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DAVID J. WILLIS ATTORNEY
http://www.LoneStarLandLaw.com
Copyright 2013. All rights reserved worldwide.

LIS PENDENS IN TEXAS REAL ESTATE


by David J. Willis, J.D., LL.M.

Introduction

A lis pendens (or more properly, a "notice of lis pendens") is an affidavit filed in the county clerk’s real property records announcing that a lawsuit involving local real estate is pending in a certain court. A lis pendens indicates that a civil action is pending pertaining to title to real property, the establishment of an interest in real property, or enforcement of an encumbrance against real property. These are specific statutory categories. Another way to say this is that the law will not support the filing of a lis pendens unless the property itself is truly the subject of the suit. A notice that indirectly affects the property is not valid. For instance, a suit seeking only monetary damages would not justify the filing of a lis pendens, nor would a suit to specifically enforce or set aside an earnest money contract, because none of these pertain to the property itself–only to a breach of contract to convey the property, a subtle but meaningful legal distinction.

If a lis pendens is wrongfully filed, a court may order it canceled. Damages for wrongful filing, while not expressly provided by statute, cannot be precluded.

Rule Relating to Bona Fide Purchasers

Although a lis pendens is not a lien, it is often viewed in a similar light and can therefore have the effect of stopping a sale. Why? Because constructive notice of litigation has now been given to potential buyers. If this were not the case, the rule regarding a bona fide purchaser ("BFP") would apply–i.e., a buyer who purchases real property for valuable consideration without notice of a disputed claim or prior interest does so free of that claim or interest. Accordingly, if a notice of lis pendens is properly filed, then a buyer (by definition) cannot be a BFP; at best the buyer becomes a purchaser pendente lite, meaning that he or she would take title subject to the outcome of the litigation. Additionally, a title company will not usually issue an owner’s policy of title insurance to a buyer until the lawsuit is cleared up and/or the lis pendens is canceled. The result is that a seller involved in litigation concerning a property cannot easily get rid of the problem by selling that property to someone else. Without this rule, the parties could be prevented from justly resolving their litigation and the authority of the courts defeated.

Note that if a prospective purchaser has actual notice of a pending suit, then the lis pendens doctrine applies whether or not a statutory notice has been filed in the real property records. A buyer cannot know about a lawsuit (from whatever source) and still claim to be a BFP.

Governing Law

The law governing lis pendens arises from equitable common law but has been significantly enhanced by statute. Property Code sections 12.007, 12.0071, and 12.008 state that the notice itself must contain specific facts. Section 12.007(b) and (d) state:

(b) The party filing a lis pendens or the party’s agent or attorney shall sign the lis pendens, which must state

(1) the style and number, if any, of the proceeding;
(2) the court in which the proceeding is pending;
(3) the names of the parties;
(4) the kind of proceeding; and
(5) a description of the property affected.

(d) Not later than the third day after the date a person files a notice for record under this section the person must serve a copy of the notice on each party to the action who has an interest in the real property affected by the notice.

A notice that does not satisfy the requirements of the statute may, upon motion, be ordered canceled or expunged by the court. Property Code section 12.0071 contains the requirements for a motion to expunge. Section 12.008 further addresses the subject of cancellation:

(a) On the motion of a party . . . the court hearing the action may cancel the lis pendens . . . if the court determines that the party seeking affirmative relief can be adequately protected by the deposit of money into court or by the giving of an undertaking.

Duration of a Lis Pendens

"A lis pendens operates only during the pendency of the [underlying] suit, and only as to those matters that are involved in the suit. It terminates with the judgment, in the absence of an appeal." Rosborough v. Cook, 108 Tex. 364, 367, 194 S.W. 131, 132 (1917). A timely appeal or motion for new trial extends the operative effect of the lis pendens. In other words, a lis pendens has no life of its own apart from the lawsuit that underlies it. A property owner may nonetheless legitimately demand that a lis pendens be terminated by the filing of a formal cancelation, even after dismissal or resolution of the suit.

Penalties for Wrongful or Fraudulent Filings

The Property Code does not grant an express penalty for filing a wrongful or fraudulent lis pendens. As a result, "courts have given a broad reading to § 12.008, so as to grant an effective remedy." See Prappas v. Meyerland Cmty. Improvement Ass’n, 795 S.W.2d 794, 798 (Tex. App.–Houston [14th Dist.] 1990, writ denied).

Although lis pendens are generally considered to be privileged (even if filed with malice), this protection does not extend to the underlying suit. Rule 13 of the Texas Rules of Civil Procedure provides sanctions if lawsuits are "groundless and brought in bad faith or groundless and brought for the purpose of harassment. . . . ‘Groundless’ for purposes of this rule means no basis in law or fact and not warranted by good faith argument for the extension, modification, or reversal of existing law." Annoy a judge with a frivolous lis pendens and watch how quickly Rule 13 sanctions will be imposed.

It is also worth looking at Civil Practice and Remedies Code section 12.002 which addresses "liability related to . . . a fraudulent lien or claim filed against real or personal property." Since a lis pendens could be interpreted as a claim of sorts, or at least the memorandum of one, the filer could potentially incur liability under this statute if aspects of the lis pendens or the underlying suit are found to be fraudulent. A person who knowingly and intentionally files a fraudulent lien may be held liable in civil district court for the greater of $10,000 or actual damages, exemplary damages, and recovery of attorney’s fees and costs. It is also a criminal offense. See Tex. Penal Code § 37.01. If applicable, a cause of action under Chapter 12 should be included in any suit against the filer of the lis pendens.

There is also the matter of civil liability for consequential damages. What if a wrongfully or fraudulently filed lis pendens causes a transaction to fail, perhaps resulting in substantial monetary loss to the seller? It is likely that the seller's attorney will be looking for someone to hold responsible.

Additionally, the filing of a fraudulent lien or claim may under certain circumstances form the basis of a cause of action under the Deceptive Trade Practices Act, Tex. Bus. & Com. Code §§ 17.44 et seq.

Conclusion

Lis pendens are a useful tool but are subject to abuse as well as potential liability. They must be employed in strict compliance with the statute and not merely to gain advantage in a dispute over a real estate closing.

DISCLAIMER

Information in this article is proved for general educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well. This firm does not represent you unless and until it is retained and expressly retained in writing to do so.

Copyright © 2013 by David J. Willis. All rights reserved worldwide. David J. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website, http://www.LoneStarLandLaw.com