If you’re wondering what an Indiana lis pendens notice is, Clarkson v. Neff, 878 N.E.2d 240 (Ind. Ct. App. 2007) provides some good insight. The opinion articulates the history, addresses common law rules and discusses our lis pendens statute, I.C. § 32-30-11. Although lis pendens matters don’t often arise in commercial foreclosure actions, it is important to be familiar with the tool, especially if you deal with real estate-related litigation.
Real estate dispute. Clarkson centered on a residential construction contract between a builder, who owned the real estate, and Clarkson, who contracted to build a home on the property. A lawsuit arose. During the pendency of the litigation between the builder and Clarkson, a third party (Neff) purchased the home from the builder. The issue was whether Neff acquired the property free and clear of any interest of Clarkson, who had filed a lis pendens notice.
The statute. I.C. § § 32-30-11-3 and 32-30-11-9 specifically applied to the Clarkson case. Note that 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).
Common law. Clarkson said that 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.
Indiana’s lis pendens rules require that a separate, written notice of a pending suit be filed with the clerk of the county where the real estate is located in order for the lawsuit to affect the interests of third-party purchasers. The Court in Clarkson stated: “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.” Further: “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.” See also, Dempsey v. JP Morgan Chase Bank, 2007 U.S. Dist. LEXIS 58449 (S.D. Ind. 2007) (“Lis pendens is a way to give notice to the public, and in particular to potential buyers, that litigation is pending which may affect the rights in a piece of property.”)
Outcome. Clarkson filed a lis pendens notice with the appropriate county clerk’s office thirteen days before Neff closed on the purchase of the property. The Indiana Court of Appeals found that “clearly, Neff had constructive notice of the Circuit Court lawsuit when he purchased the property, as provided by the lis pendens statutes, because Clarkson correctly filed a lis pendens notice in Hancock County.” Neff thus was deemed to be bound by any judgment entered in the suit. Since the suit was not yet resolved, Neff “[did] not at [the] time own the property in question free of any and all claims of Clarkson as a matter of law.”
But, be careful. Clarkson highlights that the validity of a lis pendens notice hinges upon whether there is a pending lawsuit. The Dempsey opinion cited above illustrates that lis pendens notices generally are inappropriate encumbrances on title (1) when the party filing the notice has no interest in the real estate or (2) when litigation that may affect one’s rights in real estate has been concluded. The point is that a bogus lis pendens notice could subject the filer to a claim for slander of title.
Notice mechanism. A lis pendens filing provides constructive notice (implied knowledge) that a piece of real estate is embroiled in litigation. The law is designed for the notice—the document filed with the clerk—to lead third parties such as title searchers to the pleadings filed in the pending lawsuit that will describe the nature of the legal dispute, including its potential impact upon title. If the I’s are dotted and the T’s are crossed, a lis pendens notice will demonstrate to any party undertaking due diligence that the real estate is or may be encumbered. As a result, the notice effectively ties up the real estate until the litigation is resolved or the notice is released.