LA Real Estate Law Group
LA Real Estate Law Group White Paper # 1
Legal Overview of Quiet Title Claims in California for Investment Owners and Deed of Trust Holders - Methodology for Establishing Clear Title In Court
By Nate Bernstein, Esq. – Managing Counsel, LA Real Estate Law Group
Introduction
Often times we get calls from clients or colleagues who ask us to explain what a "quiet title" action is. There is no need to be quiet and hush hush about quiet title actions – pun intended !! In fact a quiet title claim is very common claim and cause of action asserted under California real estate law. This article is an overview of the quiet title claim process for property owners and real estate deed of trust lenders who may have a perceived or real problem with their right, title, and interest to real property in California.
Everyone should get a “title check up.” It is in the best interest of all investment property owners and deed of trust lenders to periodically obtain a copy of a preliminary title report from a reputable title company- you may find items in the title profile for the subject property that are objectionable, fraudulent, or mistakes- these matters should be cleared up. It is healthy to get a title check up- it leads to good title karma !!
If you are in the real estate investment ownership or real estate lending business, you know that having clear, marketable title to real property is an important component to valuable real estate ownership. If your title is not clear, or has chain gaps- you cannot sell, refinance, or otherwise leverage your asset.
Clouds on title may impact an owner's ability to sell or refinance property, and can impact a lender's rights for title priority and to foreclose on real property. Clouds on title or mistakes on title can also impact an owner’s ability to evict a tenant- the tenant may claim invalid title as an affirmative defense to an unlawful detainer lawsuit- that is the last thing you want when you are trying to evict a tenant !!
The law provides a remedy for fixing title problems. Quiet title lawsuits are one important vehicle for deciding real estate title disputes and deed of trust priority disputes under California law.
Legal Procedures for Quiet Title Claims
When you have a dispute as to the state of the title for a residential real property or commercial real property, or an unfriendly person or entity is making a legal or equitable claim against the title, you can file a "quiet title" lawsuit in the Superior Court where the property is located to resolve the claim. This may be done directly by the party or by the party's title insurance carrier after a claim is made with the title insurance carrier. Title insurance companies often times get involved in prosecuting, defending, and settling quiet title actions on behalf of property owners and lenders. Title insurance companies sell title insurance products to purchasers and lenders. When a title insured client makes a claim, filing a quiet title action is often times the method to fix a title problem on real property short of paying off the client's claim or investment. The goal is to obtain title “as insured” under the title insurance policy.
The quiet title claim can also be brought in conjunction with other claims, such as fraud, a claim for cancellation of an instrument, declaratory relief, injunctive relief, or even equitable subrogation. Each case is fact sensitive. In a declaratory relief action, for example, the court has the power to determine the ownership rights of the parties as to an interest in real property as of a certain date. An opponent can also file a countersuit, also called a “cross-complaint.” Today you are the plaintiff, but tomorrow you may be the defendant !!
As another example, in a quiet title lawsuit, you can also litigate a claim relating to a fraudulently executed or fraudulently recorded deed of trust mortgage document. That is why it is a good idea to get a title check up to see what is in your title profile.
An action to quiet title is a lawsuit filed to establish ownership of real property (land and buildings affixed to land). The plaintiff in a quiet title action seeks a court order or judgment that prevents the defendant from making any subsequent or conflicting claim to the property. Quiet title actions are necessary because real estate may change hands often, or there may be a conveyance of a partial interest, and it is not always easy to determine who has title to the property.
In the arena of quiet title litigation, the Court will determine the state of the title as of a particular date, and has the power to "clear title," remove "the cloud on title," or make an equitable decision, and, hopefully, resolve the dispute. Title disputes can be adjudicated in an orderly manner without infighting between neighbors or shouting matches. By law, in California, juries do not decide quiet title actions- these actions are decided by judges in bench trials. Thus, there is no right to a jury trial for a quiet title action under California law. Do you really want 12 jurors with no legal training deciding who owns your apartment building ??
Applicable Laws
Under the laws of the most states in the United States, the law of quiet title is governed by state statutes and the case law authorities that interpret the state statutes. Generally speaking, the law of quiet title in California is governed by California Code of Civil Procedure 760.010-760.060, and the case law interpreting these sections. Also, underlying substantive laws, may apply as well- such as fraud, or breach of contract, the laws of recording and conveyances, or the laws of probate.
When quiet title lawsuit is filed, the plaintiff is required to record a lis pendens at the County recorder's office. The term "lis pendens" is a latin term for "action pending." The lis pendens provides notice in the title profile of a particular property that a lawsuit is pending, and that any subsequent grantee, subsequent purchaser, assignee, or lender, takes title subject to the claim. Generally, a lender will not make a loan secured by a title that is subject to a “lis pendens” recording. For the basic statutory procedural requirements for handling a lis pendens, please review California Code of Civil Procedure 405-405.24.
The quiet title action is important, if an owner or secured lender wants to determine that he or she has superior rights to the title of a particular parcel of real property in comparison to other claimants or potential claimants. Secured real estate lenders often seek to establish title profile priority for its deed of trust by filing a quiet title action and adding a claim for declaratory relief. Establishing a clear and marketable title is also crucial for receiving future financing, or for making a marketable future transfer by deed, trust, or will. It is also an important foundation to have clear title if you start an eviction lawsuit- also known as an unlawful detainer action. If title is not clear, how can the person complete an eviction with confidence ? Possession follows rights to clear title !!
Quiet Title Actions are “Fact Specific-“ Most Actions Settle But Some Proceed To Trial.
In reality, most quiet title lawsuits and related claims are settled after the case is filed and prior to trial. Cases sometimes settle in mediation, at a settlement conference, or through professional communication and compromise between the parties and their attorneys. If quiet title cases don’t settle “out of court,” these claims are decided by judges in bench trials every day. So you need to be prepared to try your case if the case does not settle.
Other times, when the defendant fails to defend the action , a default is filed and the plaintiff has to prove up the default with live testimony in Court. Because of the intricacies of the court process, parties should retain experienced counsel to represent their interests in a quiet title action.
This article is a capsule overview, and each quiet title claim should be treated specifically to address the specific facts and circumstances of the situation. Questions should be directed to Los Angeles Real Estate Law Group at (818) 383-5759. Thank you.
LA Real Estate Law Group White Paper # 2
Presented at
CALIFORNIA REALTOR® EXPO
LONG BEACH, CA | SEPT. 27-29, 2016
Don’t Take No for an Answer: Be a Powerful Negotiator
Tips and Strategies for Realtors and Investors to Effectively Negotiate Real Estate
Transactions and Legal Disputes
By Nate Bernstein, Attorney at Law, Managing Counsel - LA Real Estate Law Group
Introduction
Unlike the sale of a Tesla or a Saturn, most transactional and legal problem situations are negotiable. In real estate negotiation, the image or perception of having rote power is not the most important factor for getting what you want. It’s all about using strategies to achieve common ground on the major points. Sure, if you have financial or legal leverage, you have an advantage, but it’s secondary to achieving a true line item agreement on the major deal points.
A federal judge once opined, “Pigs get fed - hogs get slaughtered ! ! ” At the conclusion of every negotiation session, the parties receive something of value and give up something of value to achieve a consensus or agreement. There is quid pro quo. The challenge is for David and Goliath to come to common ground on material deal points, and for both sides to avoid worst case scenarios.
Actively Prepare for the Negotiation Session:
Assess whether the opponent is negotiating in good faith or just posturing and bluffing. Sometimes an opponent may be using a real estate negotiation session to obtain knowledge and specific information, and is not negotiating a true resolution or settlement in “good faith.” If you sense a total lack of good faith, then end the session, and don’t be afraid to leave the room. When good faith negotiation is restored, you may be able to work out a settlement or resolution on the major deal points.
Do your investigation and due diligence. If you don’t believe or trust what the other side is claiming, ask for documentation or legal authorities to back it up, and do your own investigation to verify information.
Be detail oriented in your quest for making a deal or agreement happen. Think of everything you and your client want to achieve and list it out in a simple way. The parties want transparency and for you to know the details, ask the right questions, to deal with the obstacles, and solve problems. If you don’t understand an issue, ask an expert or third party advisor.
Fortify yourself with a briefcase full of experts and their reports to show you are strong in your position and have knowledge. Experts may include appraisers, title officers, surveyors, engineers, licensed contractors, plumbers, other trades professionals, and, God forbid, attorneys ! !
Understand the concept of “worst case scenario,” and what it will cost to avoid them. Generally speaking, there are three type of worst case scenarios- financial, social, and legal. This is especially the case with real estate contracts that shift attorney’s fees and costs shift to the losing party. If you go to trial or arbitration and lose the case, you risk being liable for the adversary’s attorney’s fees and other litigation costs- such as expert witness fees- this risk factor changes the stakes of the game.
Before you negotiate a major issue and take a position, seek out feedback and ideas from experienced and knowledgeable third parties– property managers, managing real estate broker, experienced real estate agents, asset managers, attorneys, title officers, mediators, retired judges, colleagues and round table with colleagues in your office. Ask them this question: “Given the risk of ending up in a worst case scenario, is my position valid, strong, and credible? ” What is my probable real cost or risk to reach a deal and avoid a worst case scenario ?
If you use a mediator in real estate settlement negotiation, please learn everything you can about the mediator’s background. Resumes may be deceiving. Does the mediator have a bias or financial conflict of interest because he or she is hired by the same parties over and over again? This type of mediator may be so biased and jaded that he or she will not be fair to your side in the settlement negotiation session. Does the mediator understand the subject matter and the business and legal ramifications ? Is the mediator explaining to each side why each side’s position has merit or does not have merit ? Is the mediator taking too much time with your opponent in order to rack up excessive hourly fees ?
Think Creatively and Out of the Box During the Negotiation Session:
In a real estate negotiation meeting, listen to the other side carefully and try to achieve some common ground on major points. Many real estate negotiation sessions fall apart because one side has to win on every minor, insignificant point. Egos get in the way of common sense. This approach frequently leads to an unsuccessful session. Focus on the big ticket items, and reaching common ground. Propose creative and cost effective solutions and learn what the opponent has to say.
Place yourself in your opponent’s shoes to understand the details of what the adversary wants, but don’t believe everything you hear. Question unreasonable positions or arguments.
Money does talk. Arm yourself with sources of funding to fund a resolution. Having insurance in place or a source of capital or loan funding or a sugar daddy is a great asset. Insurance policies can be a shield and sword to protect a client's interests, and can fund a resolution or settlement.
Silence can be a powerful tool in the game of negotiation. Silence has the implied message of “no,” or “you have to wait,” or your position is “ridiculous” and you may force the other side to change its course or grant your side some major concessions.
Take a calculated risk, and ask for all and more than you want. Stretch the rubber band to its breaking point and see how the opponent reacts. You might get more benefits and concessions than you anticipated. You can test the limits of the opponent’s concessions in the negotiation session. There is nothing to lose with this approach.
If you have to pay money to settle a dispute, don’t offer all that you have in your budget on the front end. Make your opponent wait for a reasonable and cost effective offer, and make incremental offers over time to get into a mutually desirable settlement bracket.
Don’t be afraid to call out an opponent’s position as being unfair, unreasonable, unrealistic, or unlawful if you can back up the proposition with concrete reasons. Don’t make it a personal attack. Chip away at the credibility of the position, not the person.
If you are a fiduciary (like a real estate agent, general partner, or have a power of attorney) and a client or principal wants you to keep some information confidential, keep the information confidential, unless the law mandates disclosure. So you may need to zip it, and curb the street and parking lot chatter to protect your client or principal ! !
Action to Take After the Real Estate and Settlement Negotiation Session is Concluded - When You Believe You Accomplished “ a Deal in Principal” – Get it in Writing, Signed and Dated by the Parties to Solidify the Deal:
By law, all real estate contracts and agreements involving the transfer of an interest in real estate must be in writing- this is what the law calls the “Statute of Frauds.” Please comply with this law. Legal settlement agreements must also be in writing, and signed by the parties themselves to be enforceable. You should consult with experienced counsel to make sure you and your client understand all of the terms, conditions, worst case scenarios, and fine print. The devil is in the details- don’t make imaginary assumptions you and your client are protected and your opponent will protect you- build in safeguards. So the best approach is to try do the right thing- please obtain all of the terms of a transaction offer/acceptance/counteroffer/settlement agreement in writing, in simple plain English, and personally signed and dated by the parties. Otherwise the agreement terms may be unclear, and may not be enforceable. Be confident, and do your best !!
LA Real Estate Law Group White Paper # 3
12 IMPORTANT STEPS FOR APARTMENT OWNERS AND INVESTORS TO PREPARE FOR THE BIG COURT TRIAL By Nate Bernstein, Esq. - LA Real Estate Law Group
Introduction
Most civil cases that are filed in the state or federal courthouse eventually settle- some cases settle early in the action, some cases settle after 6 months, and other cases settle on the eve of trial. A few cases may settle during the course of a multi day trial !!! Some cases are disposed of by a motion for summary judgment or even a demurrer. There are a certain handful of cases that for whatever reason will not settle, and the case will go to trial if the plaintiff wants to go forward and will try the case, or the defendant cannot or will not settle and has to go forward to take its chances at trial.
The preparation of a major case for trial is largely the responsibility of your attorney- that is what he or she is getting paid for- to complete discovery and present your claims or defenses and put on your best possible case. But, there is a lot you can do as a party to assist and support your attorney in the process of getting ready for a big trial. Also- you should be well informed about all of the issues and preparation that go into preparing your case for trial- after all, it is your case, and no party wants big surprises !
So, if you or your company are a party in a legal action that is destined to go to trial, you have to be prepared, and you should actively assist your counsel in the trial preparation.
If you are a party in a case that will likely go to trial, this article presents some important action items that you can do to prepare for trial and to help your attorney prepare for trial. The case is your case- so you should take an active role, to the extent you can, and you should know the strengths and weaknesses of your case or defenses. You should understand the best case scenario and the worst case scenario if the case goes to a verdict or judgment. You should understand your anticipated costs, exposure, and maximum actual damage. Here is a list of some important items you should be discussing with your attorney starting at least eight months prior to trial:
1. Trial Witness List: Please review the trial witness list, and make sure that everyone and anyone who your attorney may call as a witness is on the list. Just because a person is on the witness list- that does not mean that you are obligated to call them as a witness- you are just preserving your right to do so. That includes you as a party and the person that will represent your corporation or LLC or partnership. A party to a case may be excluded from testifying in trial if he or she is not on the witness list. You should also list all opposing parties, and their representatives, and all third party witnesses. You should also list all expert witnesses, and any custodians of records who can produce records at trial.
Have all of your witnesses been subpoenaed to appear ? Your attorney should be serving subpoenas to all witnesses, including expert witnesses, about 60 days before trial. People are busy and have hectic work and family schedules- they need to know in advance that they have to be in Court and need time to make arrangements. Some witnesses may not show up in Court without a subpoena. This is especially the case with former employees- who may not care if you win or lose the case. This type of witness may be important to making an important point at trial or even winning the case, but you have to subpoena the witness to appear at trial. If they fail to show up, the trial judge can force them to comply with the subpoena. Please check and recheck your witness list, and have your attorney serve the subpoenas in a timely manner.
2. Trial Exhibit List: In addition to live witness testimony, you should review the exhibit list and the actual exhibits. Exhibits are generally documents, records, and other writings that fit in a binder. Exhibits are very important- and you should review the exhibit list, and the actual exhibit documents well before trial. Please make sure that your exhibit list and exhibit binder are complete and up to date. Are the documents complete and legible ? Are pages missing- are copies clear ? Are there additional documents that should be added to the exhibit binder ? The documents need to be in good order- the Judge will read them, and if they are not clear, and not in good order- the Judge will get frustrated with you as a party and with your attorney. You should be familiar with the exhibits because you and your witnesses will discuss them in your testimony. If there are certified or public records in your list- such as grant deeds, have certified copies been obtained from public agencies ? Have documents that will be used as exhibits been subpoenaed or requested from the opposing party ? Have documents that will be used as exhibits been subpoenaed from third parties ? Your attorney may have to complete additional document discovery to obtain missing documents to complete the exhibit list so the client is prepared for trial.
3. Conduct Required Discovery: The term “discovery” is an amorphous term that describes various methods of obtaining documents, records, information, data, testimony, and names of witnesses in a civil case. Both parties can serve discovery on opposing parties and non-parties. The main discovery methods in a civil case are depositions, form interrogatories, special interrogatories, requests for admissions of facts and genuineness of documents, demands for documents and things, subpoenas, expert witness testimony, and real property inspection. Responses to discovery can make or break a case- an admission or inconsistency in a deposition can influence a judge or jury or help win a summary judgment motion. It is highly recommended that you and your attorney have a formal discovery plan, a reasonable discovery budget, and that you implement the discovery plan early in the case.
In a case where the trial date is at least one year from the time of filing the case, you have a long time to commence and complete discovery, and the cut off to complete most forms of discovery in state court cases is generally 30 days before trial.At least 6 months before trial , discuss with your attorney whether there is any additional discovery that has to be done in the form of depositions, document production, interrogatories, request for admissions, or subpoenas.Is there a need to inspect the subject property with a formal discovery demand ?I would suggest having a written discovery plan that tracks the pleadings and the main claims in the case.And you should have a budget for discovery that has some flexibility given the needs of the case.
4. Who will Decide Your Case- Judge, Arbitrator, or Jury: One important question to discuss with your counsel is whether a judge or a jury will decide your case. For some claims, there is a right to jury trial- if the law allows it, and if you post jury fees prior to or at the time of the initial case management conference held in state court. Your attorney must follow the rules to preserve the right to a jury trial. For other claims- like contract specific performance or real estate quiet title claims- there is no right to a jury trial allowed by law. For many claims, if you have a smart and fair judge, there is no need to have a jury.
Completing a jury trial is more expensive and more time consuming than a bench trial- some attorneys don’t disclose this fact to their clients.The reason for the added expense is you have to post jury fees, you have to prepare jury instructions, you have to prepare special verdict forms and a statement of the case to be ready to the jury, and you need to spend real court time picking a jury.No one in the courthouse prepares jury trial documents for you as a party- your attorney has to prepare them.Preparing jury instructions is a ton of work because the instructions have to be drafted to name the parties and the specific facts of the case.Picking a jury also takes preparation, time, and examination of jurors in a process called “voir dire.”There are reasons that you may want to have a jury, and there may be reasons that you do not want a jury to decide your case.Sometimes jurors may award greater damages to a sympathetic plaintiff- this is why large corporate defendants often times have a fear of letting a jury decide a claim.You may not want a judge or jury- in the appropriate case you may want to arbitrate the case.
An arbitrator is a private judge who is paid by both sides to decide the case. Arbitrators are usually affiliated with an organization, called JAMS or the American Arbitration Association that have lists of available arbitrators. Sometimes there is a mandatory arbitration provision in a contract between the parties. For example, in a real estate purchase agreement, the parties agree to binding arbitration. There are advantages and disadvantages to utilizing arbitration, and you should discuss these factors early with your counsel. The main disadvantage of completing arbitration is the cost- arbitrators charge a lot of money- hourly rates can be as high as $ 600.00 per hour, and you may be stuck with footing at least half of the bill. Also, if you get an award and decision from an arbitrator- you most likely have to go back to the original trial court and get the arbitration decision affirmed and certified as a civil judgment. This is costly and somewhat time consuming. Often times, if you agree to arbitration, you waive rights to appeal.
One advantage of arbitration is that your case may get more immediate attention and a faster decision by using a private arbitrator who is an expert in this area of law. You should review your real estate purchase agreements, employment agreements, and investor agreements, and see if there is an arbitration provision. Then, weigh the pros and cons of utilizing arbitration, and determine whether your opponent wants arbitration.
5. Motions in Limine: Ask your attorney whether is it worth the money for your attorney to prepare and file Motions in Limine. These Motions are usually filed if the case is going to be a jury trial, and you are seeking to exclude certain prejudicial evidence, facts, or information from the view and consideration of the jury. The assumption is that these facts will “taint” the jury. Motions in limine are filed toward the end of the case, and often times are heard on the same day as the final status conference before the trial. These motions are a mixed blessing. They must be filed and served according to the applicable rules of civil procedure and the local rules. Trials are governed by applicable rules of evidence- the hearsay rule and foundational rules. Sometimes attorneys go overboard and draft and file these motions for every conceivable issue- that is not necessary, because an evidentiary objection can be made at trial or to the exhibit. If the attorney is filing 2 dozen motions in limine – he or she is probably not serving the client properly and is wasting your money. So you should only file limine motions for the main issues of concern- or what I call, the “big ticket” items. For example, if an opposing party has withheld important documents in discovery, and wants to sneak the discovery into the exhibit list, then a motion is limine may be an effective way to exclude the discovery from the jury’s consideration.
6. Rehearse your testimony and the testimony of key witnesses with the exhibit list in hand: If you are a key witness- your testimony at trial is important. You can do a “mock trial” or mock examination to rehearse your direct testimony, and your anticipated cross- examination. It may be worth the time spent with your attorney. When you rehearse your testimony with your attorney- you will discover issues and problems and “kinks” with the examination questions and your answers and you can resolve them. In the mock examination, you will also be forced to read, handle and discuss documents and exhibits- you may discover missing or unclear documents. You will then have a better understanding of how to approach and discuss documents during your testimony.
If you have an important third party witness- then your attorney should go over the testimony with the witness before trial. The witness may not have experience testifying or may be scared of the court process.When you testify in Court- you want to put on your best case, and you only have one opportunity for a first impression.Rehearsing your testimony and the testimony of third party witnesses with your attorney is highly advisable.
7. Review Deposition Transcripts: If you did not sit in on the depositions, I would recommend that you review the deposition testimony of key parties and key witnesses, key expert witnesses, and make some notes. This will help you prepare for trial, and you can discuss questions to ask your attorney. If you or your company paid for depositions- should you not use them in preparation and by having your attorney lodge them with the Court for trial ? Reviewing the transcripts may also help you with preparing your exhibit and witness list.
8. Expert Witness Opinions: Judges, jurors, and arbitrators rely heavily on the opinions of expert witnesses to make rulings and decide cases. You have the right to retain an expert witness on many, many issues of liability and damages if you do so in a timely manner and disclose the expert to the opposing party. Opinions of expert witnesses can make or break a case. For example, if one side has a strong damages expert and the other side does not- the record is left with only one strong expert to render a damages opinion. I have won real estate fraud/forgery cases by having a credible handwriting expert who spoke well and candidly in front of the judge. Your side of the case should have its own experts retained on issues of liability, damages, and any other non legal issue that the Court feels is crucial to making a decision.
Please review your expert witness selection list and your opponent’s list carefully with your attorney- your list of expert witnesses should be very broad, and this does not mean you have to call them at trial- but you always want to have your key expert witnesses and back up witnesses designated in a timely manner.
As part of your discovery, the deposition of opposing expert witnesses should be taken to understand and lock in their opinions.I think it is important to understand what the opponent’s expert witnesses are saying, and to know what is the substance and impact of their testimony on your case and whether they refute your expert opinion with sound analysis.A compelling expert opinion may persuade you to settle the case- perhaps you may pay more in settlement if you are a defendant, or you may accept less if you are the plaintiff.If the opponent’s expert is credible, and your expert cannot refute this opinion, or you don’t have an expert in the same field- this is important factor to consider in settling the case.Or you may to amend your expert witness list.Judges can be persuaded by reputable experts, and it is likely that the same well known expert has appeared before the same judge.An expert can influence a judge even if the expert’s analysis was not thorough and was rather conclusory.So you should be aware of the “expert witness factor,” develop a budget for experts, and work with your attorney to be prepared with your own experts and the analysis of opposing experts’ opinions.
9. Understand Your Judge’s View and Attitudes of the Case, Parties, and Counsel: This is one of the most important subtle factors that parties need to understand. Judges are human, and are not fair and impartial all of the time. When a judge sits on the bench- his or her feet are sitting in wet cement- her feet and positioning can move either way in their view of your case. Eventually during the course of a case, that cement will become concrete- and the judge will develop a view of the case, the parties, and the attorneys. At the first case management hearing- the Court may ask the attorneys- what is this case about ? What are the damages ? Eventually, a judge’s footing gets cemented- the judge develops a viewpoint of the case- and the “cement gets harder.” Early on in a case, the judge may develop a viewpoint and opinion of the case, may develop a viewpoint of the defenses, may develop a bias, and you as a party have to understand these factors. Judges have limited time, limited resources, and limited patience. In Los Angeles, their calendars are busting at the seams.
The judge may also develop a dislike for a party, may develop a dislike or disdain for an attorney, or may develop a dislike for the theory of the case.The judge may have a bias toward a big money party- such as a bank, or may be biased in favor of an attractive female party, an attractive male party, or may be sympathetic because an attorney is pregnant.
A judge may be sympathetic toward a party who he or she can receive a political benefit from- judges are political creatures.Judges are human, are not perfect, and develop biases.With biases, come, at times, seemingly unfair rulings and decisions at trial and during the pre-trial stages.So, please be aware of this issue, and try to get to know your judge before trial.Also, please remember that very early in the case- you have the one time right to disqualify and “paper” your judge as a matter of right- and a new judge will be assigned automatically by the clerk of the court.As soon as your attorney knows the name of the judge- you and your attorney should decide whether the judge needs to be “papered.”
10. File a Motion for Summary Judgment/ Summary Adjudication: Under certain procedural, factual, and legal circumstances, you may want to file a Motion for Summary Judgment or Motion for Summary Adjudication to try to win or get out of the case completely before trial. Discuss with your attorney the prospects for success, the favorable case law, and the cost of filing this type of motion. For example, this motion may be successful if you are defending the case, and the plaintiff’s claim is clearly barred by the applicable statute of limitations or the plaintiff lacks standing. Your attorney should reserve a date for a Motion 100 days before the hearing on the motion, and greater than 30 days before the trial date. Motions for Summary Judgment are governed in part by California Code of Civil Procedure 437(c), and the California Rule of Court 3.1350- these rules need to be complied with very carefully. If there are disputed issues of fact in the case- then a motion for summary judgment or motion for summary adjudication will likely not carry the day. At the very least, you will get the substantive issues in front of the judge before trial- and learn what the judge feels is important. Some judges like these motions because if they grant the motion they can get rid of the case off of their dockets- some judges want to reduce their trial calendar, and granting an MSJ motion is one way to do it !!
11. Revisit the Prospect of Global Settlement: If you are heading to the period which is 60 days or even 30 days before trial, it is highly recommended to reevaluate the prospects of settling the case. Has there been a change in the case in discovery that has harmed one side or the other ? What did the plaintiff say in deposition testimony ? What are the opinions of the experts ? Has a motion for summary judgment been filed- and what were the judge’s rulings on the motion and the judge’s view of the claims/ defenses ? If you mediated the case before, and made some progress- consider whether it would be worth it to have another mediation session, with the same or perhaps a different mediator. Another option is to have your attorney schedule a mandatory settlement conference with a judge in your court house. Some courthouses, like the downtown branch of the LA Superior Court, have dedicated judges that only handle settlement conferences. This is a free service, and you should take advantage of this free service- you may settle your case with the help of an experienced judge.
12. Don’t be afraid to seek a second opinion about your case: If you feel that you are unsure about your attorney’s trial preparation approach, or lack confidence in the way that your attorney has handled the file, or you believe that you are being underserved, you should get another opinion from independent counsel. This is wise decision. Going to trial or making a decision to settle a case is a major financial and legal decision, and you should make an educated choice after clearly weighing all options in an educated manner. As one colleague said to me, “ it is important to get another set of eyes on the issue.” At the most respected law firms and in house legal departments, the attorneys roundtable about issues- and try to obtain multiple perspectives, worst case scenarios, and strategy opinions about tough issues. Therefore, it is highly recommended to receive a second opinion on a case. If you were going to need major medical surgery- wouldn’t it be wise to get the opinion of a second physician on the risks and benefits of the procedure. Perhaps there is an approach or recommended course that the first surgeon did not consider. In the legal realm, getting a second opinion makes good business sense
In conclusion, I hope this article helps you prepare the building blocks for the big case, and is a starting point for understanding how to prepare you and your company for a major trial if a case does not settle. Obviously, in major litigation there are many other factors to think about and the list is not exhaustive - for example, is there an insurance policy that can cover the liability and or defense of the claim, or can a cross-complaint for indemnity and contribution be filed to shift the risk of loss to third parties ? I feel that parties should be fully informed about all of the issues in their case, and there should be no major surprises. I wish you well in your adventure at the courthouse and beyond, and I hope you can put on your best case, no matter what the outcome.
LA Real Estate Law Group White Paper # 4
Unlocking the Mystique of the Lis Pendens- An Investor’s Guide to Understanding the Mysterious Notice Called the "Lis Pendens"
I. Introduction
In the California real estate and lending community, and especially for non real estate attorneys (normal people !!), there is some misunderstanding and hidden mystery about what a Lis Pendens is, what is its function, and what is its place in the law and the world of California real estate. This article will unravel that mystery, and will focuses on California law and some general American legal principles that explain the substance and procedure of the notice of lis pendens.
The simple definition of a Lis Pendens is that it is a notice of a pending lawsuit that is recorded in the county where real estate is located. The subject of the lawsuit is usually a “real property claim,” - a rather ambiguous phrase that means a claim about title, ownership, and the right to possession, or the scope of an easement of the subject real property. Every lawsuit that involves the situs of real estate is not appropriate for a lis pendens filing. For example, if a slip and fall accident occurred on real estate, a lis pendens would not have to be recorded on the chain of title because the claim does not involve title, ownership, right to possession, or the scope of an easement of the subject property.
In addition to the “real property claim” requirement, for a lis pendens notice to “stick” to the property’s title file, the claimant must also be prepared to establish the “probable validity of the claim by a preponderance of the evidence.” The term “probable validity of a claim” is set forth in the statutes, and defined that it is more likely than not that the claimant will obtain a judgment against the defendant on the claim. See Cal. Code of Civil Procedure section 405.30, and see companion sections 405.31 and 405.32.
The term “Lis Pendens” is a Latin phrase that literally means “suit pending.” Sometimes a lis pendens is synonymously called a “Notice of Pending Action.”
In the United States, a lis pendens is a written notice that provides notice to the world that a lawsuit has been filed concerning real estate, involving either the title to the property or a claimed ownership interest in it. The notice is filed in the county recorder’s office where the real property is located. Recording a lis pendens against a piece of property alerts a potential purchaser or lender that the property’s title is in question or in dispute. The pending claim and recorded notice may make the property less attractive to a buyer or a real estate secured lender. The lis pendens provides an important notice function. Once the notice is recorded, anyone who nevertheless purchases the land or property or who records a deed of trust secured by the real property described in the notice takes possession of it or an interest in real property that is subject to the ultimate decision of the lawsuit.
The lis pendens notice document contains the address and legal description of the property, makes reference to the litigation parties and court case number, and lets non parties know that the litigation is pending about the title to the subject property. Non-parties may want to intervene if they have a stake in the outcome of the case.
The lis penden’s notice refers to any pending lawsuit or to a specific situation with a public notice of litigation that has been recorded in the same county where the title of real property has been recorded. This notice secures a plaintiff's claim on the property so that a transfer, sale, mortgage, or encumbrance of the property will not diminish plaintiff's rights to the property, should the plaintiff prevail in its case. In some jurisdictions, when the notice is properly recorded, lis pendens is considered constructive notice to other litigants, purchasers, transfereers, or other unrecorded or subordinate lienholders.
The clerk at the county recorder’s office office will record a lis pendens upon request of anyone who claims to be entitled to do so (e.g. because the party has filed a lawsuit and wants to provide notice as per the code of civil procedure). If someone else with an interest in the property (e.g. the owner) believes the lis pendens is not proper, the party can then file motion in court to try to have it expunged.
The clerk at the county recorder’s office cannot decide if the recording of the lis pendens is technically lawful and legally proper. The clerk will check for mistakes as to the form of the document. The attorney for the plaintiff or claimant should make this initial determination as to the form and appropriateness of the lis pendens. If the lis pendens is in the proper format, the county recorder will record the lis pendens. The judge that is presiding over the case can decide if the lis pendens recording is proper and lawful.
A lis pendens notice provides constructive notice of the pending legal action, and it serves to place a cloud on the title of the property in question until the lawsuit is adjudicated, and the notice released or the lis pendens is expunged. A recorded lis pendens may show up on a preliminary title report or title recording analysis profile because there is a recording number associated with it. The lis pendens is the “monkey wrench,” that is found in the bowl of oatmeal !! Prudent buyers that notice the recording of the lis pendens will be unwilling to purchase land subject to a lis pendens or will only purchase the land at a steep discount. Prudent lenders will not lend money secured by the subject property. Title insurance companies may not insure the title to such land in the future until the lawsuit is finalized: title is taken subject to the outcome of the lawsuit. Because so much real property is purchased with borrowed money, this usually keeps the owner from selling the property. It also may prevent the owner from borrowing money secured by the property.
It is important to note that the presence of a lis pendens does not prevent or necessarily invalidate a transfer of an interest in the subject property, although it makes such a transfer subject to the result and outcome of the litigation. Thus, the owner is not prevented from selling the land for (non-borrowed) cash, pledging it as security for a speculative loan, or giving it away- however, all are subject to and will be affected by the outcome of the lawsuit that is referenced in the notice.
However, once the lis pendens is recorded, the recipient (a "purchaser" or "grantee pendente lite") would be deemed to have notice of the litigation and might lose their title position to the property if the plaintiff's suit prevails.
One should be cautious in recording, serving, and filing a notice of lis pendens. In some cases recording a lis pendens is mandatory- for example for a quiet title action or an eminent domain action. For other situations, it may not be. A lis pendens should only be used in the proper case and factual circumstances where a real property claim is involved, and the claimant’s case has some probable validity. For example, you should not record a lis pendens just to force a party to settle. See, the court’s reasoning, for example, in Hilberg v. Superior Court (1989, 2nd Dist.), 215 Cal. App. 3d 539, 263 Cal. Rptr. 675.
The California lis pendens statutes are structured to punish the wrongful, malicious lis pendens filer by shifting attorneys, costs, and damages. The recordation of a lis pendens directly effects marketability of title and the ability to obtain real estate financing. There is exposure to incur significant attorneys fees, costs, and damages for recording and filing an improper notice. A relatively straightforward lawsuit can become a costly ancillary dispute when a lis pendens is not recorded in good faith and is properly challenged.
Therefore, the lis pendens statutes contain cost shifting provisions. The court must direct that the party prevailing on any motion for expungement or other relief under Cal. Code of Civil Procedure Section 405.30-405.39 be awarded reasonable attorney’s fees and costs of making or opposing the motion, unless the court finds that the other party acted with substantial justification or that other circumstances make the imposition of attorneys fees and costs unjust. See Cal. Code of Civil Procedure Section 405.38. The court has some discretion, whether or not to award attorney’s fees and costs, and may do so swiftly if a party did not act with “substantial justification.”
II. RECORDING AND PROCESSING REQUIREMENTS AND RULES FOR LIS PENDENS ACTIVITIES ARE DELINEATED IN THE CAIFORNIA CODE OF CIVIL PROCEDURE.
The definition and rules about a “lis pendens” document are found in California statutes, namely, Cal. Code of Civil Procedure Sections 405-405.24. to 405.39.
For example, Cal. Code of Civil Procedure Section 405.20 provides, “a party to an action who asserts a real property claim may record a notice of pendency of action in which that real property claim is alleged. The notice may be recorded in the office of the recorder of each county in which all or part of the real property is situated. The notice shall contain the names of all parties to the action and a description of the property affected by the action.”
Cal. Code of Civil Procedure Section 405.40 states “ "Real property claim" means the cause or causes of action in a pleading which would, if meritorious, affect (a) title to, or the right to possession of, specific real property or (b) the use of an easement identified in the pleading, other than an easement obtained pursuant to statute by any regulated public utility.”
After the lis pendens is prepared and signed by the attorney of record, the real property claimant must, prior to recordation of the notice of pendency of action, cause a copy to be mailed, by registered or certified mail return receipt requested, to all known addresses of the parties to whom the real property claim is adverse and to all owners of record of the real property affected by the real property claim as shown by the latest county assessment roll or more recent assessment information in the possession of the county assessor. If there is no known address for service on an adverse party or owner, then as to that party or owner a declaration under penalty of perjury to that effect must be recorded instead of the required proof of service, and service on that party or owner will not be required.
The lis pendens is then recorded in the property where the real property is located.
Immediately following recordation, a copy of the notice with the recording stamp must also be filed with the court in which the action is pending. Service must also be made immediately and in the same manner on each adverse party later joined in the action. Cal. Code Civ. Proc. §405.22 Any notice of pendency of action will be void and invalid as to any adverse party or owner of record unless these requirements are met for that party or owner and a proof of service in the form and content specified in Cal. Code Civ. Proc. §1013a has been recorded with the notice of pendency of action. Cal. Code Civ. Proc. §405.23.
III. TYPES OF CASES REQUIRING RECORDING AND SERVICE OF A LIS PENDENS
Recording of a notice of pendency of action is required in the following types of lawsuits:
a) Quiet title action. See Cal. C.C.P. Section 761.010(b)).
b) At the commencement of an eminent domain proceeding. A copy of the notice must be served with the summons and the complaint. See Cal. C.C.P. Section 1250.150.
c) At the time of filing a complaint to reestablish lost land records. See Cal. C.C.P. section 751.13.
d) Immediately after filing a complaint for partition of real property.
e) Within 10 days after filing the complaint in an action to determine adverse interests in, or liens or clouds upon title to real property arising out of public improvement assessments. Cal. C.C.P. 801.5
f) To provide constructive notice of the pendency of an action involving a claim against the state for escheated property. Cal. C.C.P. Section 1355.
g) To give constructive notice in an action by the Attorney General to escheat real property. Cal. C.C.P. Section 1410.
h) In actions to abate a public nuisance. Cal. Health and Safety Code Section 17985.
i) Within 10 days of an action by a purchaser to quiet title to tax deeded property. Cal. Rev. Code Section 3956.
j) With the Clerk of the probate court in an action to enforce a claim rejected by an executor or administrator of a decedent’s estate. Cal. Probate Code Section 9354(b).
k) With the city or county treasurer in an action on an improvement bond. Sts. & Hy Code 6619
IV. STRATEGIES FOR FIGHTING BACK AGAINST THE CLAIMANT - EXPUNGMENT LITIGATION AND MOTIONS FOR POSTING AN UNDERTAKING/ BOND
At times a party to litigation seeks to record a lis pendens to seek financial or legal leverage or to force a settlement in the lawsuit. The recordation of the lis pendens may be unlawful if the lis pendens is filed in a lawsuit that does not involve a “real property claim,” and the claim lacks merit. Sometimes the facts may be merky, or the claimant may not be able to prove the probable validity of the claim. The party that is the “subject” of the lis pendens may suffer losses because the party’s title is not marketable. The party may not be able to sell or refinance the property. Under certain circumstances, the opposing party may file Motion to Expunge or to Post a Bond (also known as an undertaking).
A Motion to Expunge a Lis Pendens can be contentious litigation. California Code of Civil Procedure Sections 405.30-405.33 govern the California rules for a Motion to Expunge a Lis Pendens. The basic rules and procedures are fairly self-explanatory.
Note a couple of important procedural benchmarks: The claimant, not the moving party has the burden of proof in the Motion to Expunge. The Court has the power to order that the party filing the lis pendens to post a bond to protect the other party. Pursuant to Cal. Code of Civil Procedure Section 405.38, the court also has the power to order attorneys and fees and costs to the prevailing party in a Motion to Expunge or a Motion to Post an undertaking, unless the court finds that the other party acted with substantial justification or that other circumstances make the imposition of attorney's fees and costs unjust.”
California Code of Civil Procedure Section 405.30 states, “At any time after notice of pendency of action has been recorded, any party, or any nonparty with an interest in the real property affected thereby, may apply to the court in which the action is pending to expunge the notice. However, a person who is not a party to the action shall obtain leave to intervene from the court at or before the time the party brings the motion to expunge the notice. Evidence or declarations may be filed with the motion to expunge the notice. The court may permit evidence to be received in the form of oral testimony, and may make any orders it deems just to provide for discovery by any party affected by a motion to expunge the notice. The claimant shall have the burden of proof under Sections 405.31 and 405.32.”
In addition to filing a Motion to Expunge, another safeguard for a party on the other end of a lis pendens recording is to require that the claiming post a bond or “undertaking.” Generally, at any time after a notice of pendency of action has been recorded, the court may, on motion by any person with an interest in the subject property, require the claimant to give an the moving party an undertaking as a condition of maintaining the notice in the record title. The undertaking must be of a nature an in an amount as the court may determine to be just. In its order requiring an undertaking, the court must set a return date for the claimant to show compliance. Compliance is in the form of posting a bond in favor of the opposing party. If the claimant fails to show compliance on the return date, the court must order the notice of pendency of action expunged without further notice or hearing. See Cal. Code of Civil Procedure Section 405.34.
California Code of Civil Procedure Section 405.31 states,
“In proceedings under this chapter, the court shall order the notice expunged if the court finds that the pleading on which the notice is based does not contain a real property claim. The court shall not order an undertaking to be given as a condition of expunging the notice where the court finds the pleading does not contain a real property claim.”
California Code of Civil Procedure Section 405.32 states, “In proceedings under this chapter, the court shall order that the notice be expunged if the court finds that the claimant has not established by a preponderance of the evidence the probable validity of the real property claim. The court shall not order an undertaking to be given as a condition of expunging the notice if the court finds the claimant has not established the probable validity of the real property claim.
Cal. Code of Civil Procedure Section 405.33 states, “In proceedings under this chapter, the court shall order that the notice be expunged if the court finds that the real property claim has probable validity, but adequate relief can be secured to the claimant by the giving of an undertaking. The expungement order shall be conditioned upon the giving of the undertaking of such nature and in such amount as will indemnify the claimant for all damages proximately resulting from the expungement which the claimant may incur if the claimant prevails upon the real property claim. In its order conditionally expunging the notice, the court shall set areturn date for the moving party to show fulfillment of the condition, and if the moving party fails to show fulfillment of the condition on the return day, the court shall deny the motion to expunge without further notice or hearing. Recovery may be had on theundertaking pursuant to Section 996.440. For purposes only of determining under this section whether the giving of an undertaking will secure adequate relief to the claimant, the presumption of Section 3387 of the Civil Code that real property is unique shall not apply, except in the case of real property improved with a single-family dwelling which the claimant intends to occupy.”
V. VOLUNTARY WITHDRAWAL OF A LIS PENDENS- THE EASIEST WAY TO STOP THE BLEEDING
The good news is that a recorded Lis Pendens notice is not a “permanent fixture” on the title to real property. The easiest way to get rid of a lis pendens is for the claimant who recorded the notice to voluntarily withdraw the notice. The Notice of Lis Pendens may be withdrawn by the party who recorded the notice of withdrawal signing a notarized and acknowledged Notice of Withdrawal or Release. Please note that the statute says it must be signed by the “party.” The best practice is that the party signs the Notice of withdrawal, and not the attorney for the party. After the signing, the Notice of Withdrawal should be served on all parties that were served with the Lis Pendens.
Cal. Code of Civil Procedure Section 405.50 provides, “At any time after notice of pendency of an action has been recorded pursuant to this title or other law, the notice may be withdrawn by recording in the office of the recorder in which the notice of pendency was recorded a notice of withdrawal executed by the party who recorded the notice of pendency of action or by theparty's successor in interest. The notice of withdrawal shall be acknowledged.”