The Shriek (Edvard Munch, 1893)
If you are an investor looking to scoop up some distressed property deals, here’s an alternative to buying at foreclosure sales– buying during lis pendens (also known as pre-foreclosure.)
With a lis pendens, you get these benefits:
- you negotiate and buy directly from the owner
- unlike foreclosures, you can physically inspect the premises
- you can get an appraisal
- you have time to examine an abstract of title to check for other liens or violations of record against the house, or title defects
- there are more property choices
- the owner is very motivated to work with you to avoid the embarrassment of foreclosure and the accompanying costs.
Notice of Lis Pendens (latin for “suit pending”) is a written notice of a legal claim against a piece of real property. In the context of foreclosures, it is notice of a suit against the homeowner for a loan default. Lis Pendens notices are filed and recorded with the county clerk. It serves as notice to the public that the property has a legal claim against it. It is the beginning of the legal process which ends in the property foreclosure. Notices of Lis Pendens are filed at the county clerk, in the section where deeds and mortgages are filed. As a matter of public record, the lis pendens are freely reviewable by anyone. They contain the property address and legal description.
Websites like foreclosure.com and Property Shark provide lists of lis pendens for a fee. But you can just walk down to your local courthouse and check the notices for free. The notices are also customarily filed in the local newspaper.
Check your state for the time period between the filing of Notice of Lis Pendens and the foreclosure sale. This period can run from 90-120 days or longer. In New York, it can take up to a year. This is your window of opportunity to negotiate and close the sale.
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I’m sure that California operates somewhat differently than New York, but one thing that occurs to me is that it is crucial for investors to be extremely aware of potential problems related to purchasing a home with a Lis Pendens filed. Since a Lis Pendens can be filed on any property for a variety of situations (other than pending foreclosure), it would be smart to know exactly what you’re up against. Out of curiosity, does a Lis Pendens filed in New York for foreclosure appear separately or have something that clearly differentiates it from other Lis Pendenses?
In the South Orange County, CA market we have very little in the way of pre-foreclosure homes that aren’t going short sale or foreclosure. Lenders haven’t started to get aggressive with short sale approvals, so many end up as REOs anyway. The REO pricing is a little better than the short sale pricing, but when you have buyers putting in offers that build a 10-15% loss into the price…
Yes. A lis pendens is only a notice of a legal action. It need not be due to a mortgage loan default. It can be a suit to enforce a mechanic’s lien, quiet title or any number of other claims affecting the property. But it is normally only 1 action or claim. Examining the notice will indicate the nature of the claim. Once you determine it is due to a mortgage loan default, you can negotiate accordingly. A lis pendens does not result in the owner losing the house automatically — this requires a judgment (heck, maybe the owner did not default or the bank took a shortcut) and a foreclosure sale. This does not happen right away. So you have some time to close the sale with the owner. Each state has its own period of time between the filing of the Notice and the actual sale date (”law day”). During that time, the owner has the right to sell the property. Even after judgment of foreclosure, up until the actual day of sale, the owner has the right of redemption. If, before that sale date, full payment of the judgment is made, the owner gets a satisfaction of judgment and the ownership rights back to the property. It is even possible for an owner to extend the sale date by making a motion to the court, with valid reason.
The time periods and procedures may differ from state to state but the sequence remains the same– notice of lis pendens, judgment of foreclosure, foreclosure sale. And the owner always has a right of redemption. There are also other things that can forestall the actual foreclosure sale such as a bankruptcy filing, but that’s another post.
Since we are dealing with the legal system, a buyer should really use an experienced real estate attorney when buying pre-foreclosure. In NY, virtually all real estate transactions have lawyers representing the seller AND the buyer. In states that close title without lawyers, a pre-foreclosure purchase means that buyer has to work outside the norm and get a lawyer.
Bookmarked for later reading (ie: more comments) and thought!
PS: The painting (Der Schrei der Natur): The painter is correct, but the work itself which is also known as “The Scream” and “The Cry” should be spelled “Skrik” (minus the “e” as you have it) if you are using the Norwegian spelling!
“Shriek” as you have it is the English congnate. Using the title “shrik,” it seems to me like you’re switching back and forth.
You are absolutely correct, Derek. Between Scream and Shreik, I have always preferred Shreik as congruent with the Norwegian Shrik. A great painting in any language.
More and more people will find that the pre foreclosure house has negative equity. So that will require a mortgage short sale and that is tedious and difficult. But a lot of mortgage short sales are being done even by people who have good credit who simply need to sell a house they can no longer afford.
This should be entitled “buying pre foreclosure” because as the other comment points out, a lis pendens can be put on a property for many reasons. Also in states that use trustee sales, also known as non-judicial foreclosure, there would be no lis pendens put on the property except in rare instances such as quiet title, specific performance or other law suits affecting the property.
–Richard