The Pending Real Estate Litigation Standard in Arizona

When filing a lawsuit for specific performance for the sale of a home or other real property contract, buyers often employ the standard legal tactic of contemporaneously recording a notice of lis pendens (lis pendens is Latin for "pending litigation") with the County Recorder's Office. This lis pendens places any other buyer on notice that the title to the property is involved in real estate litigation. Moreover, a lis pendens prevents any other buyer from acquiring any interest in the property superior to that of the original buyer. Additionally, as a practical matter, because title insurance companies will not insure title to a property against which a lis pendens is recorded, a property with a lis pendens cannot be sold.

After a lis pendens is recorded, the first question a seller generally asks is "How soon can I remove the lis pendens against my property so that I can sell it to another buyer?" After informing the seller that pursuant to A.R.S. § 33-420(B) the seller is entitled to a prompt hearing on the validity of the lis pendens, the second question asked by the seller is "What must be proved at this hearing to invalidate the lis pendens?"

The Arizona Court of Appeals in Evergreen West, Inc. v. Boyd, 167 Ariz. 614, 810 P.2d 612 (Ariz. Ct. App. 1991), established a "groundless" standard for invalidating a lis pendens before resolution of the specific performance lawsuit (which may last years). In other words, the seller seeking to invalidate the lis pendens carries the burden of proof to establish that the claim upon which the lis pendens is based is "groundless" (i.e., frivolous or totally without merit). This "groundless" standard promulgated by the Court of Appeals in Evergreen West establishes the lowest possible threshold for invalidating a lis pendens prior to resolution of the specific performance lawsuit.

In 1992 our neighboring jurisdiction of California established a much tougher standard which better protects sellers. California's standard requires the trial court to make a threshold inquiry into whether "the claimant has . . . established by a preponderance of the evidence the probable validity of the real property claim." Cal. Civ. Proc. Code § 405.32 (emphasis added). In other words, unless the buyer will probably prevail at trial, the lis pendens will be ruled invalid and the seller will be immediately entitled to sell the real property while the lawsuit proceeds to resolution.

In conclusion, requiring an inquiry into the buyer's underlying facts and legal position, to determine whether the buyer's claim for lis pendens has at least a "probable" chance of succeeding at trial, is an excellent rule. A lis pendens should not be used as a weapon by buyers to tie up properties and extort concessions from sellers. Accordingly, the Arizona Court of Appeals or the Arizona legislature will hopefully modify Evergreen West's ruling in the future and establish a higher standard, requiring a buyer to prove the probable validity of a lis pendens at the beginning of the litigation.

Note: Even if the lis pendens is ruled invalid, any buyer with actual knowledge of the title dispute will not be protected if the original buyer wins the lawsuit. Furthermore, the seller is required to disclose this title dispute to any buyer and, if the seller does properly disclose, any buyer will have actual knowledge of the title dispute. Therefore, as a practical matter, even if the lis pendens is ruled invalid, a sale of the real property will only be valid if the seller does not disclose and the buyer does not have any actual knowledge of the title dispute.

Article Source: CombsLawGroup.com