Lis Pendens revealed in PSA negotiation...options?

Question

We're negotiating a PSA on a multifamily property in Tennessee. The seller has disclosed a pending lawsuit against the Trust that owns the property stemming from a fall that resulted in injury. Potential lenders have already stated that this would need to be resolved prior to closing. My initial research shows that pending litigation does not necessarily mean the seller CANNOT sell the property, but it may make it more difficult.

Can anyone share strategies for buying a property where legal action is pending against the owner?

Matthew Anderson · Answer

Hey Greg.  I am an attorney in Tennessee that does primarily construction and real estate.

Lis pendens can get fairly archaic and complicated.  A lis pendens is essentially a notice to the world that there is pending litigation where the property is the subject matter of the suit, and the litigation could affect the title to the property.  You could theoretically buy it, but if the Seller were to lose in court then the plaintiff could then seek payment for the judgment in connection with the property.  You may also run into some issues with trying to close with your title company.

If this were a slip and fall case, then this lis pendens could be improper.  I actually just won a motion where the court forced the plaintiff to remove the lis pendens.

There are possibly a lot of ins and outs to this.  Let me know if you’d want to discuss this in more detail.

Patrick M Nichols · Answer

I am not a Tennessee attorney, but I can explain in general:

A lis pendens is a cloud on marketable title. As long as it remains attached to the property, the seller cannot deliver marketable title. Because it is a known issue, you'll likely have problems getting title insurance because those proceedings could alter the title in unforeseeable ways.

I would move on.

Tom Gimer · Answer

Pull the docket. Read the complaint.

Is the suit for millions or thousands? Is there an insurer involved? Does the trust have assets beyond this property?

If the defendant isn't trying to sell the property to avoid attachment then this may ultimately be a non-issue. The plaintiff may even agree to release the lis pendens if there is insurance and/or other assets.

Nathan Gesner · Answer

I'm not an attorney but I did sleep on the couch last night.

Why would you want to purchase a property subject to a lawsuit? You're literally trying to purchase someone else's problem. Wait for it to clear.

Lis Pendens revealed in PSA negotiation...options?

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