Daily Development for Thursday, September 16, 1999

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

 CONDOMINIUMS; LIENS; SLANDER OF TITLE: Filing of a notice of lis pendens stating that a money judgment will result in a lien against the condominium association and against each condominium unit is proper and does not constitute slander of title where the creditor has sued the association in good faith for money damages.

Interlaken Service Corp. v. Interlaken Condominium Assn., Inc. et al, 599 N.W.2d 262 (Wis. App. 1998).

Plaintiff service corporation sued the condominium association for breach of contract and filed the disputed lis pendens. The association counterclaimed for slander of title, claiming that filing the lis pendens was improper. The association argued that the creditor knew the unit owners could not be liable for any part of the judgment, if granted, and their titles could not be affected, because the association admitted having sufficient funds to pay the judgment. The association also argued that Wisconsin law conferred no substantive right to file a lis pendens against individual condominium units in an action against the association. The trial court dismissed the association's counterclaim and granted the judgment and lien sought by the creditor.

In a case of first impression, the Court of Appeals held that the lis pendens was proper and did not constitute slander of title. The court noted that Wisconsin statutes expressly state that a money judgment against a condominium association becomes a lien against the association's property and against each condominium unit in proportion to the unit owner's liability for common expenses. Thus, the title to individual units could be affected by any judgment rendered against the association. Under these circumstances, reasoned the court, Wisconsin statutes require the filing of a lis pendens to notify third parties of the pending action. The fact that the association admitted having sufficient funds to pay the requested judgment was irrelevant because there was no escrow agreement or anything else that required the association to use its funds for satisfaction of the judgment. Moreover, Wisconsin law does not require a plaintiff to inquire into the financial status of a prospective lienee prior to filing a lis pendens.

Comment: Typically, the law doesn't permit a party bringing a general damages action to cloud the defendant's title before the suit is won.  But any suit to establish an interest in real estate can be the subject of a lis pendens because it is not fair for the defendant to avoid the consequences of the suit by transferring to a third party BFP.

Isn't that really the bottom line here as well? If it is appropriate for the holder of a judgment against an association to bind subsequent holders of the individual condominium interests, , then it should be appropriate to permit plaintiffs seeking such judgments to establish a lis pendens on the unit interests, to avoid purchasers to make use of the recording acts to dodge the judgment if and when it comes. The editor believes that it is fair to bind these subsequent parties. Otherwise, a potential source of recovery permitted to such plaintiffs under the law would be diluted.  If purchasers have knowledge of the potential judgment, they can take it into account in the bargaining over the price of the unit. If, as here, the association can certify that it has adequate amounts to cover the judgment, then the lis pendens should not have a great impact on salability.

Some jurisdictions (and perhaps some title companies) make it possible to "bond off" potential liens, such as mechanic's liens.. In a really serious case, that could be done with these types of claims as well.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 16, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA .

DIRT has a WebPage at: http://cctr.umkc.edu/dept/dirt>http://www.umkc.edu/dirt/