lis pendens

The Difference Between Winning and Losing A Real Estate Contract Lawsuit

I have handled a myriad of cases enforcing and defending real estate contracts, particularly involving Offers to Purchase and Purchase and Sale Agreements. For buyers, these cases typically involve the standard form Offer (or Contract) to Purchase, a one or two page short form contract, which under Massachusetts law (McCarthy v. Tobin) is a binding and enforceable contract. The seller then usually attempts to wriggle out of the deal or may even receive a higher or better offer. Sometimes the transaction has progressed past the execution of the Purchase and Sale Agreement and falls apart, and the buyer still wants to close, or the seller believes the buyer has violated the agreement and wants to retain the buyer’s deposits. When that occurs, litigation often ensues.

Specific Performance

The buyer wants to pursue the deal, and asks “Can a judge make the seller perform and close?” The answer is yes, under the theory of “specific performance.” However, the buyer must establish several elements for such a claim.  The buyer must establish: (1) the existence of a written contract containing reasonably specific terms signed by or duly authorized by the other party and otherwise binding upon such party, and (2) the breach of that contract by the seller.  The breach of contract may be shown by (i) a clear repudiation of the contract by the seller, (ii) the buyer’s tender of performance, formally or by notice, and (iii) a demand for performance with the buyer ready, willing, and able to proceed to a closing.

A solid paper trail is critical to winning these cases. The parties and their transactional lawyers in the underlying deal should always document the seller’s repudiation or breach of contract and the buyer’s willingness to close, preferably by letter or email. These days, text messages can also be helpful, but often open to differing interpretations. Armed with exhibits of emails and texts, the buyer’s attorney can often persuade the judge that the seller has unjustifiably breached the contract and issue a lis pendens (discussed below), and after trial or summary judgment, an award of specific performance.

Obtaining Leverage — The Lis Pendens

The difference between winning and losing (or settling favorably) is for the buyer to obtain a Lis Pendens from the court. As I have written about in this article, a lis pendens is Latin for “a suit pending.” The lis pendens is recorded at the registry of deeds against the property and its owner(s), creating a cloud on the title to the affected property. A lis pendens will, in many cases, effectively prevent the owner from selling the property while the lawsuit is pending — which could be years, thereby giving a buyer incredible leverage in the case. In order to obtain a Lis Pendens, a buyer must show that the claim “affects the title to real property or the use and occupation thereof or the buildings thereon.” A buyer should file a motion for lis pendens right from the start of the case, seeking a quick hearing on the motion, or even ex parte (without the seller getting advance notice, if there is a clear danger that the property will be conveyed).

Defending the Lis Pendens and Claim for Specific Performance

If you are a seller defending a claim for specific performance and a motion for lis pendens, the deck is often stacked against you out of the starting gate. The standard of review favors the buyer because unlike obtaining an attachment or other pre-judgment lien, a lis pendens does not require a showing a likelihood of success on the claim. A lower standard is used — the claim must not be frivolous or lack an arguable basis in fact or law. Further, buyers typically run into court quickly, and there is often a time crunch to gather and marshal all the evidence before the initial hearing on the motion for lis pendens. Nevertheless, I have been successful in beating back lis pendens motions by raising defenses such as the Statute of Frauds, which requires a writing signed by the party to be charged, and other contractual defenses.

Special Motion to Dismiss and Certification That No Material Facts Have Been Omitted

In defending claims for specific performance and lis pendens’, I have been most successful using the “special motion to dismiss” and raising the requirement that plaintiffs must certify that no material facts have been omitted from their complaint.

The “special motion to dismiss” is a newer tool which allows defending parties to dismiss a lawsuit seeking a lis pendens by showing: that the action or claim is frivolous because (1) it is devoid of any reasonable factual support; or (2) it is devoid of any arguable basis in law; or (3) the action or claim is subject to dismissal based on a valid legal defense such as the statute of frauds. This standard is relatively high, however, it can be reached with the right factual record and defenses in play.

I’ve also had success pushing another one of the new requirements of the amended Lis Pendens Statute: the requirement of a verification on a complaint to “include a certification by the complainant made under the penalties of perjury that . . .  that no material facts have been omitted therefrom.” Courts have ruled that a party’s failure to include all material facts in its complaint may result in the dismissal of that party’s claims where the omitted facts establish that those claims are devoid of reasonable factual support or arguable basis in law. If the plaintiff has failed to disclose all of the relevant facts in the case, often those which are unfavorable, you can raise this defense which may give you some traction with the judge.

As you can see, this area of law is quite complex for the layperson. Consultation with an experienced real estate litigator is paramount. If you are dealing with such a case, feel free to reach out to me at [email protected].

{ 1 comment }

Overview: Lis Pendens, Latin for “A Suit Pending”

A lis pendens is Latin for “a suit pending.” Under the Massachusetts lis pendens law, a lis pendens is a notice endorsed by a judge certifying that there is litigation pending involving the title or occupancy rights to a property. Where real estate deals go sour, a court will often issue a lis pendens where a buyer seeks “specific performance” of a real estate contract in order to force a seller to go through with a transaction. Lis pendens are also common in other real estate cases such as boundary, title, zoning, and ownership disputes. The lis pendens is recorded at the registry of deeds against the property and its owner(s), creating a serious cloud on the title to the affected property. A lis pendens will, in many cases, effectively prevent the owner from selling the property until the claim is resolved–thus, earning its well-deserved reputation as dangerous arrow in a real estate litigator’s quiver.

Heavy Ammunition For Buyers

Since the Massachusetts Supreme Judicial Court held in 1998 that the standard Greater Boston Real Estate form Offer To Purchase is a binding contract, buyers have used the lis pendens with great success against sellers who unjustifiably try to back out of Offers to Purchase and Purchase and Sale Agreements. Aggressive buyer attorneys would often obtain a lis pendens without prior notice to the seller (called ex parte relief), and this would give buyers a huge advantage and effectively derail any pending sale of the property until the judge resolved the claim.

Recent Changes To The Law

In response to complaints that litigants were abusing the law with frivolous claims for lis pendens’, lawmakers amended the law in 2003. Now, claimants seeking ex parte relief must show there is a clear danger that the seller, if notified in advance, will convey, encumber, damage or destroy the property. Sellers also have a new remedy to stop frivolous claims: a “special motion to dismiss” which carries with it an award of attorneys’ fees and costs. The playing field is a bit more leveled now, yet the lis pendens remains a powerful tool for real estate attorneys.

Dealing With A Lis Pendens

Dealing with a meritorious lis pendens remains very difficult. Standard owner’s title insurance policies do not insure against them. Further, most title companies hesitate to affirmatively insure a lis pendens as they would effectively be underwriting the ultimate success of the lawsuit. Sometimes, however, coverage can be obtained for an additional premium and/or with some form of indemnification or security. In the absence of insurance, a lis pendens will remain a cloud on title until the claim is ultimately resolved in the courts, which these days can take many years. Given the high cost of litigation, a financial settlement is often the only way to resolve the matter in a cost-effective manner.

As an experienced real estate litigator who has obtained and defended scores of lis pendens’, please contact me with any questions about a Massachusetts lis pendens.

______________________________________

Richard D. Vetstein, Esq. is an experienced and creative Massachusetts real estate litigator who loves to help property owners defend their contract or property rights in court. Please contact him at [email protected] or 508-620-5352 for a no-obligation consultation.

{ 5 comments }

offer-to-pur3

Update (6/10/13): Battle of the Forms! Mass. Ass’n of Realtors vs. Greater Boston Bd. of Realtors Standard Form Offers

Update (10/3/15) New TRID Addendum

The Standard Massachusetts Offer To Purchase

The first step in purchasing or selling Massachusetts residential real estate is the presentation and acceptance of an Offer To Purchase. Most often, the buyers’ real estate broker prepares the offer to purchase on a pre-printed Greater Boston Real Estate Board standard form and presents it to the seller for review, modification, and acceptance. Attorneys are often not involved in the offer stage. However, in light of the legal significance of a signed offer and recent litigation over offers, buyers (and their brokers) and sellers may be wise to consult an attorney to review the offer.

An Accepted & Signed Offer Is A Binding Contract

Many sellers (and their brokers) are under the misconception that the offer to purchase is merely a formality, and that a binding contract is formed only when the parties sign the more extensive purchase and sale agreement. This is not true. Under established Massachusetts case law, a signed standard form offer to purchase is a binding and enforceable contract to sell real estate even if the offer is subject to the signing of a more comprehensive purchase and sale agreement. So if a seller signs and accepts an offer and later gets a better deal, I wouldn’t advise the seller to attempt to walk away from the original deal. Armed with a signed offer, buyers can sue for specific performance, and record a “lis pendens,” or notice of claim, in the registry of deeds against the property which will effectively prevent its sale until the litigation is resolved. I’ve handled many of these types of cases, and buyers definitely have the upper hand given the current state of the law.

There have also been recent court rulings holding that both email and text may constitute an enforceable contract even where no formal offer has been signed by both parties.

In some cases, the seller may not desire to be contractually bound by the acceptance of an offer to purchase while their property is taken off the market. In that case, safe harbor language can be drafted to specify the limited nature of the obligations created by the accepted offer. This is rather unusual, however, in residential transactions.

Home Inspection & Mortgage Contingencies

With the offer to purchase, I always advise buyers and their brokers to use a standard form addendum to address such contingencies as mortgage financing, home inspection, radon, lead paint, and pests. The home inspection and related tests are typically completed before the purchase and sale agreement is signed and any inspection issues are dealt with in the purchase and sale agreement. If they are not, there is an inspection contingency added to the P&S. See my post on purchase and sales agreements for that discussion.

The mortgage contingency is likewise critical. With mortgage loans harder to underwrite and approve, we are seeing loan commitment deadlines extended out for at least 30-45 days from the signing of the purchase and sale agreement. Always consult your mortgage lender before making an offer to see how much time they will need to process and approval your loan. The loan commitment deadline is one, if not the most, important deadlines in the contract documents.

In order to help finance the acquisition of said premises, the BUYER shall apply for a conven­tional bank or other institutional mortgage loan of $[proposed loan amount] at prevailing rates, terms and conditions.  If despite the BUYER’S diligent efforts, a commitment for such a loan cannot be obtained on or before [30-45 days from signing of purchase-sale agreement], the BUYER may terminate this agreement by written notice to the SELLER in accordance with the term of the rider, prior to the expiration of such time, whereupon any payments made under this agreement shall be forthwith refunded and all other obligations of the parties hereto shall cease and this agreements shall be void without recourse to the parties hereto.  In no event will the BUYER be deemed to have used diligent efforts to obtain such commitment unless the BUYER submits a complete mortgage loan application conforming to the foregoing provisions on or before [2-5 business days from signing of purchase and sale agreement].

Any time the parties agree to an extension of any deadline in the offer (and the purchase and sale agreement for that matter) make sure it’s in writing.

_______________________________________________________

RDV-profile-picture.jpgRichard D. Vetstein, Esq. is an experienced Massachusetts real estate closing and conveyancing attorney and former outside counsel to a national title insurance company. Please contact him if you need legal assistance with your Massachusetts real estate transaction.

{ 24 comments }