WHEN SHOULD YOU RECORD A LIS PENDENS?

By: Dan Kloberdanz

            We are often asked by clients to “tie up” someone’s property to help collect a debt.  We even receive requests to “record a judgment” against the bad guy, and then file a lawsuit.  The process is not that easy, if the law is to be followed properly.  First, a judgment must be obtained before it can be recorded (which means first filing a lawsuit and then prevailing on the merits of the case).  Second, with respect to “tying up” somebody’s real property against their wishes prior to obtaining judgment, this can only be accomplished legally by filing a lawsuit and recording a lis pendens.  And as explained below, a lis pendens is proper only in certain types of claims.

I.          What Is a Lis Pendens?

The filing of a lis pendens is authorized (as well as limited) by A.R.S. §12‑1191(A), which permits a plaintiff to record a lis pendens where a lawsuit has been filed which involves an action "affecting title to real property."  The lis pendens is filed with the court by the plaintiff, and then recorded with the county recorder’s office (in the same manner as a deed or other instrument).  The lis pendens must legally describe the disputed property to provide sufficient constructive notice.

  A lis pendens serves two purposes.  At the time that it is recorded with the county recorder’s office, it provides constructive notice to anyone interested in buying or taking as collateral the real property which is the subject of the pending litigation.  Such constructive notice prevents third parties from acquiring interests in the property during the pendency of the litigation which might otherwise have priority over the relief requested by the plaintiff.  The lis pendens does not prevent the owners from transferring title to the property, however, any transferee would take title subject to the lis pendens (and thus subject to the outcome of the lawsuit). 

A lis pendens is often used in cases where the parties dispute an interest in the real property.  For example, if the parties have a disagreement over their rights to complete a sale under a purchase contract, the issue of title may be determined by the court.  If, however, the dispute is merely over earnest money (i.e., there is no claim for specific performance to title), then the buyer would have no right to record a lis pendens against the property, even though the dispute essentially involves a real estate transaction.  Likewise, a real estate broker has no right to record a lis pendens (or some other type of claim) against the property for breach of a listing agreement.

Arizona courts have consistently held that if a lis pendens is recorded with respect to an action that does not affect title to real property, the lis pendens is deemed to be a groundless document.   The courts have also held that a lis pendens is frivolous where title to real property is not actually affected by the claim, such as a simple money judgment action. It is not sufficient grounds to support a lis pendens just because a creditor can eventually turn a money judgment into a lien by recording the judgment.  

II.        When Is a Lis Pendens Necessary? 

There are certain types of lawsuits where the filing of a lis pendens is absolutely crucial to accomplishing the goal of the lawsuit.  The plaintiff should always record a lis pendens if the lawsuit concerns an interest in real property which could be transferred to an innocent third party purchaser while the case is pending.  A lis pendens essentially “freezes” the title, and puts the whole world on notice that the plaintiff is staking a claim to the title.  As noted above, if a person receives a transfer of that claim after the lis pendens is recorded, that person takes title subject to the outcome of the lawsuit.  For example, in a court case in which a mechanic’s lien claimant foreclosed his lien on the property and obtained a judgment, but had failed to file a lis pendens, he was unable to satisfy the judgment out of a sale of the property because the property had been sold during the pendency of the litigation to a third party who had taken without notice of the litigation.

III.             Remedies for Wrongful Filing of Lis Pendens: Statutory Claims Under A.R.S. § 33-420. 

Under common law, the recording of a lis pendens was absolutely privileged, similar to statements made in court pleadings.  This meant that there was little recourse against one who filed a groundless lis pendens (although a slander of title action would be available under limited circumstances).   The Arizona Legislature changed this common law rule in 1981 when it enacted A.R.S. §33‑420, which provides strict remedies against one who files any document against real property which is "forged, groundless, contains a material misstatement or false claim or is otherwise invalid". 

Some types of quiet title actions can be combined with an action for damages due to the wrongful filing of a document which clouds the title.  Under A.R.S. §33-420, the legislature has given the owner of property a very powerful tool to use against persons who wrongfully cloud somebody's title with a lis pendens.  Under A.R.S. §33-420(A), a person who purports to claim an interest in real property, or who causes a document to be improperly recorded is liable to the owner or beneficial title holder for (1) the greater of the sum of $5,000 or triple the actual damages caused by the wrongful recording, and (2) reasonable attorney's fees and costs of the action.  Additionally, under A.R.S. §33-420(C), a person who is named in a document who knows that such document is forged, groundless, or otherwise invalid is liable for the greater of the sum of $1,000 or triple the actual damages, plus attorney's fees, if that person wilfully refuses to release or correct such document within twenty days after the owner's written request. 

IV.       Quiet Title Lawsuit. 

A lawsuit to clear title to real property is called a "quiet title" action, and is authorized under A.R.S. § 12-1101.  The action may be filed in superior court by any one claiming an interest in the property, regardless whether that person is in actual possession of the property.  A quiet title action may be used to remove any type of cloud against the title, including recorded instruments such as judgments, lis pendens, and mechanic’s liens, as well as unrecorded claims such as those for adverse possession, prescriptive easements, and constructive trusts.

Arizona law also allows an owner or any other person holding an interest in real property to file a "special action" in superior court to clear the effect of a groundless or invalid instrument from the county records.  A.R.S. §33-420(B).  This action is most commonly used to remove an improper lis pendens.  Although the procedure for this special action is not well-defined, it may allow an owner to obtain a ruling from a judge on an accelerated basis to remove a frivolous lis pendens