Thomas Bennett Real Estate Lawyer Boston MA

Wednesday, June 27, 2012

Lis Pendens: A Tool Capable of Abuse

Thomas V. Bennett

Real estate is an essential and the ability to transfer it has always been, since the beginning of organized society, a major concern of governments. For those of us involved in conveyancing there is always an ongoing process to define "marketable title" and to suggest legislation in order to remove questions as to marketability of title. With respect to disputes over title, the legislature has tried to effect a balance between creditors and those with claims on titles and the rights of persons who have title. For instance, under Rule 4.1 of the Massachusetts Rules of Civil Procedure (the "Rules") an attachment can only be made against real estate after notice and hearing and after a judge finds that there is a reasonable likelihood that the plaintiff will prevail. Even if property is attached, attachments can be dissolved under M.G.L. Chapter 223, Section 120 et seq. Similarly, provisions for bonding are found under the Mechanic's Liens Statute, under Chapter 254. Protections are also afforded under Rule 65 for injunctions where the Rule requires that the court, except for good cause shown, shall order security for the payment of costs and damages as may be incurred or suffered by a party who is found to have been wrongfully enjoined or restrained.
Under the provisions of M.G.L. Chapter 184, Section 15 (the "Statute"), however, upon the recording of a memorandum of Lis Pendens, title can be held hostage until the final disposition of a case. See Massachusetts Conveyancers Association Title Standard No. 29. The Statute was amended in 1985 to provide for a mechanism for the dissolution of a memorandum of Lis Pendens. However, if the proceeding "constitutes a claim of a right to the title of real estate or the use or occupation thereof or the buildings thereon" a judge must endorse the memorandum of lis pendens and cannot dissolve it. It is fairly simple to bring a suit which alleges a claim affecting the title of real estate or the use and occupation thereof. Although there are remedies available to the aggrieved property owner, including a slander of title action, claims under M.G.L. ch. 93A and Rule 11 sanctions where the action is not well-founded, it can take a great deal of time before even a groundless claim can be disposed of.
Although the Statute has a function and purpose which a plaintiff may rightly avail himself of, a defendant whose title is affected by memorandum of Lis Pendens may very well feel that his title has been kidnapped and that he has to pay a ransom for its release.
The LAWYERS WEEKLY report in the February 14, 1994, edition of Judge Skinner's decision in the case of FDIC v. Capizzi, where the judge entered judgment against the plaintiff in the amount of $6,500,000.00 to compensate the FDIC for the diminution in value of the property which was subject to a Lis Pendens and the tripling thereof by the judge under 93A, illustrates the court's outrage in one particular instance where the court found an abuse in the use of a memorandum of Lis Pendens. Unfortunately, these types of actions may be brought by judgment proof plaintiffs. Although we owe a debt of gratitude to the FDIC and to Judge Skinner for leadership in this area, the judgment the FDIC obtained is probably uncollectible, although it may provide a deterrent to such behavior in the future. It was interesting to note in the LAWYERS WEEKLY report that counsel for the plaintiff who had brought the suit and filed the Lis Pendens had withdrawn and that the plaintiff was unable to find a successor counsel which is suggestive of the fact that, although the Statute is available for use, counsel must use caution in using the Statute if its use is not reasonable under the circumstances.
There have been other efforts by the courts to ameliorate the harshness of the Statute. Judge Kass in Maglione v. BancBoston Mortgage Corporation, 557 N.E. 2d 756 upheld Judge Gershengron's action in dissolving a memorandum of Lis Pendens and ordering the posting of substitute security where the litigation involved two mortgagees in a dispute over priority. The court found that the issue over the entitlement to money secured by a mortgage was not a claim as to the title of the locus or the use and occupation thereof.
A good start to remedying potential abuses would be to amend the first sentence of the second paragraph of the Statute in the following respect: "Upon motion of any party, a justice of the court for which the action is pending shall, if the subject matter of the action constitutes a claim of a right to title to real property or the use and occupation thereof or buildings thereon make a finding to that effect and endorse said finding upon said memorandum provided that the court finds that there is a reasonable likelihood that the plaintiff will prevail." (Italicized words are the suggested change.)
In order to make it clear that a dissolution of a memorandum of Lis Pendens will remove actual or constructive notice, the following sentence should be added to the Statute: "Dissolution of the memorandum of Lis Pendens shall eliminate for all purposes actual or constructive knowledge of the proceeding to any party other than the parties thereto and the real property or the use and occupation thereof or the buildings thereon may thereafter be conveyed and transferred free of any claim arising out of such proceeding."
With those two simple changes abuses which could arise out of the use of the Statute could be curtailed.
Author's Note: Following the publication of this article M.G.L. c. 184 sec. 15 was substantially revised to address many of the concerns discussed in this article. The author is grateful to the many attorneys who worked to make those revisions possible.

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