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Is failure to file a lis pendens at the outset of a divorce case considered malpractice?
Every family law attorney heeds warning when the word “malpractice” is uttered. We all know the fundamentals of malpractice in our respective fields, and we do our best to stay current on new law by attending an assortment of continuing legal education courses to protect against that malignant word. Inevitably, smaller items sometimes slip through the cracks. Filing of a lis pendens at the outset of a divorce case, through some not so recent case law, has proven itself to be one of those generally disregarded smaller items.
A lis pendens, in plain and ordinary language means “pending suit.” Admiral Builders Corp. v. Robert Hall Villages, 101 Ill.App.3d 132, 135 (1st Dist. 1981). The Illinois Statue on lis pendens states in relevant part:
…every condemnation proceeding, proceeding to sell real estate of decedent to pay debts, or other action seeking equitable relief, affecting or involving real property shall, from the time of the filing in the office of the recorder in the county where the real estate is located, of a notice signed by any party to the action or his attorney of record or attorney in face, on his or her behalf, setting forth the title of the action, the parties to it, the court where it was brought and a description of the real estate, be constructive notice to every person subsequently acquiring an interest in or a lien on the property affected thereby, and every such person acquiring an interest or lien as above stated, not in possession of the property and whose interest or lien is not shown of record at the time of filing such notice, shall, for the purposes of this Section, be deemed a subsequent purchaser and shall be bound by the proceedings to the same extent and in the same manner as if he or she were a party thereto.
735 ILCS 5/2-1901 (Lexis 2010).
In summation, the above statute affirms that when a dispute is pending over a piece of real property, the filing of a lis pendens is constructive notice to any person who acquires a lien or an interest of any type in that property, that there is a pending dispute over the property, and that person shall take the property subject to whatever the outcome of the lawsuit shall be. Essentially, the third party is put on notice that there may be superior interests to the property, just as they would be through a regular title search. The problem in dissolution cases is that the world is not put on notice that a piece of real property will likely be divided because recording a lis pendens is not standard practice. The result is significant risk to your client’s potential real property interests.
So, how does this apply in the realm of divorce? In the case of Voga v. Voga, LeRoy Voga sued his Father, Lyle Voga, in April of 1999 to recover certain debts. 376 Ill.App.3d 1075, 1076 (2nd Dist. 2007). In June of 1999, Teresa Voga, Lyle’s wife, filed for divorce and also filed a lis pendens for the real property that she owned jointly with Lyle. Id. at 1077 – 1078. On July 1, 1999, the Court awarded Leroy a judgment against Lyle for $238,000.00 and recorded a memorandum of judgment against the home. Id. at 1077. In June of 2000, the divorce court dissolved the marriage between Lyle and Teresa and awarded Teresa full title to the marital home. Id. Both the dissolution of marriage proceeding and the lis pendens were filed and recorded prior to the date of Leroy’s Judgment on July 1, 1999. Id.
Applying the lis pendens statute to the Voga case, Leroy had obtained an interest in the property through his memorandum of judgment and had constructive notice of the pending divorce proceedings because of the already recorded lis pendens. Therefore, Leroy was holding his lien subject to the result of the divorce litigation. Thus, the dissolution of marriage awarding the property to Teresa which extinguished Lyle’s interest in the marital home, also extinguished Leroy’s claim in the home to satisfy his judgment. This case demonstrates the importance of filing a lis pendens to protect your client’s assets at the end of a divorce proceeding.
A lis pendens also protects against one party unilaterally taking out an additional mortgage or home equity line of credit on the marital home without the other spouse’s knowledge. Even though the home may be considered marital property and the home is held in only one party’s name, the bank would likely not need the approval or signature of the other spouse. Thus, if no lis pendens was recorded, the unknowing spouse would be awarded an asset with much less, if any, equity than was considered initially for an equitable distribution. However, a lis pendens, puts the bank or lender on notice of the pending divorce action, and this protects your client’s superior interest. If the bank did approve the loan, and the home was awarded to the spouse without knowledge of the loan, the bank would then have an unsecured loan against the first spouse rather than a secured loan on the property. A lis pendens puts the bank on constructive notice and their interest will be subject to the outcome of the divorce proceedings.
Similarly, where one spouse sells the property to a third party during a divorce action, and no lis pendens had been recorded, that purchaser becomes a bona fide purchaser. The failure to record a lis pendens will result in the loss of the property if it is sold to a bona fide purchaser who had no notice of the pending suit. Admiral at 1037. If the sale occurs after a recorded lis pendens, the purchaser is not bona fide. The purchaser’s claim is inferior to that of the spouse awarded the property in the dissolution proceeding. See First Midwest v. Pogge, 293 Ill.App.3d 359, 364 (4th Dist. 1997) {a purchaser cannot claim to be a bona fide purchaser if a lis pendens was recorded prior to the date the purchaser acquire the property}. The Court does employ other means to deal with dissipation and sale of assets, however, those will not be discussed here.
The operative question is whether a failure to record a lis pendens constitutes malpractice. Under Illinois law, to prevail on a claim of legal malpractice, the plaintiff must prove: (1) the existence of an attorney-client relationship giving rise to a duty on the part of the attorney; (2) a negligent act or omission by the attorney constituting a breach of that duty; (3) proximate cause establishing that, but for the attorney’s negligence, the plaintiff would have prevailed in the underlying action; and (4) actual damages. Mihailovich v. Laatsch, 359 F.3d 892, 905 (7th Cir. 2004).
In the case of Sobilo v. Manass, 479 F. Supp.2d 805, 824 (N.D. Ill. 2007), the Court found that failure to file a lis pendens in a divorce proceeding was reasonable evidence to determine proximate cause of malpractice. In Sobilo, the real property in question was held jointly by the Husband and Wife.Id. at 809. Subsequent to the filing of the divorce, a foreclosure action was initiated and recorded. Id. at 823. Immediately after the filing of the foreclosure, the Husband conveyed the property to a third party. Id. Subsequent to the Husband’s third party transfer, the Wife’s new attorneys recorded a lis pendens with the divorce action. Id. The Husband thereafter conveyed the real property to a fourth party. Id.
The issue presented was whether the first set of attorneys’ failure to file a lis pendens constituted malpractice. Id. The first set of attorneys argued that a lis pendens would have had little effect because the Husband transferred the property despite the recorded foreclosure and then also transferred the real property for a second time, despite the recorded divorce lis pendens. Id. The Sobilo Court stated that, “It is important to remember that the purpose of a lis pendens is not to act as an injunction preventing a sale but rather to put the world on notice that there may be superior interests.” Id. at 824. The Court went on to say that, “Thus, although the sale of the Irving Park property may not have been prevented if Defendant had filed a lis pendens notice, the absence of a lis pendens notice will make it more difficult for Plaintiff to assert her interest in the property against subsequent purchasers.” Id. Therefore, because the failure to file a lis pendens has made it more difficult to ascertain the rights of the Wife, the attorney’s failure to do so is proximate cause of her loss of the property. See Id.
Regardless of whether a jury would find the attorneys in the Sobilo case guilty of malpractice, recording a lis pendens at the outset is a simple way to prevent potential malpractice liability surrounding real property in a divorce action. ■
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Member Comments (1)
Excellent article which should raise red flags all around!