Mountain Law: Lis pendens: Legalese you should know before purchasing property | SummitDaily.com

Mountain Law: Lis pendens: Legalese you should know before purchasing property

Noah Klug
Mountain Law

Courts have long recognized the "doctrine of lis pendens," which, simply put, means that a person who purchases real property that is the subject of pending litigation will be bound by the outcome of the litigation. The policy behind this rule is that the transfer of the property to a new owner should not adversely affect a pending claim.

The doctrine of lis pendens applies to any purchaser who has notice of pending litigation affecting the property, even if no special notice is recorded in the public records. However, Colorado law allows a person who has filed a lawsuit affecting title to real property to record a "notice of lis pendens" in the public records. The notice itself is sometimes loosely referred to as a "lis pendens." Once the notice is recorded, it is deemed to invoke the doctrine of lis pendens against any person who purchases the property before the litigation is over.

Except in the case of lawsuits involving mechanics' liens, it is never mandatory for litigants to file notices of lis pendens. However, if a notice of lis pendens is not filed, and a purchaser takes title without notice of pending litigation affecting the property, then the purchaser is not bound by the outcome of the litigation. Thus, litigants must often protect their rights by filing notices of lis pendens in cases affecting title to real property. Once it is recorded, a notice of lis pendens should show up in a title search. However, a notice of lis pendens is not a "lien" that can be directly enforced.

The question of what types of claims are deemed to "affect title to real property" for purposes of the doctrine of lis pendens has changed over time. The rule was initially that a purchaser was bound by any litigation affecting the property even if the purchaser did not know about the litigation. This rule could be harsh if a purchaser did not discover the litigation before closing. In response, the courts carved out exceptions that the doctrine would apply only to claims affecting ownership, not those affecting use (such as litigation based on restrictive covenants) or possession (litigation involving leases). But then the lis pendens statute came along, which effectively made litigants responsible for recording notices of lis pendens in order to invoke the doctrine and no longer made purchasers responsible for discovering litigation on their own. Because the statute did away with concerns about purchasers discovering "surprise" lawsuits after closing, the Colorado Supreme Court held that the prior exceptions are no longer needed. It therefore found that the doctrine now applies broadly to any litigation affecting the ownership, use or possession of real property. Despite the broad application of the doctrine, a notice of lis penden does not affect title to real property and is improper if the litigation merely involves a claim for money damages against the property owner.

Because the statute did away with concerns about purchasers discovering “surprise” lawsuits after closing, the Colorado Supreme Court held that the prior exceptions are no longer needed.

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Opportunists sometimes improperly use notices of lis pendens to "tie up" the title to given real property for advantage (because a potential purchaser is unlikely to consummate the transaction until the litigation is over.) For this reason, lis pendens laws have been criticized as depriving owners of the ability to freely sell their properties without just compensation in violation of due process. Notwithstanding these challenges, modern lis pendens statutes have generally been upheld as constitutional. Indeed, Colorado's version is considered a standard in that it provides a clear process for challenging whether a notice of lis pendens affects real property (and to have improper notices of lis pendens released by the court). A person who is damaged by the wrongful filing of a notice of lis pendens may have a claim against the person who filed it and should review the situation with an attorney.

Noah Klug is owner of The Klug Law Firm LLC. Contact him at Noah@TheKlugLawFirm.com.