CORPORATE TRANSACTIONS & COMPLIANCE BLOG

Public Record Due Diligence: The Lis Pendens Notice

By: Bob Babiak and Bruce S. Gallo, COGENCY GLOBAL INC. on Thu, Apr 25, 2019

[Image: Woman Searching in Filing Cabinent]

Lis pendens searches are a powerful tool in your public record due diligence toolkit for gathering information about potential liens on real property.

Typically, when conducting public record due diligence at the county level, you search for federal tax liens, state tax liens, UCC fixture filings, and judgment liens.

But there are other public records recorded at the county level – like mechanics liens, EPA liens, ERISA liens, materialman’s liens and warehouse liens – that can have a great bearing on business transactions, especially if one of the assets being conveyed in the transaction is real property.

Among those? Lis pendens notices.

What is a Lis Pendens notice?

Lis pendens is Latin for ‘suit pending’. It is like a legal bookmark, a written notice in land records to advise the general public (particularly anyone interested in buying or financing a given piece of real property) that a lawsuit has been filed that could affect the title or ownership interest in that property. Lis pendens notices normally include a legal description of the real property, names of the parties involved and other information about the lawsuit that affects the property.

Lis Pendens vs. Judgment Liens

It is long well-established that thorough public record due diligence should include searching for pending suits and judgments in the court system, and to also include searching for judgment liens in local jurisdictions where land records are kept. It is particularly important here to keep in mind that lawsuits are often filed in a county court totally unrelated to where a judgment lien resulting from those lawsuits may later be recorded. The reason for that is judgment liens can be recorded in any county within a state where real property is located, which affords the prevailing party a method for executing on the judgment statewide. Accordingly, a judgment lien is an important tool that the prevailing party can use for getting paid on their judgment.

The lis pendens notice works differently and has a different function. First, it can be recorded only in the county where the disputed real property is located, unlike judgments liens that can be recorded in any county where real property that is sought to be executed upon may be located. Second, its purpose is not to enforce a judgment but rather to serve as a warning that a judgment affecting a particular piece of property may be forthcoming – so anyone wanting to purchase that property or have it included as an asset in a commercial transaction, does so at their own peril. Where judgment liens are ‘facts’ about real property, lis pendens notices act as ‘caution’ signs. Third, not everyone conducts searches for pending suits as part of their transactional due diligence, so the lis pendens may be the best way for them to become aware that there is a dispute concerning a piece of real property.

Should Public Record Due Diligence Searches Include Lis Pendens? 

[Image: Open Toolbox Full of Tools.]Every lawyer is different, every deal is different, and every deal budget is different. Lis pendens notices are simply one of the many ‘tools’ that the law gives to searchers to help them get the deal right. Searching for lis pendens notices can be an effective part of a public record due diligence ‘toolkit’, depending on what resources are available to you.

For example, if a searching party is confident that the public record due diligence being performed on a given transaction will catch a pending suit that relates to an important piece of real property in the deal, then they probably do not need to worry much about searching separately for lis pendens notices.

But…

If a searching party has any doubt about their due diligence searching strategy or say, the deal budget does not accommodate extensive county level due diligence, lis pendens searches may be the best way to find out that there is a dispute concerning a piece of real property. In this situation, it would be wise – at the very least – to look for judgment liens and lis pendens notices in all counties where pieces of real property important to the deal are located.

 

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice. 

Topics: Article 9 Filing, Searching and Due Diligence