DAVID J. WILLIS ATTORNEY
Copyright © 2013. All rights reserved worldwide.
LIS PENDENS IN TEXAS REAL ESTATE
by David J. Willis, J.D., LL.M.
A Lis Pendens is an affidavit filed in the county clerk’s real property records that announces to the world that a lawsuit involving local real estate is pending in a certain named court. Specifically, a lis pendens indicates that a civil action is pending pertaining to the title to real property, the establishment of an interest in real property, or the enforcement of an encumbrance against real property. Another way to say this is that the law will not support the filing of a notice of lis pendens unless the property itself is truly the subject of the subject of the suit. A notice of lis pendens that only indirectly affects the property will not be 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. If a lis pendens is wrongfully filed, a court may order it canceled.
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 the sale of the subject real estate. Why is this so? Because constructive notice of the litigation has now been given to all potential buyers. If this were not the case, the rule regarding a “bona fide purchaser” 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 he becomes a purchaser pendente lite, meaning that he 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 the buyer until the lawsuit is cleared up and/or the lis pendens is released. The result is that a seller involved in litigation concerning his 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 could be 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 the lawsuit (from whatever source) and still claim to have the advantages of a BFP.
The law governing lis pendens arises from equitable common law but has been significantly amended by statute. Texas Property Code Sections 12.007, 12.0071, and 12.008 state the statutory law with respect to a notice of lis pendens. The notice itself must contain specific facts:
(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 of lis pendens that does not satisfy the requirements of the statute may, upon motion, be ordered canceled or “expunged” by the court. Property Code Sec. 12.0071 contains the requirements for a motion to expunge. Sec. 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, 194 S.W. 131 (Tex. 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 release, even after dismissal or resolution of the suit.
Penalties for Wrongful or Fraudulent Filings
The Property Code does not grant an express penalty for the filing of a wrongful or fraudulent lis pendens. As a result of this, “courts have given a broad reading to Sec. 12.008, so as to grant an effective remedy.” See Prappas v. Meyerland Cmty. Imprv. Ass’n, 795 S.W.2d 794 (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.”
It is also worth taking a look at Sec. 12.002 of the Civil Practice & Remedies Code, 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, then 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 Sec. 37.01 of the Penal Code). 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?
Finally, 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 (Sec. 17.44 et seq., Business & Commerce Code).
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.
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 © 2011 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 web site, http://www.LoneStarLandLaw.com