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Indiana Legislation, 2008

Lis Pendens Lessons

If you’re wondering what an Indiana lis pendens notice is, look no further than the December 12, 2007 Indiana Court of Appeals opinion in Clarkson v. Neff, 2007 Ind. App. LEXIS 2752 (ClarksonOpinion.pdf).  The opinion provides some history, addresses common law rules and discusses Indiana’s lis pendens statute, I.C. § 32-30-11.  (I previously touched upon a lis pendens issue in my September 20, 2007 post.)

The Clarkson case surrounded a residential construction contract dispute, including an effort to secure a Court order requiring the purchase of a home.  During the pendency of the litigation between the builder and the original buyers (the Clarksons), a third party (Neff) purchased the home from the builder.  The question was whether Neff acquired the property free and clear of any interest of the Clarksons, who had filed a lis pendens notice.

Common laws tidbits.  Indiana’s lis pendens rules require that a separate, written notice of a pending suit be filed with the Clerk of the Court of the county where the real estate is located in order for the lawsuit to affect the interests of third-party purchasers.  Clarkson at 5-6.  The purpose of a lis pendens notice is:

to provide machinery whereby a person with an in rem claim to property, which is not otherwise recorded or perfected, may put his claim upon the public records so that third persons dealing with the defendant . . . will have constructive notice of it.

Id. at 6.  “If a lis pendens notice is properly filed on the public records, a subsequent purchaser will take the property subject to a judgment in the pending claim.”  Id.  “To protect an interest in the property, the subsequent purchaser may either ensure that the grantor does not harm his rights or intervene in the action.”  Id

The statute.  I.C. § § 32-30-11-3 and 32-30-11-9 specifically applied to the Clarkson case.  Lis pendens notices are not filed with the County Recorder’s office.  Rather, by statute, they must be filed with the Clerk’s office.  I.C. § 32-30-11-3(b).  Clarkson also illustrates that the validity of a lis pendens notice hinges upon whether there exists a pending lawsuit. 

In Clarkson, a lis pendens notice was properly filed with the appropriate County Clerk’s office thirteen days before third-party Neff closed on the purchase of the property.  The Indiana Court of Appeals concluded that “clearly, Neff had constructive notice of the Circuit Court lawsuit when he purchased the property, as provided by the lis pendens statutes, because the Clarksons correctly filed a lis pendens notice in Hancock County.  Id. at 8.  Neff thus was deemed to be bound by any judgment entered in the suit.  The suit was not yet resolved, so the Court concluded that Neff “does not at this time own the property in question free of any and all claims of the Clarksons as a matter of law.”  Id. at 11. 

Practical application.  A lis pendens filing will provide constructive notice (implied knowledge) that a piece of property is embroiled in litigation.  The notice—the document filed with the Clerk—will lead the researcher to the particular pleadings filed in the pending lawsuit, which pleadings will describe the nature of the legal dispute, including its potential impact upon title to the property.  If the I’s are dotted and the T’s are crossed, a lis pendens notice will demonstrate to a party doing due diligence that the property is or may be encumbered.  Although lis pendens-related matters rarely arise in a commercial foreclosure case, it is important for representatives of commercial lending institutions to be familiar with the concept.  In certain cases, a lis pendens notice could affect a lender’s priority.