Daily Development for Wednesday, August 24, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu

LIS PENDENS; CONSTRUCTIVE NOTICE: Filing of a lis pendens in a suit for specific performance of an option to purchase will be constructive notice to subsequent purchasers and their mortgagees notwithstanding errors in property description if there is a basis for inquiry. 

Isaacs Holding Corp. v. Premier Property Group, 687 N.W. 2d 774 (Wis. 2004)

This is an incredibly complex, three appeal litigation to determine rights in a 113 acre Parcel in Waukesha County.  Plaintiffs bought property adjacent to the Parcel in 1988, and obtained a right of first refusal in the Parcel.  In 1995 they got wind of the fact that the owner of the Parcel was planning to sell it to Hansen for development, and filed an affidavit of notice of their interest in the property.  The owner nevertheless contracted to sell to Hansen.  Prior to closing of the Hansen sale, plaintiffs filed a lawsuit for specific performance of their first refusal optionm, and accompanied their lawsuit with a lis pendens.  Unfortunately, the notice and the lis pendens all misdescribed the property as being in Township 10, whereas it was in fact located in Township 9.

A trial court found against plaintiffs in their specific performance action, and discharged their lis pendens.  They appealed.  Plaintiffs did not, however, seek to stay the discharge of the lis pendens or to  enjoin the sale of the property during the pendency of their appeal

Hansen proceeded with plans to develop the Parcel, and obtained a mortgage commitment from Mortgagee Isaacs, and eventually sold the property to an entity in which he participated - Premier.  Isaacs loaned the mortgage proceeds to Premier.   At the time of the sale, Hansen informed Premier about plaintiff’s litigation, but also said that the latest hearing in the case shad gone againt plaintiffs and that they had not sought protection from the discharge of the lis pendens. 

Eventually the Wisconsin Supreme Court reversed the lower court’s decision to discharge the lis pendens and to permit the sale to Hansen.  Plaintiffs sought enforcement of the lower court order, and Isaacs attempted to intervene in that action, but was denied.

Subsequently, the lower courts again found against Plaintiff in the second specific performance matter, and again the case was appealed to the Wisconsin Supreme court.  In the interim, the court issued several orders to enjoin development of the Parcel while the appeals were pending.

Ultimately the Wisconsin Supreme Court again ruled in favor of the plaintiff.  It held that even though the lis pendens Was erroneous, and therefore the plaintiffs could not invoke the statutory constructive notice  notion of lis pendens, the statutory form of lis pendens supplement, and did not replace, the common law in this area.    Thus, although the filed lis pendens was ineffective to give constructive notice, in fact both the purchaser and his mortgagee, Isaacs, had actual knowledge of the claim of the plaintiffs prior to the time the entered into contracts to acquire or mortgage the Parcel. 

The claim of which Isaacs had notice eventually ripened into an order of specific performance in favor of Plaintiff.  Although Isaacs had not actual notice of the details of Plaintiff’s lawsuit originally, it had constructive notice by inquiry of the existence of its claim.  And, although the lis pendens filed in connection with that claim was faulty, Isaac’s actual knowledge of the lawsuit rendered Isaacs bound by the outcome of the specific performance lawsuit, since, in effect, it’s mortgagor, Premier, represented Isaacs interest in the litigation.  The court appeared to concede that it was possible that Isaacs should have been permitted to intervene in the prior action when it sought to do so, but it said that Isaacs failed to appeal from the order denying intervention.  Any points Isaacs now wished to make to argue against the validity of Plaintiff’s substantive case are precluded, since Isaacs should have appealed the denial of intervention and raised the points in tha!

 t laws
uit, which is now resolved.

Comment 1: So far as the editor can make out, when we come round the other end of Robin Hood’s barn we are faced with a very simple assertion - if one has actual knowledge of a claim inconsistent with one’s own, one has an obligation to inquire to a reasonable extent about that claim and can make no claim as a bona fide purchaser against such claim, if it later appears to bear out. 

Comment 2: The court appears to suggest that the above proposition might not be true if it did not hold that there is a common law lis pendens right subsisting in Wisconsin even when the statutory lis  pendens requirements are not satisfied.  The court also states that some other jurisdictions have concluded that the statutory lis pendens has replaced the common law.  The editor doesn’t understand, however, how any of this analysis can undercut the basic notion that one cannot be a bona fide purchaser free of prior interest under the recording acts if one has constructive notice from inquiry of a prior claim. 

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