A special aspect of the litigation process, which is of particular concern to real estate disputes, is the lis pendens or notice of pending action. Please note that Rick Gibson wrote a comprehensive article on this subject for the Summer 2008 California Real Property Law Journal entitled “Legal Leverage: Uses and Abuses of the Lis Pendens.” That article is posted on this site.
A lis pendens is a short document, which is both filed with the trial court, in which a case is pending, and recorded with the County Recorder’s Office, in which real property is located. The purpose of the lis pendens is give notice to third parties that civil litigation is pending which may affect title to or possession of real property.
As a practical matter, once a lis pendens is recorded, title to the property is clouded. Most lenders will not lend against a property against which a lis pendens has been filed. Most buyers will not buy a property against which a lis pendens has been filed. There is no legal prohibition against a lender lending against such a property, or a buyer buying such a property, but if a lender does lend, or a buyer does buy, they do so, knowing that the lis pendens is senior to their interest in the property. If it later turns out that the lawsuit was well founded, then the lender’s deed of trust may be worthless or the buyer’s grant deed may be junior to another party. The lender or the buyer, in short, is getting involved in a lawsuit, and few wish to do that.
Under California law, once a lis pendens has been filed, any party affected by it may file a motion to expunge the lis pendens. There are two basic grounds for doing so. First, a lis pendens should be expunged, if it does not concern an action, which might affect title to, or possession of real property. Code of Civil Procedure Section 405.31. Second, a lis pendens should be expunged, if the party who filed the lis pendens cannot carry the burden of proving that he or she is likely to prevail on the action. CCP 405.32.
There has been quite a bit of litigation over what sort of action does, and does not, affect title to or possession of real property. On one side, there are actions, which obviously fit this definition, such as actions for specific performance of a real estate contract. On the other side, there are actions, which obviously do not fit the definition, such as actions for collection of an unsecured debt. In the middle, there is a grey area, in which the particular cases need to be consulted.