by Dave Polsinelli | Shareholder, Commercial Litigation
When it comes to real estate litigation, one of the most common procedures implemented is the filing of a lis pendens notice. Unfortunately, lis pendens notices are not always used properly, as they are often filed just to harass or obtain leverage over a property owner.
This article will discuss the intended purpose of lis pendens notices and why Texas lawmakers should consider new ways to curb their frequent misuse.
What is a lis pendens notice?
The term “lis pendens” is Latin for “pending suit.” Notices of lis pendens are filed in the real property records for the purpose of notifying others—primarily, prospective purchasers of real property—that the property at issue is the subject of pending litigation.
Generally, lis pendens notices are filed by a party that does not currently own the property outright but has asserted a claim to an interest in the property (e.g., title). The goal of the lis pendens notice is to ensure that if the property is sold to someone else while the lawsuit is pending, that third-party purchaser will take ownership of the property subject to the claim being asserted in the lawsuit.
When is it proper to file a lis pendens notice?
Under the Texas Property Code, lis pendens notices are only authorized when there is an underlying lawsuit on file that makes a claim involving: (1) title to the real property; (2) the establishment of an interest in the real property; or (3) enforcement of an encumbrance (e.g., a lien) against the real property.
According to Texas courts, the lis pendens notice must be based on a direct claim to the property. In other words, the purported property interest can’t be asserted just to secure damages or some other collateral relief against the property owner.
What happens if a lis pendens notice is wrongfully filed?
Section 12.0071 of the Texas Property Code contains a specific procedure for expunging (i.e., removing) an invalid lis pendens notice. To trigger the procedure, the property owner must file a motion to expunge the lis pendens in the court where the underlying lawsuit is pending.
Most notably, the property owner is entitled to have the lis pendens expunged if the pleading on which the notice is based does not contain a real property claim or the claimant fails to establish the probable validity of the claim by a preponderance of the evidence.
While the Texas Property Code provides a mechanism for addressing an improper lis pendens notice, the only relief it authorizes to a successful movant is the expungement of the lis pendens notice—it doesn’t authorize attorney’s fees, sanctions, or any other monetary relief against the party that wrongfully filed the lis pendens notice.
Furthermore, due to notice requirements in the Texas Property Code, the party filing the motion to expunge must wait at least twenty days after filing the motion before the court will even consider the motion. In other words, regardless of the validity of the lis pendens notice, it will remain in the real property records for at least twenty days.
Are existing laws sufficient to deter improper lis pendens notices?
A lis pendens notice can create many problems for a property owner. Chief among them is that a lis pendens notice can obstruct a pending real estate transaction, as most prospective buyers aren’t willing to purchase property that is involved in litigation. Even if the property is not actually the subject of the litigation, the lis pendens notice can create the false perception that it is.
This false perception is exactly why lis pendens notices are so commonly misused. The party filing the notice understands this effect and hopes to use it as leverage against the property owner in the pending litigation.
Unfortunately, current Texas law does not provide many deterrents to prevent this type of misuse. As discussed above, the Texas Property Code doesn’t authorize attorney’s fees or any other monetary relief to a property owner that successfully expunges a lis pendens notice. Moreover, the 20-day notice requirement in Section 12.0071 almost ensures that an improper lis pendens notice will have some effect on the property owner.
For example, if there is a pending sale, the owner will be unable to do a short closing and instead, will be required to spend hundreds, if not thousands, of dollars on attorney’s fees in order to expunge the lis pendens notice just to salvage the pending sale.
If the sale is lost, or the property owner suffers some other harm from the invalid lis pendens notice, the available remedies are limited. This is because Texas case law holds that parties have an “absolute privilege” to file lis pendens notices—irrespective of their validity.
The most probable avenue for obtaining recourse from a wrongfully filed lis pendens notice is a motion for sanctions under the Texas Rules of Civil Procedure or Texas Civil Practice & Remedies Code. However, these sanctions provisions have stringent standards, so some courts are reluctant to grant relief unless it is an extreme case of misconduct. In other words, there is no sure-fire way to obtain relief from a wrongfully filed lis pendens notice.
Without a reliable way to obtain relief from a wrongfully filed lis pendens notice, Texas legislators should consider what changes can be made to existing Texas law.
What more can be done to deter improper lis pendens notices from being filed?
The simplest way to deter improper lis pendens notices from being filed would be to amend the Texas Property Code to authorize the award of attorney’s fees to a party that successfully files a motion to expunge. Similar statutes have already been enacted in several other states, including Washington, California, Massachusetts, and New York.
Another option would be to enact legislation that revokes the “absolute privilege” defense for any lis pendens notice that is filed improperly—e.g., when it was groundless or filed in bad faith. The effect of this law would be to allow property owners to assert direct claims for damages against the parties that filed the improper notices.
Texas lawmakers should also consider shortening the notice period for motions to expunge, especially if there is a pending sale of the property. In many cases, a twenty-day delay could substantially disrupt, if not completely dismantle, the pending sale. Given the limited recourse available if the sale falls through because of an invalid lis pendens notice, there should be a procedure for property owners to expedite the expungement process.
These are just a few suggestions for how Texas legislators could address the ever-increasing problem of improper lis pendens notices. Fortunately, many courts are willing to take action to deter improper lis pendens notices under current Texas law, including imposing sanctions against the parties or attorneys responsible for filing the notices.
If you have questions about lis pendens notices or need assistance with a real estate dispute, the attorneys at Crain Caton & James can help.