During recent months, the number of foreclosure actions in the United States has increased dramatically. According to the May 2008 RealtyTrac U.S. Foreclosure Market Report, there were 261,255 foreclosure actions filed in the United States in May of 2008.1 This figure represents an approximate fifty percent increase in foreclosure actions in the United States since May of 2007.2
In Florida, there were 37,364 properties subject to foreclosure actions in May of 2008.3 This equates to roughly one out of every 228 Florida households being subject to a foreclosure action, making Florida the state with the fourth highest foreclosure rate in the United States during this period.4 Predictably, the substantial number of foreclosure actions has led to an increase in litigation in which various professionals, including closing agents, have been sued for malpractice relative to their roles in these real estate transactions.
As a frequent result of a foreclosure action, a lis pendens is filed on the property which is the subject of foreclosure. A lis pendens provides notice to future purchasers or encumbrancers of the property, that a lawsuit has been filed which could affect the title of the subject property.5 A lis pendens serves the purposes of protecting purchasers from unanticipated disputes, and of protecting those claiming an interest in the property from intervening liens.6
In Florida, there were 25,736 lis pendenses filed in May of 2008.7 In order to file a lis pendens, a party must file a notice of commencement with the circuit court in the county where the subject property is located.8 This notice must contain the names of the subject parties, the time of institution of the action, the name of the court in which it is pending, a description of the property involved or to be affected, and a statement of the relief sought as to the property.9
The Florida Statutes permit a real estate broker to file a lis pendens on a property when the filing is expressly permitted by the contractual agreement of the parties involved in the subject real estate transaction.10 Additionally, a real estate broker may be permitted to file a notice of lis pendens on a property, as a method to collect the sales commission owed to the broker.11
The filing of record of a lis pendens has important legal implications for all parties involved in the subject real estate transaction, including closing agents. Such filing of a lis pendens impacts the enforcement of unrecorded mortgages and other liens on the subject property.12 For example, if a notice of lis pendens is filed in relation to a particular property, then a party is generally barred from enforcing an unrecorded mortgage or lien on the property.13
Relative to claims for malpractice, closing agents may face liability in the event that they fail to discover a lis pendens on a property, and allow a real estate transaction to close without notifying the subject parties of the existing lis pendens. In an effort to avoid potential liability resulting from failing to discover the existence of a lis pendens, closing agents may be well advised to perform due diligence, such as obtaining a title search, a tax search, and checking the payoff balances of any existing mortgages on a property, before permitting a transaction to close. Today, with many property records available online, and the potential liability from failing to discover an existing lis pendens, it may make sense for closing agents to determine if a property is in foreclosure, and to find out if a lis pendens has been filed on the property, prior to closing.
In taking such preventative measures early on, closing agents may be able to avoid liability from claims of malpractice developing from separate foreclosure lawsuits, which are being filed at increasing rates in the State of Florida.
1 RealthyTrac Staff, “Foreclosure Activity Increases 7 Percent in May” (May 2008), http://www.realtytrac.com/ContentManagement/pressrelease.aspx?ChannelID=9&ItemID=4728&accnt=64847.
2 Id.
3 Id.
4 Id.
5 See Von Mitschke-Collande v. Kramer, 869 So.2d 1246, 1249 (Fla. 3d DCA 2004).
6 See Von Mitschke-Collande, 869 So.2d at 1249.
7 See RealthyTrac Staff, “Foreclosure Activity Increases 7 Percent in May” (May 2008).
8 Fla. Stat. §48.23 (1)(a).
9 Id.
10 Fla. Stat. §475.42(1)(j).
11 See Alamagan Corp. v. Daniels Group, Inc., 809 So.2d 22, 28 (Fla. 3d DCA 2002). In Alamagan, a real estate broker was awarded a final judgment for her commission against the purchaser of the subject property; however, the purchaser refused to pay the broker’s commission. The court determined that the broker’s filing of a lis pendens was the only step that the broker could take to preserve her rights.
12 Fla. Stat. §48.23 (1)(b).
13 Id. Except for the interest of persons in possession or easements of use, the filing for record of such notice of lis pendens shall constitute a bar to the enforcement against the property of unrecorded mortgages and other liens, unless the holder of any such unrecorded interest or liens shall intervene in such proceedings within 20 days after the filing and recording of said notice of lis pendens.
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