Recording a Lis Pendens in Washington, What Could Go Wrong?
On occasion we will receive a client call, demanding that we hastily record a lis pendens on real property. The request for a quick recording is usually because the client is owed money from the property owner and, unless a lis pendens is recorded, the property will soon be sold without payment of the debt. The client or potential client, has heard the term “lis pendens” and has a general idea what it means, and they are not far off. Yet, being “not far off” can result in an expensive award against the wrongfully recording party.
While the term “lis pendens” is often bandied about, it may be as low as 10% of cases where the right to record a lis pendens exists. On top of that, there are serious consequences for wrongfully encumbering a property with a lis pendens or any other encumbrance for that matter.
In the past, the consequences and rules surrounding wrongfully recording a lis pendens in Washington were somewhat vague. There was educated guess work and research of case law far and wide involved in determining what types of claims could support recording a lis pendens. At the close of 2020 however, Division II of the Washington State Court of Appeals added clarity in its published opinion in 134th St. Lofts, LLC v. iCap Nw. Opportunity Fund, LLC, 15 Wn. App. 2d 549 (Div. II 2020). This prompted us to put together this article to share the Court’s insight.
Here are a few high-level questions the court outlined in its opinion:
What is a lis pendens?
Once a lis pendens is recorded, prospective purchasers and encumbrancers have constructive notice that title to the property is in dispute and that the record owner’s interest is in question. See 134th St. Lofts, 15 Wn. App. 2d at 558. Upon recording, the lis pendens “freeze[s] the status of the property in time,” preventing a party to the underlying action from transferring their interest “because the cloud on the title follows the transfer.” Id. As a result, once the lis pendens is recorded, any person or entity that subsequently acquires an interest in the property does so “subject to the property’s ultimate disposition in the pending suit as that suit was filed.” Id.
When can a lis pendens be recorded?
Under RCW 4.28.320, a party in an action affecting title to real property may record a notice, or lis pendens, with the county auditor regarding the pendency of the action. This means, as a matter of right, a plaintiff may record a lis pendens noting the existence of an ongoing lawsuit affecting title to the real property.
What is “an action affecting title to real property?”
This is where things got opaque prior to 134th St. Lofts opinion. The court in 134th St. Lofts even stated: “Washington courts have not established specific guiding criteria to aid in determining whether an action “affects title to real property” under RCW 4.28.328(2).” Id. at 558. In its analysis, the Court relies on a number of Washington cases and an Arizona case, to come to the ruling that an action affecting title to real property is one where the trial court’s judgment will bind future owners of the property and govern the rights that are tied intrinsically to ownership of the property itself. See Id. Accordingly, a claim for monetary damages alone, is not an action affecting title to real property, nor is a claim for control of a development LLC that owns the real property (as was more or less the plaintiff’s claim in the 134th St. Lofts case). Actions that do affect title to real property include, depending on the circumstances: easement and covenant rights, boundary issues, access rights, or other claims where a judgement might be awarded that specifically grants or terminates an interest in the real property at issue. Actions that are related to real property, but generally do not affect title to real property include claims alleging construction defect, seller misrepresentation, seller’s fraudulent concealment, or nuisance.
What could go wrong?
Of course, we would be remiss if we did not answer the final question for the client vigorously requesting a lis pendens: “What’s the big deal? What could go wrong if we record a lis pendens and a court finds it was not an action affecting title to real property? At least we have held up the sale.” Fortunately, here there is no vagueness as the statue provides complete clarity:
“Unless the claimant establishes a substantial justification for filing the lis pendens, a claimant is liable to an aggrieved party who prevails in defense of the action in which the lis pendens was filed for actual damages caused by filing the lis pendens, and in the court’s discretion, reasonable attorneys’ fees and costs incurred in defending the action.” RCW 4.28.328(3).
The parade of actual damages can be long since a wrongful lis pendens is essentially a wrongful encumbrance or slander of title impacting the property. If a court finds the party that recorded the lis pendens without substantial justification, that party will be liable for attorneys’ fees and actual damages, which may include substantial amounts if there are actual damages incurred. For example, in 134th St. Lofts, the plaintiff wrongfully recorded a lis pendens that inhibited defendant’s ability to replace its construction with a new lender. To avoid a default, the defendant arranged for an emergency extension on payment to the original lender to the tune of $140,000. Not only did the plaintiff have to pay defendant’s attorneys’ fees of about $14,000 to remove the wrongful lis pendens, but also the $140,000 in actual damages.
The bottom line is that if you have a real property right that is going to be impacted by a sale, it is important to contact an attorney to see if recording a lis pendens after filing your summons and complaint is statutorily allowed. However, if after review, it is determined your action is not one that affects title to real property, be prepared to simply file your action and move through the litigation process without a lis pendens. Attorneys at Holmquist & Gardiner, PLLC regularly handle this analysis and are ready to answer any questions you may have about your real property case.
