LIS PENDENS


Owning property has always been a part of the American dream. People will go to court to enforce their property rights or to quiet title in their name. However, a problem arises when a party conveys property interests while litigation regarding that property is pending. The common law doctrine of lis pendens established rules regarding property rights for precisely that situation. Later, most states enacted statutes codifying the lis pendens doctrine with minor changes. While the Illinois, Indiana, and Wisconsin statutes are very similar, they do contain some differences in their wording and interpretations.

History


Lis pendens literally means pending suit. Admiral Builders Corp v Robert Hall Village, 101 Ill App 3d 132, 135, 427 NE2d 1032, 1035, 56 Ill Dec 627, 630 (1st D 1981). The doctrine is based on the concept that "nothing should be changed during the pendency of an action." Belleville State Bank v Steele, 117 Wis 2d 563, 571, 345 NW2d 405, 409 (Wis 1984). Common law bound the purchaser of property to the results of the litigation as if he was an original party to the suit. Id. The primary purpose of lis pendens was to promote final judgments and to make the courts more efficient. Belleville, 117 Wis 2d 563 at 571-572, 345 NW2d 405 at 409-410. If the law allowed people to convey property while litigation was pending, the party who ultimately won the suit would have to file another claim to enforce the earlier judgment. This could lead to endless litigation and allow the losing party to avoid the final judgment. Id.


Common law did not require a person to have actual notice of the litigation. The courts assumed that people monitored the cases before the courts and would therefore be aware of pending litigation before purchasing property. Gaugert v Duve, 2001 WL 737375, 4 (Wis 2001). Therefore, the fact that a case was before the courts was sufficient notice. Later, courts decided this view of notice was too harsh and narrowed the scope of lis pendens; the doctrine applied only if the property at issue was located within the jurisdiction of the court hearing the case. Belleville, 117 Wis 2d 563 at 572, 345 NW2d 405 at 410. This relieved a purchaser of the burden of searching the entire state or country for pending litigation that might affect the property in which he or she was interested. Id.

Statutory Lis Pendens


Most states perceived the common law lis pendens notice requirement as too harsh and enacted statutes that modified the doctrine. Id. When Illinois first enacted a statute, it merely codified the common law doctrine that rendered the filing of a complaint sufficient notice to subsequent purchasers of property. Admiral, 101 Ill App 3d 132 at 135-136, 427 NE2d 1032 at 1035, 56 Ill Dec 627 at 630. Later, the legislature amended the statute to bind subsequent purchasers to a final judgment only if the person claiming an interest in property recorded a notice in each county in which the property is located prior to the purchaser taking title. Id at 136, 1036, 631. Similarly, Wisconsin's first lis pendens statute authorized a person to record a notice of a lawsuit with the clerk of the circuit court for each county in which the property at issue was located. The legislature later made the notice mandatory and changed the location of the recording to the register of deeds of each county in which the property was located. Belleville, 117 Wis 2d 563 at 573-574, 345 NW2d 405 at 410. Indiana's legislature enacted similar laws that required "a separate written notice of a pending suit be filed with the clerk of the circuit court in order for the action to affect the interests of any pendente lite claimants." Mid-West Federal Savings Bank v Kerlin, 672 NE2d 82, 86 (Ind Ct App 1997).

Illinois Law

In Illinois, the statute is satisfied if the following conditions are met: (1) the property is of such character to be subject to the rule; (2) the court has jurisdiction over the person and the property; and (3) the property is sufficiently described in the pleadings. First Midwest, a Division of Jacksonville Savings Bank v Pogge, 293 Ill App 3d 359, 365, 687 NE2d 1195, 1198, 227 Ill Dec 713, 716 (4th D 1997). Notice is required for "every condemnation proceeding, proceeding to sell real estate of decedent to pay debts, or other action seeking equitable relief, affecting or involving real property." 735 ILCS 5/2-1901. The notice must include the title of the action, the names of the parties, the court where the suit was brought, and a description of the property in question. Id. However, if the plaintiff does not serve the defendant with process within six months of filing the claim, the lis pendens will not be considered constructive notice until such process is served. Id. A subsequent purchaser may petition the court not to hold him or her subject to the final judgment. If the court believes there is good cause and "a finding of specific performance is not necessary for final judgment in the action," it may authorize the purchaser not be bound by the ruling. Id.

Indiana Law

Indiana's lis pendens statute applies to claims "to enforce any lien upon, right to, or interest in any real estate." IC § 34-34-1-3(a)(3). However, the statute does not apply to claims based upon "an instrument executed by the party having the legal title to the real estate" or "a judgment of record ... against the party having the legal title to the real estate." IC § 34-34-1-3(a)(3)(A & B). The notice must include the title of the court, the names of the parties, a description of the real estate, and the nature of the lien, right, or interest sought. IC § 34-34-1-3(b).

Wisconsin Law

Wisconsin's statute applies to actions where the relief demanded affects property and where the "relief might confirm or change interests in the real property." Wis Stat § 840.10(1)(a). The notice must contain the parties' names, the object of the action, and a description of the property. Id. Like Illinois, the lis pendens is no longer constructive notice if the plaintiff fails to serve the defendant process within a set period of time. In Wisconsin, the plaintiff has one year to serve process after recording a lis pendens or else the notice is void. Id.

Slander of Title


Despite the similarity of language, requirements, and purpose, the courts have interpreted the statutes differently in certain areas. One such area is slander of title. Whether or not a party can cite lis pendens in a slander of title claim exposes a conflict of two principles of common law. Kensington Development Corp v Israel, 139 Wis 2d 159, 164, 407 NW2d 269, 272 (Wis App Ct 1987). Common law has consistently held that statements made during judicial proceedings enjoy absolute privilege if the statements sufficiently relate to the subject matter of the suit. This encourages people to testify openly without fear of prosecution. Id. However, another well-established principle of common law is slander of title. This recognizes a claim for false statements regarding property made to a third party that result in damages. Id. Whether or not absolute privilege should cover lis pendens is subject to interpretation. In Wisconsin, the court determined that if all statements related to judicial proceedings enjoyed absolute privilege, it would be almost impossible to prove a slander of title claim. Id at 166, 272-273. Granting absolute privilege to lis pendens would protect slanderous statements regarding property so long as the statements were somewhat related to the subject matter of the litigation. This would be true even if the statements were irrelevant. Id at 166-167, 273. The court found this unacceptable and applied a conditional privilege to lis pendens. In Wisconsin, a lis pendens notice receives the privilege if the person reasonably believed the statements were true and the statements reasonably related to the litigation. Id at 168-169, 273-274.


Similarly, Indiana applies two types of privilege: absolute and qualified. Trotter v Indiana Waste Systems, Inc, 632 NE2d 1159, 1162 (Ind Ct App 1994). Indiana applies absolute privilege to statements that are relevant to the litigation. Id. If a statement enjoys absolute privilege, it cannot be the basis of a suit even if it would otherwise be actionable. Id. In Curry v Orwig, 429 NE2d 268 (Ind Ct App 1981), the Orwigs had a recorded ingress and egress easement over adjacent property owned by Curry. When Curry planned to develop the adjacent property, the Orwigs filed a lis pendens to protect their easement rights. Later, Curry was unable to sell the adjacent property because the purchasers could not obtain insurance for the property mentioned in the lis pendens. Curry sued Orwig claiming Orwig filed the lis pendens maliciously. The court recognized the general rule that actionable statements enjoy absolute privilege if they sufficiently relate to the litigation. Id at 272. Similarly, a lis pendens will enjoy absolute privilege if the filer has a sufficient interest in the property at issue. The court determined that Orwig had a sufficient interest in the land; if Curry sold the property, it might affect Curry's easement rights. Id at 273.


Illinois courts addressed the slander of title issue in Ringier America v Enviro-Technics, Ltd, 284 Ill App 3d 1102, 673 NE2d 444, 220 Ill Dec 532 (1st D 1996). The case involved a dispute over a contract to purchase property. Ringier sued Enviro for breach of contract and Enviro filed a counterclaim stating that Ringier failed to produce a suitable title. In addition, Enviro recorded a lis pendens. Ringier claimed it had secured another purchaser, but the deal fell apart when the purchaser discovered the lis pendens. Ringier then filed a slander title claim against Enviro for maliciously filing the lis pendens. The court acknowledged the general rule that applied absolute privilege to statements made in judicial or quasi-judicial proceedings. Id at 1105, 446, 534. It then ruled that absolute privilege also applied to lis pendens if the underlying litigation affected ownership in property. Id at 1105, 447, 535. Since absolute privilege applied to lis pendens, the court affirmed the dismissal of the slander of title claim. Id at 1106, 447, 535. Absolute privilege applied even assuming the defendants recorded the lis pendens "maliciously and without cause, for the purpose of harassing the plaintiff and to gain unfair advantage in the underlying litigation." Id at 1104, 446, 534.

Lis Pendens Pending Appeal


Another issue related to lis pendens is whether lis pendens continues to apply when a litigant appeals the judgment. Wisconsin dealt with this issue in Gaugert v Duve, 2001 WL 737375 (Wis 2001) where the Gaugerts signed a contract to purchase property that included the option of first refusal to purchase additional acreage. After the Gaugerts made an offer on the additional property, the seller rescinded the option in order to sell it to a third party. The Gaugerts filed a complaint for breach of contract and later recorded a lis pendens to protect their interest. The court dismissed the complaint and the Gaugerts appealed. Pending appeal, the circuit court discharged the lis pendens and the owner of the property sold it to a third party. The purchaser claimed he was not bound by the appellate court's reversal since the Gaugerts failed to obtain a stay while awaiting the appeal. The Wisconsin Supreme Court ruled that since the purchaser was named in the underlying lawsuit and therefore had actual knowledge of the suit, common law lis pendens governed the situation and a stay was unnecessary. Id. The court noted that since the lis pendens statute gives third parties notice of pending litigation, it does not apply when a party has actual notice. Id. The court observed that in most jurisdictions, lis pendens "remain in effect as long as procedures for review remain available to the losing party." Id at 6. In Wisconsin, a case is pending until all the rights of appeal are exhausted. Therefore, the lower court's discharge of the lis pendens and the absence of a stay were irrelevant to the case at hand. Id. Common law lis pendens did not bar the sale of the land, but the purchaser bought the land subject to the outcome of the appeal. Id at 7.


The Wisconsin court considered Illinois cases but ultimately refused to adopt their rulings. In Duncan, the seventh circuit interpreted Illinois law in a case where the Duncans filed a claim and recorded a lis pendens to enforce their right of first refusal to repurchase property. They appealed the district court's dismissal of their claim but failed to file a stay to protect their interest pending appeal. The defendant bank sold the property to a third party before the court issued a verdict on the appeal. Duncan v Farm Credit Bank of St Louis, 940 F2d 1099, 1101 (7th Cir 1991). The court noted that in Illinois, "a lis pendens terminates upon a final judgment." Id. Upon a final judgment, a party must obtain a stay to protect their interest in the property pending an appeal. Id at 1102. The court determined that even if the third party purchasers had actual notice of the litigation, the Duncans were still required to seek a stay. Since a lis pendens does not extend beyond the final judgment, the Duncans failed to obtain a stay, and the purchaser was not a party to the underlying suit, the purchaser owned the property regardless of the result of the appeal. Id at 1104.

Lis Pendens and Unrecorded Interests in Land


Illinois and Wisconsin also differ in applying lis pendens to unrecorded interests in land. In Wisconsin, the statute states that upon the recording of lis pendens "every purchaser or encumbrancer whose conveyance or encumbrance is not recorded or filed shall be deemed a subsequent purchaser." 840.10 Wis Stat § 1(a). This "relegate[s] the holder of an unrecorded interest in land to the status of the subsequent purchaser, whose rights are subject to the legal proceedings in which the lis pendens is filed." J&S Corp v Mortgage Associates, Inc, 41 Wis 2d 418, 423, 164 NW2d 221, 223 (Wis 1969). However, if a party has actual notice of an unrecorded interest in the property at issue before recording the lis pendens, he or she must join the owner of the interest in the suit. Id at 425, 225.


The federal court interpreted Illinois law slightly differently. Plaintiff credit corporation attempted to foreclose on certain property and named "unknown owners and non-record claimants" as defendants. General Electric Credit Corp v Am Natl Bank & Trust Company of Chicago, 562 F Supp 456, 457 (N D Ill 1983). It claimed lis pendens would require the unknown defendants to abide by the ultimate outcome of the claim. Id at 461. The court disagreed. It held that the portion of the lis pendens statute that rendered a person "whose interest or lien is not shown of record at the time of filing such notice" was limited to "every person subsequently acquiring an interest in or a lien on the property." Id. Therefore this section only applies to unknown owners who obtain their interest in the property after a lis pendens is recorded. This comports with the purpose of the statute, which is to bind subsequent purchasers to the final judgment. Id.

Conclusion


In general, the doctrine of lis pendens subjects a subsequent purchaser of property that is the focus of pending litigation to the ruling of the case. Under common law, the claim itself was considered sufficient notice to warn potential purchasers that another party has a claim to the land. The courts assumed that most people followed the cases before the court and therefore people would be aware of the claim. Most states later decided that this assumption was too harsh and the legislatures passed statutes explaining the process of filing lis pendens. These laws established a central location where a third party could go to determine if the property was the subject of ongoing litigation before making the purchase. The purpose and language of the Illinois, Indiana, and Wisconsin statutes are very similar. Despite these similarities, the respective courts have interpreted the statutes differently regarding slander of title, appealing a court's judgment, and unrecorded titles.

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