By: Roger J. Buffington
One of the fascinations of Trust law is that unlike some areas of law, which have been around for a very long time and for which the caselaw is largely settled, in trust litigation the law is in a state of flux and continues to rapidly develop. In this blog article we will address the current state of California trust law as it affects an interesting legal tool, specifically the Notice of Pendency of Action (a/k/a “lis pendens”) as it applies concerning property owned by a trust, when some aspect of the trust is being disputed in court. In this article we will explain where things stand, and take the position that the Courts of Appeal have taken an erroneous path that will greatly and needlessly complicate trust litigation and trust administration in future years. We recommend that the courts or the legislature correct this issue.
- Basics of a Notice of Pendency of Action (a/k/a lis pendens)
Basically a lis pendens is the Latin term for “Notice of Pendency of Action” (roughly translated). Put simply, California Code of Civil Procedure Section 405.30 et seq. provides that if a party is asserting a “real property claim” to a disputed real property asset in an actual lawsuit, the claiming party can have an attorney file a “Notice of Pendency of Action” (lis pendens) on the title of the disputed property parcel. This gives notice to the world that ownership of the property is in dispute. The legal effect is that if a buyer purchases the disputed property notwithstanding the recorded lis pendens, he or she is not a “bona fide purchaser.” This means that the buyer takes the property subject to the claims of the claimant. If the claimant later wins in court, the claimant may be able to nullify and reverse the transfer and take ownership of the property. The buyer would obviously have recourse against the seller to get his, her, or its money back. In other words, a mess.
The practical effect of a lis pendens when recorded on a property is that it clouds title and makes most sales impracticable. Lenders will not lend, and title insurers will not insure until and unless the lis pendens is removed. Thus, the usual reality is that the property is tied up and unsalable, often for years as a given lawsuit proceeds through the court system. Buyers almost universally will take a hard pass on any property encumbered by a lis pendens.
Because a lis pendens has such a drastic effect upon the salability of property, California law traditionally has been strict in allowing a claimant to maintain a lis pendens. In other words, there are strict requirements for a lis pendens and courts will readily grant a motion to expunge a lis pendens unless it meets strict criteria. The main criteria are: a) the claimant (the party filing the lis pendens) must have stated a real property claim, which is essentially a claim that affects title to the property, and b) in opposing a Motion to Expunge a lis pendens, the claimant must show in the opposing brief that the claimant has, by preponderance of the evidence, shown a probability of success in the actual claim, i.e. the merits of the lawsuit. [See generally Cal. Code Civ. Proc. Section 405.30 (real property claim required)]. Thus, the second prong of maintaining a lis pendens when the lis pendens is challenged in court is that the court must order expungement of a lis pendens if the claimant has not established, in its Opposition by a preponderance of the evidence the probable validity of the real property claim. [Code Civ. Proc. § 405.32; see Code Civ. Proc. § 405.30 (claimant has burden of proof in motion to expunge under Code Civ. Proc. § 405.32)] There are certain nuances to this whereby sometimes the opposing side can post a bond in order to expunge a lis pendens. We will not discuss that exception in this brief article.
2.Appellate Law has loosened the requirements to maintain a lis pendens in California trust litigation.
In the last several decades, the courts have eroded the first prong of the elements of maintaining a lis pendens, to wit: stating a real property claim. In Pacific Lumber v. Superior Court (1990 226 Cal. App. 3d 371,375, the Court of Appeal held that the claimant need not have a claim to title him, her, or itself. The Court stated that “[t]he party filing the notice of lis pendens need only show that the action “affects” title to or right of possession of the real property, not that the party itself is seeking an interest in the title or possession. Put another way, the person filing the lis pendens need not have a “dog in the fight.” The courts have reasoned that this distinction is consistent with the purpose of the lis pendens statute: “to furnish the most certain means of notifying all persons of the pendency of the action, and thereby warning them against attempting to acquire a legal or equitable interest in the property.” (cites omitted)]. In many cases this distinction was not particularly critical since litigation is often or usually two-sided, and the side filing the lis pendens was, of course, the party whose title was affected by the litigation giving rise to the lis pendens. However, this is often not the case for trust litigation. Trust litigation often involves a multitude of parties with standing, but often some of these people are completely unaffected by the disposition of a given real property parcel that the trust corpus may contain. But under Pacific Lumber, supra, any of these persons can tie up the property indefinitely since, if they decide to appear in the action, they would have standing to file a lis pendens.
For a long time, probate trial courts did not regard most disputes over a living trust to constitute a real property claim. This was because in most cases the beneficiaries of a trust, who are often the parties that might seek to tie up trust real property with a lis pendens, usually only had a beneficial interest in the trust corpus as beneficiaries. Most beneficiaries did not have a direct claim of title to the property unless or until the trustee actually conveyed a fee interest. Trial courts often or usually (and in our experience, inconsistently) determined that such claims are really claims for money akin to a creditor’s claim. Creditor’s claims were deemed not to satisfy the “afffects title to real property” requirement to maintain a lis pendens. This is the holding in Campbell v. Superior Court, a 4th District Court of Appeal holding. [Campbell v. Superior Court (2005) 132 Cal. App. 4th 904, 922]. In Campbell, supra our 4th District Court of Appeal found that a lis pendens was inappropriate where the plaintiff was seeking to maintain a lis pendens in a case where plaintiff sought to impose a constructive trust to secure a monetary claim. While the Court acknowledged that this claim involved seeking some sort of title interest by virtue of a constructive trust, since money damages could satisfy plaintiff’s claim “…such a prayer for relief does not support the filing of a lis pendens…” [Id. at 922]. The Court of Appeal in Campell, supra, noted that “…the majority of … courts have concluded that a claim that seeks an interest in real property for the purpose of securing a money damage judgment does not support the recording of a lis pendens… (extensive cites omitted)” [Campbell, 132 Cal. App. 4th at 912]. This holding often acted as a bar to beneficiaries’ attempts to tie up trust property with a lis pendens during the pendency of a trust dispute.
The Court of Appeal has recently greatly weakened and limited the holding in Campbell, supra. In Newell v. Superior Court the Court of Appeal reasoned that “[t]he trustee of a trust holds title to real property” and in so reasoning allowed a lis pendens to stand. [Newell v. Superior Court (2024) 107 Cal. App. 5th 728, 736-737]. The effect of Newell will be to regard almost any California trust petition case in which the Trust owns real property, in which the identity of the trustee is disputed, as satisfying the “real property claim” prong of maintaining a lis pendens (discussion supra]. Any claim that seeks to change the identity of a trustee in any way will now satisfy that requirement. For example, a straight claim seeking to remove a trustee will meet the requirement. A petition seeking to nullify an amendment that may have the incidental effect of changing the successor-trustee will satisfy the “affects real property” element of maintaining a lis pendens under the holding in Newell. This is a sweeping change that will greatly expand the use of the lis pendent tool.
The effect of the erosion of the requirements to bring a claim that “affects title” to real property in effect will mean that most motions to expunge a lis pendens in trust litigation will turn on the second element, probability of success. [Discussion supra]. This element requires the party seeking to maintain a lis pendens to show with a preponderance of the evidence that the party seeking to maintain a lis pendens is likely to prevail in the litigation. This is an important safeguard, but it will become in many and perhaps most trust litigation contexts the only safeguard against meritless lis pendens filings.
This trend is not desirable. Trust litigation is famously contentious, and beneficiaries and their attorneys not infrequently will seek to file a lis pendens on trust property for reasons that may not, ultimately, benefit the Trust or meet with the approval of the Probate Court. Trust litigation differs fundamentally from other real estate litigation due to the broad powers that a Probate Court has to issue rulings affecting the administration of a trust. Such as whether to allow the sale of real property. [Cal. Prob. Code Section 17206; Schwartz v. Labow (2008) 164 Cal.App.4th 417, 428]. In ordinary civil trials, the powers of courts to intervene before trial is limited. In Trust litigation, by contrast, the Probate Court has both the power and the duty to intervene for the benefit of the administration of the subject trust. This can include decisions as to whether to prevent a trustee from selling or encumbering real property.
3. A Policy Proposal.
In the context of Trust litigation the decision to sell real property should not be controlled by California Code of Civil Procedure Section 405.30 et seq. (lis pendens statute) and in most circumstances this decision should be left to the trustee as supervised by the sound discretion of the subject Probate Court, exercising its equitable powers. Under current law, the Probate Court is bound by the Code and by Newell, supra. This in practice is almost certain to lead to many unwise lis pendens being maintained for long periods of time by disgruntled beneficiaries thereby making critical trust assets illiquid during the pendency of litigation. Trust litigation notoriously can take years to work through the court system. We submit that the Court’s reasoning in Newell, supra is tortured at best, and merely because a change in trustee could technically affect technical title to the property, this often or usually has nothing to do with an actual claim by anyone to real property. But under current law controlled by Newell, many claims that simply relate to control of the entire trust, or hypothetical claims to the trust residual, will be construed as satisfying California Code of Civil Procedure Section 405.30 (claim affecting real property title). Again, we submit that this is not desirable. Whether to allow a trustee to sell, or not sell, a real property asset can be placed before the applicable Probate Court, which has the continuing duty to monitor the administration of a trust brought within its jurisdiction. The lis pendens process allows a disgruntled trust beneficiary to tie up property without good cause.
Under Newell, supra, filing a lis pendens is likely to become a standard tactic of disgruntled beneficiaries. Some of the time this will be justified. Sometimes not. Under our proposal the disposition of real property during the pendency of trust litigation would be within the supervision of the Probate Court rather than bound by the relatively inflexible law governing a lis pendens. This is how the conduct of trust administration is supposed to operate. New Court holdings or new legislation would be required for this to occur as regards lis pendens.