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Sometimes while doing due diligence, buyers will discover the homes they want to purchase may be encumbered in some way. One common type of baggage a home can carry is a Lis Pendens or pending lawsuit. Since the outcome of the lawsuit against a homeowner can affect your rights to the property, here are your options for handling the situation if you discover the home you want to purchase has a Lis Pendens against it. To ensure you are making the right decisions and taking the right actions, consider hiring a real estate attornery.
Determine the Cause of the Lawsuit
Your first, and perfectly valid, reaction may be to abandon the sale as soon as you learn there is a lawsuit pending against it. After all, you could stand to lose the home or become financially responsible for a debt you didn't incur if the plaintiff in the lawsuit prevails.
However, this depends greatly on what the lawsuit is about. Some Lis Pendens are part of the sales process, which is the case with foreclosed homes. It's not unusual for mortgage companies to file a Lis Pendens on properties they're repossessing. In this case, the lawsuit will be removed as soon as the sale goes through and the bank receives the sale price of the home. Therefore, you can generally proceed with the sale without worrying about losing your rights or money.
Additionally, not all lawsuits are valid. Sometimes one party will use a Lis Pendens as a form of debt collection or intimidation to get the homeowner to resolve an unrelated issue. You'll want to discuss the issue with the homeowners in this instance because he or she may actually be in the process of disputing the Lis Pendens and getting it removed. In which case, you may want to postpone the sale until the issue is resolved.
On the other hand, if the lawsuit entails any type of dispute over ownership of the home (as is frequently the case in divorces) or debts incurred by the homeowner (e.g. the owner didn't pay a contractor for work performed), then you may want to consider walking away from the sale. Even if the sale goes through, you may be forced to hand over the home to the plaintiff or required to pay the court judgment as the new owner of the house.
Renegotiate the Sale
Another option available to you is to renegotiate the sale. If the Lis Pendens has to do with past-due debt, you could offer to take on those debts in exchange for a reduction in the home's sale price. You could then turnaround and negotiate a settlement with the creditors for less than what's owed, which could save you even more money.
You must be very careful to ensure the debts are negotiable and to get everything in writing, especially when dealing with creditors, to ensure everyone is on the same page and follows through on the terms of the deal. Additionally, you must be certain you have the money to pay the debts quickly; otherwise, the creditors may file negative information on your credit report, which can hurt your score.
For more information about Lis Pendens and how to deal with this type of lawsuit, contact a real estate attorney. For more information, talk to companies like Ianniello Anderson, P.C.
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