Protecting Interests or Hindering Real Estate Deals? Impact of a Lis Pendens When Selling Real Property in Florida

Protecting Interests or Hindering Real Estate Deals? Impact of a Lis Pendens When Selling Real Property in Florida

written by Alfredo Dally and Jocelyne A. Macelloni

Lis pendens — useful or useless? Though intended to protect the interests of parties involved in a legal dispute, the presence of a lis pendens can create a minefield for those seeking to obtain title insurance even after a lis pendens has been terminated or dissolved. As such, the current legal landscape surrounding lis pendens leaves a hole open for undeserving, or even malicious, litigants to file a claim against real property and severely burden property owners attempting to sell their property.

What Is a Lis Pendens?

A lis pendens (Latin for “suit pending”) is an official public notice of a pending lawsuit against real property or an interest in that subject real property.[1] Generally, a lis pendens is used as a way for a party to protect their claim against real property by creating obstacles for the seller of the subject real property, typically the other party in the lawsuit. A lis pendens is intended to put potential buyers on notice of a dispute over title to real property.[2] However, a lis pendens does not prevent a party from selling the property, nor is it a lien on the property. Rather, a lis pendens clouds an owner’s title and constrains his or her right of alienability, as the lis pendens has the effect of chilling sales by discouraging potential buyers from proceeding with purchase the property of until the dispute or litigation is settled or resolved.[3] For this reason, lis pendens are commonly seen in foreclosure cases, contract disputes, or divorce cases in which an interest in real property is at issue as a means for providing third parties some protections over their potential rights to the real property.

Removal of a Lis Pendens — Advantageous or Futile?

Although a lis pendens is intended to protect rights by putting others on notice of a dispute, a party may decide to assert an invalid or otherwise nonexistent claim to real property and file a lis pendens for the sole purpose of preventing a seller from selling the property to attempt to preserve the property as an avenue for collecting a future judgment.

Luckily, Florida law provides for a lis pendens to be expunged in one of three ways: 1) by a court finding that the lis pendens is improper and should be resolved; 2) automatically after one year when no extension is filed; or 3) at the resolution of the lawsuit.[4] Specifically, F.S. §48.23(1)(b)(2) states:

Any person acquiring for value an interest in, or lien upon, the real or personal property during the pendency of an action…shall take such interest or lien exempt from all claims against the property that were filed in such action by the party who failed to record a notice of Lis Pendens or whose notice expired or was withdrawn or discharged, and from any judgment entered in the proceeding…as if such person had no actual or constructive notice of the proceeding.[5]

To survive dissolution of a lis pendens, one must show that they have ownership rights in the property at issue.[6] Ownership is generally shown through the presentation of a duly recorded instrument or lien. A lis pendens also may be asserted through a right to property that is not based upon a recorded instrument or lien. In this instance, courts must analyze whether there is a fair nexus between the property and the dispute embodied in the lawsuit.[7] The relevant question is whether the alienation of the property or the imposition of intervening liens could conceivably disserve the purposes for which the lis pendens exists.[8] Theoretically, if a lis pendens is dissolved because no fair nexus between the property and the lawsuit has been found, then there should be no hinderance left in selling the property at issue because there is no established right to the property.[9]

However, a party who has successfully had a lis pendens dissolved by the court under §48.23(1)(b)(2), and even though the litigation is ongoing, should be able to market their property free of any encumbrances to title. But the effect of expungement is questionable and far from certain. Often, sellers still struggle to acquire title insurance merely because the lawsuit remains pending. Real property may still be found unmarketable solely based on the existence of litigation, even when a lis pendens is expunged, questioning the effect, or lack thereof, of a lis pendens. For example, title insurance companies have refused to issue policies during the sales process so long as the potential for litigation still exists, regardless of whether a lis pendens was dissolved.[10] Despite this, title insurance companies theoretically could issue policies but prohibit the practice.[11] Instead, title insurance companies look at four suggested underwriting positions when dealing with a lis pendens. First, if the lis pendens expires in a specific performance action, underwriters take the position that a third party purchaser for value may acquire the real property free of the claim if the lis pendens was recorded more than a year prior.[12] If the discharge occurred before the final judgment or dismissal on the specific performance was entered, then the appeal time must expire before insuring a third-party purchaser for value.[13] If the action was disposed of by final judgment denying a claim for specific performance and the time for appeal has passed, then the purchaser can be insured.[14] Finally, and most problematically, the last policy finds that actions not based on a recorded instrument require counsel approval whether or not a lis pendens has been recorded.[15] Therefore, although a lis pendens may no longer be in effect, and there is no valid ownership right to the property, the litigation itself may serve as a hinderance to a seller’s ability to sell their property. This renders dissolvement of a lis pendens prior to the resolution of the litigation in these scenarios practically irrelevant.

The continued hinderance of a lis pendens on a seller may be partially explained by a claimant’s ability to appeal the dissolution of a lis pendens. In Inlet Colony, Ltd. Liab. Co. v. Martindale, 340 So. 3d 492 (Fla. 4th DCA 2022), the Fourth District Court of Appeal notes that §48.23(1)(b)(2) “was adopted to prevent a lis pendens from continuing to be a cloud on title for a purchase for value after it is discharged.” However, incorporating the time for an appeal on a motion to dissolve a lis pendens does not run counter to the intent of the statute.[16] Thus, such orders related to a lis pendens achieve conclusive finality solely upon the lapse of the appeal timeframe.[17] Indeed “[a] party can seek appellate review of an order discharging a notice of lis pendens within [30] days of its rendition.”[18] In essence, despite a trial court’s ability to dissolve the lis pendens, the Fourth DCA held that the lis pendens is not fully dissolved until the period for appellate review has also passed.[19]

Without clear guidance on the effect, if any, of a lis pendens on a property’s title, those looking to file frivolous and meritless claims not based upon a contract are at a substantial advantage over the property owner. Under the current analysis, a litigant can bring an action asserting tort claims or seeking equitable relief, or some other alleged claim to title, without providing the court with a contract, agreement, or some other record evidencing an existing and valid right to the property, and contemporaneously file a lis pendens against the property. This creates the plausible scenario in which no such valid right to the property ever existed, but the frivolous litigant merely initiates the action to financially harass a seller or force early and unjust settlement by shutting down the valid sale of their property.

Currently, a property owner may decide to sell property to which they undoubtably have the right. A third party, either through some attenuated relationship to the property, or maybe some incorrect assumption of rights under a family trust or estate, may falsely claim rights to the property without the existence of an instrument reflecting those rights. Under these assumptions, the mistaken third party can entirely halt the sale of a property by merely filing a claim over the title of the property. The third party need not worry about filing a valid lis pendens as title companies struggle with the litigation itself. Even if the property owner can manage to obtain an order dissolving an invalid lis pendens and expressly stating the sale may proceed, the title companies have been found to refuse to provide title and may take issue with the fact that a dispute over the title of the property remains pending in the court. The authors of this article were recently faced with this very issue when the party recording the lis pendens was unable to post the requisite bond to preserve the lis pendens.[20] Two orders were entered by the court expressly dissolving the lis pendens and finding that the property owner was free to sell the property. However, the title company refused to provide title insurance absent a dismissal of the entire action with prejudice. Therefore, the owner can show that no valid instrument or fair nexus exists for the third party to assert a claim and still be stuck in the sales process without a means to receive title insurance or a mortgage.

In theory, the lis pendens should serve as an exertion of a litigant’s right to the property, and the dissolution would establish a lack thereof. But this step is no longer necessary under the current system, and no system to flush out frivolous claims to property currently exists.

Conclusion

The current environment surrounding real property lawsuits and lis pendens grant those without a valid or established right to property the potential ability to entirely halt the sale of property. Sometimes, this procedure is used over genuine disputes, but it similarly works for those who wish to assert a frivolous or meritless claim to property. A lis pendens should put the public on notice of valid claims to property, and the dissolution should indicate a finding that no connection between the lawsuit and the property was found. As such, a seller should be given freedom to dispose of their property as they see fit. Yet, dealing with an invalid lis pendens, as it currently stands, may be a wasteful or fruitless endeavor, as the lawsuit alone may be sufficient to entirely kill a property sale.

Florida’s lis pendens laws need to be expanded upon and clarified to protect sellers from frivolous or meritless claims to property and expensive, fruitless litigation. Clarity as to the effect of a lis pendens and its implications result in a waste of the judicial economy as disputes over them are currently irrelevant. Florida needs to clarify or address the marketable title issue created by filing a lawsuit and an accompanying lis pendens because, without such protections or clarity installed, sellers may lose out on sales, may miss out on strong markets, and suffer significant damages. By providing a clear instruction in the legislation, one would hope that title companies’ willingness to issue policies will also follow.

[1] Whitburn, LLC v. Wells Fargo Bank, N.A., 190 So. 3d 1087, 1090 (Fla. 2d DCA 2015).

[2] Id. at 1090-91.

[3] See CourthouseDirect.com, The Red Flag of Lis Pendens — What You Need to Know, Jul. 31, 2019, https://info.courthousedirect.com/blog/what-you-need-to-know-about-lis-pendens; see also Haisfield v. ACP Fla. Holdings, 629 So. 2d 963 (Fla. 4th DCA1993) (relying on Bell v. King, Phipps & Assoc. P.C., 176 Ga. App. 702, 337 S.E. 2d 364 (Ga. Ct. App. 1985)).

[4] Fla. Stat. §48.23(3) (2023); Fla. R. Civ. P. 1.420(f).

[5] Fla. Stat. §48.23(1)(b)(2).

[6] FCD Dev., Ltd. Liab. Co. v. S. Fla. Sports Comm., Inc., 37 So. 3d 905, 909 (Fla. 4th DCA 2010).

[7] Delta Aggregate, Ltd. Liab. Co. v. Hermes Hialeah Warehouse, Ltd. Liab. Co., 266 So. 3d 248, 250 (Fla. 4th DCA 2019).

[8] See Von Mitschke-Collande v. Kramer, 869 So. 2d 1246, 1250 (Fla. 3d DCA 2004).

[9] See generally Fla. Stat. §48.23.

[10] See Pacific Coast Title Co., Title Fast Facts: 64 Facts to Help Make You Anyone Expert on Title Insurance, http://pct.com/industry-documents/TitleFastFactsBooklet.pdf.

[11] See Gerald F. Richman & Mark A. Romance, Specific Performance of Real Estate Contracts: Legal Blackmail, 72 Fla. B. J. 10 (Nov. 1998).

[12] Fund Title Notes 12.05.01 (Amended Lis Pendens Statute rev. 2009).

[13] Id.

[14] Id.

[15] Id.

[16] Inlet Colony, LLC v. Martindale 340 So. 3d 492, 487 (Fla. 4th DCA 2022).

[17] Id.

[18] See Inlet Colony, Ltd. Liab. Co. v. Martindale, 340 So. 3d 492 (Fla. 4th DCA 2022); see also Fla. R. App. P. 9.100(c)(1) and 9.130(b).

[19] The issue of what standard of review is utilized in analyzing issues surrounding the lis pendens is further disputed among the Florida courts.

[20] “[T]he court, in its discretion, may require that the party filing the lis pendens post a bond when the property owner shows that damages will likely result in the event the notice of lis pendens is unjustified.” DeGuzman v. Balsini, 930 So. 2d 752, 754 (Fla. 5th DCA 2006). The purpose of the bond is for “protecting the property holders just as the lis pendens protects the plaintiff and third parties.” S & T Builders v. Globe Props., Inc., 944 So. 2d 302, 304 (Fla. 2006).


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