Release of Lis Pendens Bond

Most probate courts (that deal with, among other things, the rightful ownership of property) require an individual or entity that owns property subject to a lis pendens notice to obtain a release of lis pendens bond if they wish to sell.

Construction Defect Lawsuits, Divorce Cases, and Business Dissolutions

Lis pendens notices are generally filed in cases where parties want 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.

Selling and Buying Encumbered Property

Filing a lis pendens notice against valuable property owned by the defendant can help ensure payment of a future judgment to the plaintiff. However, while the litigation is proceeding, it can be advantageous to both parties to sell the encumbered property.

A release of lis pendens bond ensures that an innocent buyer of the property doesn’t get less than they bargained for (clean, unencumbered title, or full ownership) without an easy avenue for compensation. The buyer still takes some risk buying the encumbered property, which may cause some headaches to ultimately obtain a clean title. Still, they can be confident that the surety will pay a judgment or other damages if the responsible party does not.

Release of lis pendens bonds are issued by a surety company (that guarantees the bond). The person or entity who takes out the bond (principal) pays a percentage of the overall amount as a premium and pledges their credit or collateral to support the bond.

Filing a Claim on the Bond

The litigation that relates to the lis pendens is decided. If the plaintiff’s claim is upheld, the defendant must pay the judgment. Sometimes a defendant is unwilling or unable to pay the judgment without selling the encumbered land. In this case, if the property has been sold to a third party, the surety on the release of lis pendens bond would pay the judgment. This protects the innocent third-party buyer’s rights.

In rare cases, the property buyer may be forced to surrender the property itself. The buyer will then appeal to the original seller of the property for compensation. If the seller is unwilling or unable to compensate the buyer fully, the buyer can file a claim on the release of the lis pendens bond with the surety.

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 release of lis pendens bond based on the potential damages at stake in the litigation. The amount that the principal must pay to obtain a release of 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. These bonds typically require some sort of collateral to be pledged.

The requirements for releasing 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 release of 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 typically charge annual bond premiums. You may renew your release of lis pendens bond each year. It will continue to be in effect until discharged by the court (usually at the end of litigation when all judgments are satisfied).