A notice of lis pendens indicates that a civil action is pending that pertains to the title to real property, the establishment of an interest in real property, or enforcement of an encumbrance against real property (Prop. Code §12.007(a)). The party filing the notice must claim an actual interest in the property, not merely monetary damages. “In evaluating claims pertaining to real property for purposes of the lis pendens statute, Texas courts generally have distinguished between claims in which a party asserts a direct interest in real property, which qualify for a lis pendens, and claims in which a party asserts only a collateral [monetary] interest in real property, which do not qualify for a lis pendens.” In re. Moreno, No. 14-14-00929-CV, Mandamus Proceeding (Tex.App.—Houston [14th Dist.] 2015).
The requirement that there be an interest in the subject property, not just a monetary claim, means that the popular tactic of filing suit for breach of an earnest money contract by a seller, and then filing a lis pendens in the real property records to hinder the property’s subsequent sale to another, is improper. A court is required to grant a motion to expunge a lis pendens if the plaintiff fails to establish by a preponderance of the evidence the probable validity of a real property claim. Prop. Code §12.0071.
The lis pendens itself takes the form of an affidavit filed in the county clerk’s real property records announcing that a lawsuit involving local real estate is pending in a certain court. “Generally speaking, the purpose of a lis pendens notice is twofold: (1) to protect the filing party’s alleged rights to the property that is in dispute in the lawsuit and (2) to put those interested in the property on notice of the lawsuit.” David Powers Homes, Inc. v. M.L. Rendleman Co., Inc. 355 S.W.3d 327,336 (Tex.App.—Houston [1st Dist.] 2011, no pet.). A Houston appeals court case nicely summarizes the basic concept: “A properly filed lis pendens is not itself a lien, but rather it operates as constructive notice to the world of its contents. . . . [Property Code §13.004(b)] expressly provides that a property filed notice of lis pendens prevents a purchaser for value from acquiring property free and clear of the encumbrance referenced in the lis pendens.” Cohen v. Sandcastle Homes, Inc., 469 S.W.3d 173 (Tex.App.—Houston [1st Dist.] 2015).
The law applicable to lis pendens is found in Property Code Section 12.007 et seq.:
Sec. 12.007. LIS PENDENS.
(a) After the plaintiff’s statement in an eminent domain proceeding is filed or during the pendency of an action involving title to real property, the establishment of an interest in real property, or the enforcement of an encumbrance against real property, a party to the action who is seeking affirmative relief may file for record with the county clerk of each county where a part of the property is located a notice that the action is pending.
(b) The party filing a lis pendens or the party’s agent or attorney shall sign the lis pendens, which must state:
(1) the style and number, if any, of the proceeding;
(2) the court in which the proceeding is pending;
(3) the names of the parties;
(4) the kind of proceeding; and
(5) a description of the property affected.
(c) The county clerk shall record the notice in a lis pendens record. The clerk shall index the record in a direct and reverse index under the name of each party to the proceeding.
(d) Not later than the third day after the date a person files a notice for record under this section, the person must serve a copy of the notice on each party to the action who has an interest in the real property affected by the notice.
Sec. 12.0071. MOTION TO EXPUNGE LIS PENDENS.
(a) A party to an action in connection with which a notice of lis pendens has been filed may:
(1) apply to the court to expunge the notice; and
(2) file evidence, including declarations, with the motion to expunge the notice.
(b) The court may
(1) permit evidence on the motion to be received in the form of oral testimony; and
(2) make any orders the court considers just to provide for discovery by a party affected by the motion.
(c) The court shall order the notice of lis pendens expunged if the court determines that:
(1) the pleading on which the notice is based does not contain a real property claim;
(2) the claimant fails to establish by a preponderance of the evidence the probable validity of the real property claim; or
(3) the person who filed the notice for record did not serve a copy of the notice on each party entitled to a copy under Section 12.007(d).
(d) Notice of a motion to expunge under Subsection (a) must be served on each affected party on or before the 20th day before the date of the hearing on the motion.
(e) The court shall rule on the motion for expunction based on the affidavits and counter-affidavits on file and on any other proof the court allows.
(f) After a certified copy of an order expunging a notice of lis pendens has been recorded:
(1) the notice of lis pendens and any information derived or that could be derived from the notice:
(A) does not:
(i) constitute constructive or actual notice of any matter contained in the notice or of any matter relating to the action in connection with which the notice was filed;
(ii) create any duty of inquiry in a person with respect to the property described in the notice; or
(iii) affect the validity of a conveyance to a purchaser for value or of a mortgage to a lender for value; and
(B) is not enforceable against a purchaser or lender described by Paragraph (A)(iii), regardless of whether the purchaser or lender knew of the lis pendens action; and
(2) an interest in the real property may be transferred or encumbered free of all matters asserted or disclosed in the notice and all claims or other matters asserted or disclosed in the action in connection with which the notice was filed.
(g) The court in its discretion may require that the party prevailing in the expunction hearing submit an undertaking to the court in an amount determined by the court.
Sec. 12.008. CANCELLATION OF LIS PENDENS.
(a) On the motion of a party or other person interested in the result of or in property affected by a proceeding in which a lis pendens has been recorded and after notice to each affected party, the court hearing the action may cancel the lis pendens at any time during the proceeding, whether in term time or vacation, if the court determines that the party seeking affirmative relief can be adequately protected by the deposit of money into court or by the giving of an undertaking.
(b) If the cancellation of a lis pendens is conditioned on the payment of money, the court may order the cancellation when the party seeking the cancellation pays into the court an amount equal to the total of:
(1) the judgment sought;
(2) the interest the court considers likely to accrue during the proceeding; and
(c) If the cancellation of a lis pendens is conditioned on the giving of an undertaking, the court may order the cancellation when the party seeking the cancellation gives a guarantee of payment of a judgment, plus interest and costs, in favor of the party who recorded the lis pendens. The guarantee must equal twice the amount of the judgment sought and have two sufficient sureties approved by the court. Not less than two days before the day the guarantee is submitted to the court for approval, the party seeking the cancellation shall serve the attorney for the party who recorded the lis pendens a copy of the guarantee and notice of its submission to the court.
The specific statutory categories listed in Property Code Section 12.007(a) provide the sole and exclusive legal basis for the filing of a lis pendens. A close look at these categories indicate that the law will not support the filing of a lis pendens unless the property itself is truly the subject of the suit. A notice that only indirectly affects the property (or is merely “collateral” to it, in the parlance of the case law) is not valid. Flores v. Haberman, 915 S.W.2d 477, 478 (Tex. 1995). For instance, a suit seeking only monetary damages would not justify the filing of a lis pendens, nor would a suit to specifically enforce or set aside an earnest money contract, because neither of these pertain to the property itself—only to a breach of contract to convey the property, a subtle but meaningful legal distinction.
Section 12.0071 was amended in 2017 to clarify that after a certified copy of an order expunging a notice of lis pendens has been recorded, the previously filed notice of lis pendens no longer constitutes actual or constructive notice, creates any duty of inquiry, or affects the validity of any subsequent conveyance of the property. Query for the legislature: why does this provision apply only to a certified copy of an expungement order and not to an ordinary release and cancellation?
Duration of a Lis Pendens
A lis pendens has no life of its own apart from the lawsuit that underlies it. “A lis pendens operates only during the pendency of the [underlying] suit, and only as to those matters that are involved in the suit. It terminates with the judgment, in the absence of an appeal.” Rosborough v. Cook, 108 Tex. 364, 367, 194 S.W. 131, 132 (1917). A timely appeal or motion for new trial extends the operative effect of the lis pendens. “Because the recording of a lis pendens is specifically authorized by statute and has no existence separate and apart from the litigation of which it gives notice . . . the filing of a notice of lis pendens . . . is a part of the ‘judicial proceeding.'” Kropp v. Prather, 526 S.W.2d 283 (Tex.App.—Tyler 1975, write ref’d n.r.e.). In other words, a lis pendens does not represent a stand-alone claim. Collins v. Tex Mall, L.P., 297 S.W.3d 409, 419 (Tex.App.—Fort Worth 2009, no pet.).
Cancellation of a Lis Pendens
If a notice of lis pendens is wrongfully filed, a court may order it canceled by means of a motion to expunge. In the hearing on the motion, “the court shall order the notice of lis pendens expunged if the court determines that . . . claimant fails to establish by a preponderance of the evidence the probable validity of the real property claim. . . .” (Prop. Code §12.0071(c)(2)). In other words, it can be expected that a lis pendens based on tenuous or bogus assertions regarding the subject property will not survive a challenge.
Section 12.0071 specifies that a “court shall order the notice of lis pendens expunged if the court determines that: (1) the pleading on which the notice is based does not contain a real property claim; (2) the claimant fails to establish by a preponderance of the evidence the probable validity of the real property claim; or (3) the person who filed the notice for record did not serve a copy of the notice on each party entitled to a copy under Section 12.007(d). Once a party seeks to expunge a lis pendens, the evidentiary burden shifts to the other party to prove by a preponderance of the evidence that its claim is probably valid. In Re I-10 Poorman Investments, Inc., 549 S.W.3d 614 (Tex.App.—Houston [1st Dist.] 2017, no pet.).
If a motion to expunge a lis pendens is denied, the remedy for the movant is to seek a writ of mandamus, not to file an appeal. In re. Howard Chong, No. 14-19-00368-CV (Tex.App.—Houston [14th Dist.] 2019).
A court may not, on its own motion, cancel or expunge a lis pendens. There must be a motion made by one of the parties and then notice to all concerned.
With court approval, one may “bond around” a notice of lis pendens and obtain its cancellation by paying an adequate sum into the registry of the court. Prop. Code §12.008(b).
Rule Relating to Bona Fide Purchasers
Although a lis pendens is not a lien, it is a cloud on title and can therefore have the effect of stopping a sale. Why? Because constructive notice of litigation has now been given to potential buyers. (“Constructive notice” is the idea that we are all charged with knowledge of items filed in the public records, whether we have actually read them or not). Property Code Section13.004(a) states that a “recorded lis pendens is notice to the world of its contents.” If this were not the case, the rule regarding a bona fide purchaser (“BFP”) would apply—i.e., a buyer who purchases real property for valuable consideration without notice of a disputed claim or prior interest does so free of that claim or interest. Accordingly, if a notice of lis pendens is properly filed, then a buyer (by definition) cannot be a BFP since constructive notice has been given by the filing; at best the buyer becomes a purchaser pendente lite, meaning that he or she would take title subject to the outcome of the litigation.
The closing of a transaction and the issuance of title insurance can be affected. A title company usually will not issue an owner’s policy of title insurance to a buyer until a lawsuit is cleared up or the lis pendens is canceled. The practical result is that a seller involved in litigation concerning a property cannot easily get rid of the problem by selling that property to someone else. Without this rule, the parties could be prevented from justly resolving their litigation and the authority of the courts defeated.
Note that if a prospective purchaser has actual knowledge of a pending suit, then the lis pendens doctrine applies whether or not a statutory notice has been filed in the real property records. A buyer cannot know about a lawsuit (from whatever source) and still claim to be a BFP. Sommers v. Sandcastle Homes, Inc. 521 S.W.3d 749 (Tex. 2017).
Penalties for Wrongful or Fraudulent Filings
The Property Code does not grant a penalty for filing a wrongful or fraudulent lis pendens. As a result, “courts have given a broad reading to §12.008, so as to grant an effective remedy.” Prappas v. Meyerland Cmty. Improvement Ass’n, 795 S.W.2d 794, 798 (Tex. App.—Houston [14th Dist.] 1990, writ denied).
The content of a lis pendens is considered to be privileged, just as all that is said in the underlying litigation is privileged. Jetall Companies, Inc. v. Dyke, No.14-19-00104-CV (Tex.App.—Houston [14th Dist.] 2019). A lis pendens is just a notice, even if filed with malice.
Note, however, that Rule 13 of the Texas Rules of Civil Procedure provides sanctions if lawsuits are “groundless and brought in bad faith or groundless and brought for the purpose of harassment . . . . ‘Groundless’ for purposes of this rule means no basis in law or fact and not warranted by good faith argument for the extension, modification, or reversal of existing law.” So caution is in order: the filing of a frivolous lis pendens could easily fall within the definition of harassment and potentially open the door to Rule 13 sanctions in connection with the conduct of the lawsuit generally.
It is also worth looking at Civil Practice & Remedies Code Section 12.002 which addresses “liability related to . . . a fraudulent lien or claim filed against real or personal property.” Since a lis pendens could be interpreted as a claim of sorts, or at least the memorandum of one, the filer could potentially incur liability under this statute if aspects of the lis pendens or the underlying suit are found to be fraudulent. A person who knowingly and intentionally files a fraudulent lien may be held liable in district court for the greater of $10,000 or actual damages, exemplary damages, and recovery of attorney’s fees and costs. It is also a criminal offense. Penal Code §37.01. If applicable, a cause of action under Chapter 12 should be included in any suit against the filer of the lis pendens.
Additionally, the filing of a fraudulent lien or claim may under certain circumstances form the basis of a cause of action under the Deceptive Trade Practices Act, Bus. & Com. Code §§17.44 et seq.
Lis pendens are a useful tool but are subject to abuse as well as potential consequences. They must be employed in strict compliance with the statute and not merely to gain advantage in a dispute over some monetary aspect of a real estate closing.
Information in this article is provided for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. No attorney-client relationship is created by the offering of this article. This firm does not represent you unless and until it is expressly retained in writing to do so. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well.
Copyright © 2019 by David J. Willis. All rights reserved. Mr. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website, www.LoneStarLandLaw.com.