Lis Pendens and its Impact on Buyers and Sellers of Real Property
“When a complaint is filed, the action is pending so as to charge a third person with notice of its pendency. While pending, no interest can be acquired by third persons in the subject of the action, as against the plaintiff’s title.”
The Ohio Supreme Court in Cook v. Mozer1 first explained the doctrine of lis pendens. The court stated:
“The general rule is that one not a party to a suit is not affected by the judgment. The exception is that one who acquires an interest in property which is at that time involved in litigation in a court having jurisdiction of the subject-matter and of the person of the one from whom the interests are acquired, from a party to the proceeding, takes subject to the judgment or decree, and is as conclusively bound by the result of the litigation as if he had been a party thereto from the outset. This is so irrespective of whether he has been made a party to the proceeding, or had actual notice of the pendency of the proceeding, and even where there was no possibility of his having had notice of the pendency of the litigation.”
The Supreme Court of Ohio stated that while the doctrine of lis pendens has the effect of providing constructive notice, the doctrine is not founded on principles of notice but, instead, it is founded upon public policy reasons of necessity. Thus, the court found that in order to invoke the doctrine, three elements must be present: “(1) the property must be of a character to be subject to the rule; (2) the court must have jurisdiction both of the person and the res; and (3) the property or res involved must be sufficiently described in the pleadings.”
Thus, the doctrine of lis pendens, as set forth in O.R.C. 2703.26, has the effect of providing constructive notice to any judicial lienholder acquiring an interest in property which is already subject to a foreclosure action. Thus, while the general rule is that one not a party to a lawsuit is not bound by the outcome, the exception to that rule lies where one acquires an interest in property already subject to a lawsuit. The statute places the burden upon the plaintiff to examine the county records to determine whether a lawsuit involving the subject real property is pending.
The Ninth Appellate District Court in Ohio has held that “notice of lis pendens does not of itself give the plaintiff rights in the property superior to those who acquire an interest in the property during the pendency of the suit. The final judgement rendered by the court ultimately determines the priority of rights in the property. Thus, the parameters of plaintiff’s alleged “title” remain undefined until a final judgment is rendered. Lis pendens charges third-party purchasers with notice of the pending suit and warns such third parties that interests acquired by them during the pendency of the suit are subject to the court’s adjudication of the rights of the litigants to the property.
Lis pendens is not a substantive right. It does not create a lien. As set forth by the court in the Levin case, it is a warning to those who deal with real property while such real property is the subject of litigation – third parties are charged with notice of the rights of the parties and take the property subject to the outcome of the litigation.
Parties should also be aware of the strong-arm powers of a trustee in bankruptcy. Section 544(a)(3) of the Bankruptcy Code permits a bankruptcy trustee to avoid any unrecorded or undisclosed interests in property if a bona fide purchaser would have prevailed over that interest. The extent to which a trustee’s rights as a bona fide purchaser of real property will defeat a competing interest in the same property is governed by the substantive law of the state governing the property in question. The trustee’s status as a bona fide purchaser is conferred without regards to any actual notice that the bankruptcy trustee may have, although constructive notice is still relevant (constructive notice is implied or imputed notice).2 Under Ohio law, a bona fide purchaser will only have a superior right in an item of property if the property was taken in good faith, for value, and without actual or constructive notice of another entity’s interest in the property. Thus, the lis pendens doctrine can provide a bankruptcy trustee with constructive notice of a third-party’s interest in a debtor’s property under Ohio law. However, the lis pendens doctrine does not, in and of itself, create any substantive rights in the property and may not be used to cure a defect in the attachment or perfection of a lien on such real property.
1. Cook v. Mozer (1923), 108 Ohio St. 30, 36-37, 140 N.E. 590, 592.
2. A person may be said to be imposed with constructive notice if he or she could have discovered the fact by proper diligence, and his or her situation was such as to cast upon him a duty of inquiring into it.