The lis pendens process - PropertyBlawg

The lis pendens process

by PropertyBlawg on November 13, 2012

(Property law in the US) The lis pendens process is initiated when the ownership of a property is contested. When a plaintiff (usually a bank or other money lender) files a claim, it ensures that if the property is sold, or if anything similar occurs involving a third party, their claim will be unaffected should the case win through. Details of the laws can vary from state to state, for example in some states, when the lis pendens process is challenged, the party that filed the notice must prove ‘probable cause’.

The document’s main function is to inform any third party that may have an interest in the property that ownership is in question and that any deal brokered is only legal if the plaintiff is unsuccessful, assuming that the deal covers the debt to the plaintiff or if an agreement can be made with the plaintiff, usually in the form of a ‘short sale’.

Cancelling a property’s foreclosure status

In order to prevent foreclosure many people file for bankruptcy, which will interrupt the lis pendens process while both parties negotiate terms to settle the debt. However, to fight the procedure once it has been filed, an end to the foreclosure notice that led to it is required. There are a number of ways this can be achieved, including:

  • Mortgage modification – this involves a renegotiation of the terms of a mortgage that have been agreed by both the mortgagor and the mortgagee;
  • A repayment plan – the bank may agree to this if it can be demonstrated that payments can be made;
  • A foreclosure bailout loan – a home may be savable with a foreclosure bailout loan, but this will usually need around 25% equity and a credit rating of over five hundred;
  • Selling the property – this can only be done at a greatly reduced price.

Selling your lis pendens home

Lis pendens literally means ‘suit pending’ and it is usually an issue for real property or home owners when they are facing foreclosure. While the action does not prevent a foreclosure, it does not, in and of itself, affect the home owner’s ability to pay the debt. However, when the process has been filed, it affects the title of the property and is logged with the county recorder.

This often leads to mortgage brokers rejecting any attempts at refinancing the property by the owner and selling becomes difficult, usually only possible with a large reduction in the price. This makes lis pendens properties potentially great investment opportunities with price cuts often approaching 20% or more.

Often, selling the property before it gets to foreclosure is the best alternative for the homeowner facing that possibility, as this will usually have the least impact on his or her credit rating and future buying power. How the sale works depends on the amount of equity on the property and whether or not it covers the debt owed to the bank. If it does it makes life easier, but if not the bank will usually be willing to listen to reasonable offers and accept a so-called ‘short sale’ to cut their losses and get the property off their books.

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