What is lis pendens?
“Lis pendens” usually refers to an official document that notifies the public that there is ongoing litigation involving a piece of property. It typically consists of a lien or mortgage recorded against real estate or real property (land). If the filing party’s legal claim is successful, the property at issue may be sold or seized to satisfy the judgment.
A general contractor (GC) working on a new home build claims the owner didn’t fully compensate it for a project. The GC files a lawsuit alleging breach of contract, and with the permission of the court, it files a lien against the home to secure payment of its claims. It records its lien with the Recorder of Deeds and files a lis pendens notice to alert any potential buyer that a claim encumbers the property.
Get Your Lis Pendens Bond:
- A notice of lis pendens gives a plaintiff a legal interest that “encumbers,” or latches onto, the ownership rights for a specific property while litigation is ongoing.
- A lis pendens bond protects the defendant from sustaining damages due to the encumbrance if the plaintiff’s filing is frivolous, improper, or in bad faith.
- If a defendant wishes to sell the property while the litigation progresses, the court may order them to obtain a release of lis pendens bond.
What is a lis pendens bond?
When a notice of lis pendens is filed against real estate or personal property, it “encumbers” the property. That means the claim against the property travels with the property from owner to owner. If the property is sold, the new owner takes it subject to all outstanding claims. This can make the property harder to sell since the new owner might have to surrender the property when the underlying litigation resolves.
A lis pendens bond is a type of court and probate bond. The court may require the plaintiff to purchase a lis pendens surety bond before filing the notice. The bond ensures the plaintiff will pay the potential damages to the defendant caused by the encumbrance on the property if the plaintiff loses their lawsuit. Examples may include costs associated with a delayed sale or downturn in the market, litigation expenses, and other damages.
What happens after a plaintiff obtains a lis pendens bond?
If the property owner wishes to sell while the litigation is proceeding, the court may order the owner to obtain a release of lis pendens bond. This surety bond guarantees payment to the plaintiff if the defendant loses the underlying litigation and becomes liable for a judgment. It increases the chance that the defendant will sell the property despite the encumbrance.
In the above example, the court requires that the GC obtain a lis pendens bond before filing its notice of lis pendens against the property. This bond protects the defendant, who might suffer damages in defending the lawsuit and delaying the sale of the property or by being unable to use it while it’s encumbered. The defendant, however, wishes to sell the property as quickly as possible. Knowing the GC’s claim could take months or years to resolve in court, the owner obtains a release of lis pendens bond to guarantee payment if the GC wins its claim. This lets a potential buyer know that the bond will pay the judgment (even if the defendant can’t) when the litigation concludes. Without the lis pendens bond, the property could be sold to pay a judgment against the defendant/seller.
Lis pendens bonds are required by most probate courts (courts that deal with, among other things, the rightful ownership of property) before a plaintiff can file a lis pendens notice establishing a lien or other encumbrance on the property.
Lis pendens bonds are generally used in cases where parties wish to secure their claims by filing a legal interest in real property. This commonly happens in construction defect lawsuits, business dissolutions, and divorce cases. These lawsuits can take many months or years to resolve, during which the parties’ financial situations can change dramatically.
Filing a lis pendens notice against valuable property owned by the defendant can help ensure payment of a future judgment to the plaintiff.
Lis pendens bonds, like other surety bonds, are issued by a surety company (which guarantees the bond). The person or entity who takes out the bond (the principal) pays a percentage of the overall amount as a premium and pledges their credit or collateral in support of the bond.
How Claims Work
The litigation that relates to the lis pendens is decided. At its conclusion, if the plaintiff’s claim is denied, the lis pendens is released, and the defendant or current owner takes the land free of encumbrances.
If the court decides that the filing of the lis pendens was frivolous, improper, or in bad faith, it may order the plaintiff to compensate the defendant for its losses related to the encumbrance and litigation. If the plaintiff doesn’t, the defendant may file a claim on the lis pendens bond.
However, if the plaintiff’s claim is upheld, the defendant must pay the judgment. If the defendant does so, the lis pendens will be released. If the defendant won’t or can’t do so, the property will be sold to satisfy the lien.
Whether the surety pays a judgment, pays costs to the defendant, or compensates a party for its losses, the surety will take steps to recoup its payment from the principal (along with fees, interest, and other costs).
The court will set the amount of a lis pendens bond based on evaluating the potential damages at stake in the litigation. The amount that the principal must pay to obtain a lis pendens surety bond (the bond rate or premium) is a percentage of the bond amount, usually around 1-2%.
The premium amount will depend on the facts of each case and the financial risk involved. Rates will also vary depending on the credit of the principal obtaining the bond.
Requirements for lis pendens bonds and release of lis pendens bonds vary from state to state and are usually dictated by statute (written law) rather than common law (judicial precedent). The court will order the entry of a lis pendens bond, and a copy of that order will be necessary for the seller to obtain one.
Many jurisdictions require that an attorney represent a party in the underlying litigation. In addition to applying and paying the premium, most surety companies will require an applicant to submit financial information and credit history documentation.
Surety providers usually charge annual premiums. Lis pendens bonds will typically renew and continue to be in effect until they are discharged by the court (usually at the end of litigation when all judgments are satisfied).
How to Get a Lis Pendens Bond in Your State
If you are involved in litigation involving a lis pendens on a property, ZipBonds can get you the surety bond you need. We offer the fastest and most secure option for getting bonded. Our all-digital platform is intuitive and straightforward. Apply online or call us at 888-435-4191 to speak with an agent directly.
Founders Ryan Swalve and Zach Mefferd formed the vision for ZipBonds.com when they realized how overly complicated it was to help clients place surety. The frustration of being unable to incorporate the technology they’d used in other insurance-focused projects left them thinking “there has to be a better way.”
Fast forward a couple of years, and that better way is the impetus of everything we do at ZipBonds. We constantly look for innovative ways to improve the bonding process for our clients and agents. Our team comprises individuals who understand all angles of surety – for companies, agencies, and individuals. Incorporating everyone’s point of view to improve the process while simultaneously integrating cutting-edge technology is what sets our business apart.