What is lis pendens?
If you receive notice of a “lis pendens” against your property, you need to act. Before you can obtain a release of lis pendens bond, however, you should understand what a lis pendens notice is.
A notice of lis pendens is an official document notifying the public about a third-party claim or lien on a piece of real estate or real property (land). The filing party is often a plaintiff in litigation involving the land. If they succeed in that litigation, the property at issue may be sold or seized to satisfy the judgment.
Get Your Release of 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 release of lis pendens bond allows the defendant to sell the encumbered property while protecting the plaintiff’s ability to collect a judgment if the plaintiff wins their case.
- The court will set the amount of a release of lis pendens bond based on the potential damages at stake in the litigation.
How am I protected if someone files a lis pendens notice against my property?
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 interfere with a potential sale or make the property harder to market for the current owner since a new owner might have to surrender the property when the underlying litigation resolves. To protect the property owner while defending the ongoing litigation, a court will often require the plaintiff to purchase a lis pendens bond. A lis pendens bond is a type of surety bond. It ensures the plaintiff can pay any 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 is a release of lis pendens bond?
Another tool to protect an owner of the encumbered property is called a release of lis pendens bond. If the property owner wishes to sell while the litigation is proceeding, the court may order the owner to obtain this surety bond.
A release of lis pendens bond is a court and probate bond that guarantees payment if the defendant loses the underlying litigation and becomes liable for a judgment. It increases the chance that the defendant will be able to sell the property despite the encumbrance.
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).
How to Get a Release of Lis Pendens Bond in Your State
If you have received a lis pendens notice related to your property, ZipBonds can help you find the right surety bond for your situation. 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.