One of the musical compositions I studied in my freshman music history class was Wachet Auf, a cantata by Johann Sebastian Bach. Google translates the German Wachet Auf as “watch up.” The common English name for this cantata is “Sleepers Awake.”
Wachet Auf is based upon a hymn called “Wachet auf, ruft uns die Stimme” written in 1599 by Philipp Nocolai. Bach wrote Wachet Auf in 1724, which is loosely based upon Jesus’ parable of the wise and foolish virgins. The cantata sends a message that like the foolish virgins (who don’t even get a supporting role in Wachet Auf), those who don’t pay attention will miss Jesus’ coming.
Wachet Auf was to be performed on the twenty-seventh Sunday after Trinity. Depending upon when Easter occurs, there frequently are not twenty-seven Sundays after Trinity. Therefore, Wachet Auf wasn’t performed until 1731, more than six years after its completion.
Today, Wachet Auf is possibly Bach’s best known cantata. It has been frequently used in movies and television, ranging from Mr. Holland’s Opus to Mad Men (in the episode Three Sundays) to Win Ben Stein’s Money.
In real estate law, lis pendens reminds me of Wachet Auf. Although neither term exactly translates to “pay attention,” but both send a message that it is important to take note.
What is Lis Pendens?
Lis pendens is a Latin phrase which roughly translates to litigation (lis) pending (pendens). Lis pendens only applies to civil litigation, not to criminal cases. Also, although the meaning of the term is general, lis pendens doesn’t apply to every civil lawsuit. Lis pendens only applies where the title to real estate is at issue.
Usually when people file a civil case, such as a case for breach of contract or for personal injury, they are looking for monetary compensation. They don’t care whether that money comes from the sale of real estate, stocks, or a savings account.
However, when people file a lawsuit disputing title to real estate, the situation is different. Real estate is non-fungible or unique. If the real estate that is the subject of the litigation can be transferred to a third party during the litigation, then the parties who wins the lawsuit still won’t get the result they wanted–ownership of that real estate. Therefore, traditional lis pendens cases include divorces, disagreements over a will or inheritance, buyer lawsuits for breach of a real estate purchase agreement, and sometimes, foreclosure actions.
How Does Lis Pendens Work?
Lis pendens puts third parties on notice that the lawsuit is pending and that if they take title to the real estate, they do so at their own risk, and the result can be brutal. Consider the following example, which describes a traditional application of lis pendens:
Buyer pays $200,000 to Party A to buy the house after the lawsuit is filed. Party A transfers title to Buyer via a deed, and Buyer moves into the house.
One year later, Party B wins the lawsuit, and the Court says Party B is the sole owner of the house.
As this example illustrates, lis pendens can have harsh results real estate purchasers. Therefore, most states now have lis pendens statutes.
Although those statutes differ from English common law and from each other, most statutes have done away with the lawsuit, itself, providing constructive notice of the lis pendens. Those statutes require the plaintiff to put a lis pendens notice to in the county real estate records. In those states, buyers need not look to see if a lawsuit might affect the title to real estate; they will discover the lis pendens in a routine title search.
Some state statutes also protect an innocent third party who pays money for real estate without knowing about the lis pendens.
Lis Pendens in Maryland
Maryland is one of the minority states which continues to follow the common law. Except for judicial decisions, Maryland’s only nod to lis pendens is Rule 12-102. Rule 12-102(b) follows the traditional, common law rule when it states: “the filing of the complaint is constructive notice of the lis pendens as to real property in the county in which the complaint is filed.”
In Maryland, a lis pendens notice is required only if the real estate to which lis pendens attaches is in a county other than the one in which the lawsuit is pending. So, before buying a property, the buyer should check the county court records and the county real estate records, to be sure there is no lis pendens.
Lis Pendens and Real Estate Acquisitions
Real estate purchase contracts usually contain several seller representations and warranties, including representations about pending litigation affecting the real estate. If there is a lis pendens, it should show up in as a Schedule B exception in the title report a buyer orders before purchasing real estate. A lis pendens can be a breach of a seller representation or warranty if the seller knew of the pending lawsuit and didn’t disclose it.
However, not every lis pendens is a seller contract breach. The seller may not have known about the lis pendens. The case could have been filed after the contract was signed. Or, the lis pendens might not be proper, either because statutory procedural formalities weren’t followed or because the lawsuit doesn’t involve title to real estate.
The buyer should inform the seller of the lis pendens through the title objection process in the real estate contract. It’s the seller’s obligation to remove the lis pendens. Frequently, this will require that the seller obtain a court order, which can take weeks or months. However, if the seller doesn’t get the lis pendens removed or the lis pendens is listed in the Schedule B exceptions to the title policy, the buyer shouldn’t buy the property.
Lis pendens isn’t like a mechanic’s lien, which will be released upon purchasing a bond or paying a fixed amount of money. Instead, a proper lis pendens involves a third party who claims ownership of the real estate. Therefore, buyers shouldn’t agree to buy a property subject to lis pendens, even if they receive a lower purchase price.
Mortgage lenders aren’t likely to be willing to give a loan secured by a property with a lis pendens. And, if the lis pendens is valid and the property is in a traditional lis pendens state, the buyer could pay the seller the purchase price only to be evicted from the property and to lose its money like Party B in the example above. If the lis pendens was listed as an exception on the title insurance policy, the buyer won’t be able to make a claim under the policy.
Pay Attention to Lis Pendens
Bach’s Wachet Auf cantata cautioned churchgoers to “take notice.” Real estate buyers should do the same with lis pendens. Buyers should pay attention to the representations and warranties in their real estate purchase contracts. Buyers should read their title report or commitment and the final title policy. And, if a seller isn’t able to remove a lis pendens, the buyer shouldn’t purchase the real estate.
This series draws from Elizabeth Whitman’s background in and passion for classical music to illustrate creative solutions for legal challenges experienced by businesses and real estate investors.