Lis Pendens Foreclosure: When Is It Used & How Does It Work?

Lis pendens is Latin for suit pending. It’s a notice lenders use when they initiate a foreclosure sale. It puts the public on notice that a lawsuit is pending and clouds the title so the property can’t easily be sold. The notice is only used with certain proceedings. This article will explain the types of proceedings that require a lis pendens and how you can find out whether one has been filed. More importantly, if you’re on the receiving end of the notice, this article will explain what you can do to avoid a forced sale of your home. 

Overview of the Foreclosure Process

Lenders use the foreclosure process to recover and sell real property, such as a home, when a property owner defaults on a loan. The right to foreclose arises from the loan agreements which typically identify the home as the collateral. 

There are two types of home loan agreements, a mortgage and a deed of trust. Both create a lien on the property when the lienholder files with the county recorder’s office. The lienholder is usually your lender. Unlike a mortgage, a deed of trust usually contains a power of sale clause, which gives the bank the authority to foreclose. This is often called a trustee’s sale. 

There are also two common types of foreclosures. In a judicial foreclosure, typically required for mortgage loans, the bank must go through the court. In a non-judicial foreclosure, typically allowed when a deed of trust is used, the court is not involved. The type of foreclosure you’re subject to will depend on your loan contract and what state you live in.

What's a Lis Pendens?

Lis Pendens is Latin for suit pending. It’s used in connection with real estate and means there is a pending lawsuit or other claim involving the property. A notice of lis pendens is the actual document filed with the county recorder’s office. It’s a public record that notifies the public that a lawsuit has been filed. Since it’s in the public record, you’re assumed to know about it. 

The main reason someone files the notice is to notify third-party buyers that there is a dispute concerning the property. It essentially prevents someone from selling the property because potential buyers usually don’t want to acquire property with this type of cloud on the title. 

Anyone claiming rights to real estate can file a lis pendens. 

Common reasons for filing the notice include: 

• Divorce proceeding: If one party is challenging the distribution of real estate. 

• Contesting a will: When an heir is contesting a property distribution. 

• Home loan default: When a property owner defaults on a loan and the bank wants to sell the house. 

• Contract dispute: When a party to a contract claims an ownership interest in the property. For example, you may sue a seller for breach of contract (to recover property) if your offer on a house is accepted but the seller turns around and sells it to another party. 

• Property taxes: If you fail to pay your property taxes and the taxing authority, with a tax lien, forecloses. 

How To Find & Remove a Lis Pendens

Lis pendens is recorded in the same county recorder's office where the title to the property is recorded. There are a couple of ways to determine if one has been filed. You can conduct your own search at the county recorder’s office. You can also sometimes search online, and usually, it’s free. You can also have a title company conduct the search, but you may have to pay a fee. 

If you uncover a lis pendens notice, you may be able to remove or expunge it under state law by: 

• Making an agreement: The person who filed the notice and the title owner can settle their dispute and withdraw the notice. 

• Making a motion to expunge: A homeowner can file a motion to expunge in court if the person filing the notice doesn’t have a valid claim to the property. 

• Posting a bond: A homeowner can offer money or collateral to compensate the party filing the lis pendens to get it removed or expunged. The homeowner does this by posting a bond with the court covering the amount claimed. The court usually decides how large the bond must be based on state law, the property value, and other factors.

If the dispute ends up in court and a judge has to decide what property interest each party is entitled to, it will be removed when the court rules on the matter. If it’s a foreclosure action, it will be removed when the property is sold.

A Lis Pendens Foreclosure

Lis pendens are most commonly used in judicial foreclosures. In a judicial foreclosure, the mortgage lender starts the process by filing a lawsuit. In connection with filing the suit, the lender will file a notice of lis pendens with the county recorder’s office. This is a requirement in 22 states.

Most state laws require the lender to file the notice with the court, along with the complaint. The lender must also record the notice with the county recorder. This differs from other property disputes, such as a property dispute in a divorce proceeding, in which the lis pendens is a matter of right, meaning it’s allowed but not required. 

In a non-judicial foreclosure, the lender must record a notice of default instead of a lis pendens. They are both informational notices filed with the county recorder’s office. A lis pendens typically contains a description of the property and the nature of the claim. A notice of default contains specific information about the defaulted loan. 

The property is considered to be in preforeclosure from the time the lis pendens or notice of default is filed until the property is sold. This is when the foreclosure process takes place, and the time it takes varies by state. 

How To Avoid Foreclosure

There are federal and state laws to help you avoid foreclosure. If you miss a mortgage payment, lenders are legally required to contact you to discuss your pre-foreclosure loss mitigation options. As a homeowner, you can also take the initiative and submit an application prior to the notice of default. Many states have similar rules but the options and timing vary. 

Some loss mitigation options are designed to keep you in your home and help you get back on track with payments, including a repayment plan, loan modification, or forbearance. Some options require you to give up the property, but they also help you avoid a foreclosure sale. These include a deed in lieu of foreclosure and selling your home on the market or through a short sale. There are other options, that don’t necessarily involve working with the lender, including reclaiming your property during the redemption period, refinancing with a third-party lender, or filing bankruptcy.

A foreclosure sale stays on your credit report for seven years and can really hurt your score. Though some loss mitigation options may protect your credit score, if you don’t pay the full amount you owe (such as in a short sale), this can harm your credit as well.

You should be able to remain in your house until after the sale if it comes to that. Hopefully, it won’t. 

Let's Summarize...

When a borrower defaults on a home loan, the lender will start a foreclosure action to recover and sell the property. A judicial foreclosure involves a court proceeding and is generally required if your loan is secured by a mortgage. 

Lis pendens is Latin for suit pending and refers to the notice that’s recorded when there is a claim or lawsuit involving the property. It puts the public on notice that there is a cloud on the title, and it can be used whenever there is a dispute involving real property. It’s most commonly used for judicial foreclosures. The notice is recorded when the lender files the foreclosure lawsuit. There are several ways to avoid a forced sale of your home and have the notice removed. Knowing what to do when you’re faced with a lis pendens might just save your house.