PROPERLY RECORDED LIS PENDENS MAY HAVE NO LEGAL EFFECT UNTIL INDEXED

Following a recent decision of the Court of Appeal, a properly recorded lis pendens may have no legal effect against a subsequent buyer until it is indexed by the recorder's office. A lis pendens notifies buyers and lenders that their acquisition of a property is subject to the outcome of a pending lawsuit.

A prospective buyer who is suing a seller for specific performance will record a lis pendens to dissuade the seller from transferring or encumbering the property before the lawsuit is resolved.

In the recent case of Dyer v. Martinez, sellers of a home in Mission Viejo canceled escrow when the buyer, Dyer, failed to obtain a loan and close escrow in a timely manner. More than a year later, the sellers again listed their property for sale and entered into a contract with a new buyer, Martinez.

The previous buyer claimed she was "ready, willing, and able" to perform on her contract, sued the sellers for specific performance, and filed a lis pendens against the property.In this case, Dyer recorded the lis pendens on Sept. 9, 2004; however, due to a delay at the recorder's office, the lis pendens was not indexed in the seller's name until Sept. 14, 2004.

During the interim, on Sept. 10, 2004, the sellers closed escrow with Martinez. Dyer subsequently added Martinez to the lawsuit, arguing that he received constructive notice of the lawsuit when the lis pendens was recorded under section 405.24 of the California Code of Civil Procedure.

The Court of Appeal disagreed, pointing out that section 405.24 must be read in harmony with another statute. Under section 1213 of the California Civil Code, constructive notice requires an instrument to be recorded "as prescribed by law."

In the court's opinion, for more than a century the law in California has been that a recorded document provides no notice unless it can be located by title search. Otherwise, a buyer in good faith who has conducted a diligent search would be charged with knowledge of documents no one can find.

The court therefore awarded the property to Martinez.

**Taken from the California Association of Realtors Bulletin, dated February 28th, 2007.