner of this motion usually has the right to recover their attorney’s fees spent in bringing the motion.”
Have an expert on your side
Selling a home can be a complex process to begin with, and when a lis pendens is thrown into the mix, there are even more details and legalities involved. It’s always best to have representation from an attorney so they can help you navigate all of the steps — especially if you end up having to go to court or are trying to pause an imminent foreclosure.
Valdez points out that there are many different real estate attorneys out there. “Ideally, you’ll want an attorney who is experienced in short sales and the overall foreclosure process, who can go in front of a judge if necessary and make a strong argument to get the best possible result,” he says.
He also recommends working with an experienced real estate agent who can represent your best interests during the process. When a lis pendens is recorded on a property, a stream of real estate investors typically starts contacting the homeowner with offers. In this case, a trusted agent can help you evaluate your options and make an informed decision.
Disclaimer: Information in this blog post is meant to be used as a helpful guide, not legal advice. If you need legal help with resolving a lis pendens on a property, please consult a skilled real estate attorney.
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