Real estate disputes are pretty common in the USA. In fact, 2022 saw some of the most significant upticks in real estate lawsuits, or lis pendens. There were 324,237 cases of bank foreclosure actions, a sharp 115% increase from 2021.
That just includes legal action from the lender’s side. There are plenty of reasons you could have a lis pendens on your home, including non-payment of fees, taxes, and breach of contract.
For sellers looking to get their house on the market, is it still possible to sell in such a scenario? Yes, but there are some caveats attached to the sale. Here’s everything you need to know.
Lis Pendens: Not a Dead End for Sellers
- A house with a lis pendens can be sold provided the buyer is ready to inherit the lawsuit.
- Many buyers and investors purchase properties with lis pendens in an all-cash transaction to bag an affordable deal.
- If you think there’s a false lis pendens on your house, you can also make a legal motion to expunge or discredit it.
Lis Pendens Definition: What Is It?
Lis pendens serves as an official notice that a lawsuit has been filed against a property. It alerts potential buyers about existing legal disputes on the house they intend to purchase.
Similar to a lien or a mortgage, lis pendens is recorded on the title of your home. You can do a free home title search at the recorder or county clerk’s office to determine if your property is under litigation.
When a property sale occurs amidst a lawsuit, the new owner assumes the legal obligation. For instance, if a bank sues a homeowner for a loan default and someone else buys it, the buyer inherits the lawsuit.
How Does Lis Pendens Affect a House Sale?
You can sell a house with a pending lawsuit. But because of the contingencies involved, you will neither be able to find a qualified buyer nor get your home’s fair market value.
In such scenarios, it’s best to accept an all-cash offer, even if it’s low. That’s because lenders don’t approve mortgages to buyers involved in a risky transaction. If you fail to settle the lawsuit before selling the house, the potential buyer will inherit it.
You can also build the lawsuit resolution into the home sale. For example, let’s say you owe $10,000 to a contractor. Here, you can work out an arrangement with your and the buyer’s attorney to include the cost in the sale price.
How to Remove Lis Pendens?
To remove a lis pendens, you can either settle the lawsuit or make a motion to expunge it (or discredit it). You will require an attorney’s help to go through with the second option. Also, it will cost you a lot. But it will help you get better value for your home.
Once you make a motion to expunge it, the opposing party will have to prove their claim. If they can’t, then the lawsuit is settled, and you get a clean slate for your property.
But if your motion fails, you will have to settle the lawsuit fair and square. This includes paying your mortgage dues, HOA dues, and contractor dues, and settling property tax obligations.
Why Would Someone File a Lis Pendens?
Here are some of the circumstances that could lead to a lawsuit on your property:
1. Foreclosure
Lis pendens most commonly occurs due to mortgage foreclosure actions. This happens when a lender sues a homeowner for defaulting on their mortgage. It notifies creditors and everyone else that the owner is in jeopardy of losing title to the property.
You can still sell a foreclosed house if a buyer is ready to pay more than what is owed. For the buyer, the sale may take longer, but it isn’t any more riskier than a normal sale.
2. Non-payment of Dues
A contractor can file a lis pendens on a house if they weren’t paid for their work. Let’s say a painter was hired to repaint a house. However, the homeowner only paid them half the fees.
In such cases, the painter could sue the homeowner for the remaining money they are owed for the work. The contractor would release the lawsuit once you pay the dues.
3. Contract Disputes
Lis pendens also arise from buyer-seller disagreements in property sales. For instance, let’s say a contract is in place for the sale of a property. However, the seller decides to back out. Here, buyers can file lis pendens to enforce the contract and go through with the sale.
4. Divorce
In a divorce, either spouse can file a lis pendens on a shared property. Once filed, it prevents the sale of the property until the court resolves the issue. This ensures a fair division of assets post-divorce and safeguards each party’s interests.
The Bottom Line
A lis pendens on your property can complicate the selling process. We recommend you hire a real estate attorney to help you navigate the legalities, especially if it involves court visits.
Also, if you find out your property has a pending lawsuit amidst the property sale, there’s no need to worry. You can still sell your house to investors and all-cash buyers, albeit at a slightly lower price.
Frequently Asked Questions
Can you sell a property with lis pendens?
Yes, you can sell your house with a lis pendens. However, you'll find trouble finding a buyer as people usually steer clear of such properties. Also, if you do find one, they will have to agree to inherit the lawsuit for the sale to be successful.
How long does a lis pendens last?
A lis pendens lasts until you settle the dues associated with the lawsuit. However, you can file a motion to remove the lis pendens if you think it was wrongfully filed.
Who can file a lis pendens?
A lis pendens can be filed by anyone who has an interest in the property. Banks can file it for foreclosure action, spouses can file it for proper distribution of assets, and authorities can file it if you haven't cleared your tax dues.
How do I find lis pendens on my property
You can do a free title search at the county clerk or recorder's office to find out if your property has a pending lawsuit.
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