In California, court documents are filed with the courts, and documents affecting real property are recorded with the Recorder’s Office of the county where the property is located. Despite what we may see on television, there is not some shared smart network of government documents and these two divisions of the county do not “talk” to each other.
Occasionally, there is a court document that affects real property such as a Complaint to Quiet Title or a Foreclosure of a Mechanic’s Lien or an Abstract of Judgment. In those circumstances, there will be an operative filing in court, and then some related document recorded with the county Recorder. Think of it as: one purpose, two documents, and two physically different locations.
Only documents recorded at the County Recorder will appear on the preliminary title report or any informal review of the chain of title on a property. That is why when an attorney files a lawsuit affecting title or possession of real property, they will also file and record a Lis Pendens which is a “Notice of Pendency of Action.” (Lis Pendens is a Latin term for “notice that there is a lawsuit pending”)
The purpose of the Lis Pendens is to give constructive notice to the public at large that this property has a lawsuit pending that could affect whether or not the owner of record has the right to sell it, lease it, put it up as collateral for a loan or otherwise transfer it. The technical aspects of filing and recording Notice of Pendency of Action are enumerated under §§405–405.6 of the California Code of Civil Procedure.
As recently as 2004, the California Supreme Court concluded that Code of Civil Procedure section 405.20 provides that, “a lis pendens may be filed by any party in any action who asserts a ‘real property claim’ (Kirkeby v. The Superior Court of Orange County (2004) 33 Cal.4th 642.) In that particular case, the plaintiffs had alleged a fraudulent transfer of the property had occurred.
Any investor planning on acquiring or lending against a property with a recorded lis pendens needs to do careful investigation. At the bare minimum, the investor should obtain the operative court pleadings. The lis pendens should contain the case number and the county the action is filed in, as well as the names of the parties. Some counties like Alameda county and San Francisco county make their court documents available online for instant access and without charge. However, most counties in California do not have such a service and it will take some time actually order a copy of those court documents. Do not expect to be able get a hold of these documents in less than a week. Some courts also charge a copy and search fee.
If the complaint alleges quiet title or fraudulent transfer, then the investor is now on notice that the outcome of the litigation will affect the ownership or possession of the property. Additionally, the investor should recognize that even if they were comfortable with that risk that the risk is not likely to be acceptable to an institutional lender or even a private money lender—which means the purchase of the property cannot be financed.
However, there are some actions that merit a lis pendens that are difficult for a layperson to decipher such as an eminent domain proceeding or tax issue or nuisance issue. As always when dealing with legal documents, consult with an attorney to interpret them and the status of the litigation.
In circumstances where the lawsuit has been dismissed, or has otherwise been adjudicated and is final, or there is evidence that it was improperly recorded, it can be expunged. In some cases, the plaintiff may be required to post a bond to maintain the notice of pendency of action. However, where the court determines there is no probable validity of a real property claim, a bond cannot save the notice and it must be expunged.
Quick Tip: Note the date of the recordation of the lis pendens. If the lien is years or several months old, then factor in the possible attorney fees that you may have to expend to have the stale lien expunged.
This article written and © Julia M. Wei, Esq. 2015
Julia publishes commentary on issues such as equity purchasing, foreclosure consulting, mechanic’s liens, co-ownership agreements and more on her California Real Estate and Lending Law blog: http://www.dirtblawg.com
Julia is an associate with The Law Office of Peter N. Brewer. The firm serves the legal needs of homeowners, real estate and mortgage brokers, agents, brokerages, title companies, developers, investors, other real estate professionals and their clients. Mr. Brewer and his firm also represent clients in debt collection, breach of contract matters, and other litigation and transactional work. The firm’s client range from homeowners, brokers and lenders based in Santa Clara County, San Mateo County, San Francisco County, as well as throughout other counties in California. You can contact us at: 2501 Park Blvd, Palo Alto, CA 94306, Ph: (650) 327-2900, Fax: (650) 327-5959, or on the web at: http://www.brewerfirm.com