The Lis Pendens in Pennsylvania: A Good Tool
If you work in the Philadelphia (and Pennsylvania generally) real estate market, you have certainly at least heard of the infamous ‘lis pendens,’ though you might not know what it is or how it can help you. A lis pendens is a latin term and is defined as, “a pending legal action, or a notice thereof.” In the real estate world, it means a notice, filed in a court, that shows up on a title search for a property and lets the entire world know that there is an active dispute being heard in court about this property.
It tells buyers not to buy, because they might not be buying from someone that has a right to sell. Purchasing a property with a lis pendens on it is the same as you agreeing to purchase that property and take on whatever issues the previous owner was being sued for. You, as the purchaser, become bound by the eventual results of the lawsuit. So don’t do it!
How does this work? Say Joe contracts with Amy to buy her house for $150,000. Joe gives her $5,000 (consideration) towards the property and the agreement of sale is negotiated and signed. Then Scott comes along and offers Amy $155,000, so she calls Joe and tells him the deal is off. Well, Joe wants the property and the agreement of sale they signed is valid and enforceable. So before Amy sells the property to Scott, Joe files a lawsuit with the Philadelphia Court of Common Pleas, and also files a lis pendens. Joe wants to force Amy into the sale. Amy tells Scott the court case means nothing and Scott goes ahead and purchases the property. A year later, Joe wins the lawsuit, and now Scott, because he purchased the property subject to the lis pendens, must turn the property over to Joe and ends up losing out completely. At this point, Scott will have to try and sue Amy to get the money back he paid, but will certainly end up losing out one way or another. She’s long gone.
So a savvy investor will see a lis pendens on a title report and go no further with a sale. This is how a lis pendens protects your interests as a buyer, it protects your ability to keep a sale “alive” in the event that the other party tries to back out of a valid contract. The property becomes unsellable and then you are in a position to negotiate with the seller to get your deal back on track, because otherwise they are going to sit on the property while your court case goes through the motions.
An important thing to mention – a lis pendens can only be filed on cases that deal directly with the real estate in question. So if Joe has a suit against Amy for something completely different than their real estate deal, Joe cannot seek a lis pendens against that property just because he wants to tie up an asset that he hopes to be able to leverage in the future.
This is a great tool, but it cannot be abused. The Court does not look kindly on using a lis pendens inappropriately. If you put a lis pendens on a property when you do not have a claim to that property, you are subject to being sued for slander of title and risk some hefty damages if you lose. You have to be confident that your claim is valid and relates to the specific property that you are suing.
As always, if you have any questions about real estate in Pennsylvania or New Jersey, especially in Philadelphia and surrounding counties, contact me at [email protected]. Console Legal is here for you!