Properly Recorded Lis Pendens May Have No Legal Effect Until Indexed

From the California Association of Realtors:

A properly recorded lis pendens may have no legal effect against a subsequent buyer until it is indexed by the recorder’s office. That was the decision of the Court of Appeal in the recent case of Dyer v. Martinez (2007 WL 549108) decided on February 23, 2007.

On June 9, 2003, Kristina Dyer entered into an agreement to buy a home in Mission Viejo. About a month later, the sellers instructed escrow to cancel because Kristina purportedly failed to obtain a loan and timely close escrow. Over a year later, the sellers listed their property for sale again, and entered into a contract to sell to a new buyer named Exon Martinez. Kristina, however, claimed she was “ready, willing, and able” to perform on her contract. On September 9, 2004, Kristina sued the sellers for specific performance and filed a lis pendens against the property.

A lis pendens is a notice of a pending lawsuit that, upon proper recordation, informs subsequent buyers and lenders of a piece of real property that their acquisition of interest will be subject to the outcome of the lawsuit. A buyer suing a seller for specific performance will record a lis pendens to dissuade the seller from transferring or encumbering the property before the lawsuit is resolved.

In this case, Kristina recorded the lis pendens on September 9, 2004. However, due to a delay at the recorder’s office, the lis pendens was not indexed in the seller’s name until September 14, 2004. During the interim, on September 10, 2004, the sellers closed escrow with Exon.

Kristina added Exon to her lawsuit seeking to quiet his title to the property. She argued that, even though Exon had no actual notice of Kristina’s lawsuit, he received constructive notice when she recorded the lis pendens under section 405.24 of the California Code of Civil Procedure.

The court disagreed. The court pointed out that section 405.24 must be read in harmony with another statute. Under section 1213 of the California Civil Code, constructive notice requires an instrument to be recorded “as prescribed by law.” In the court’s opinion, the law in California for over a century has been that a recorded document provides no notice unless it can be located by title search. Otherwise, a buyer in good faith who has conducted a diligent search would be charged with knowledge of documents no one can find. The court therefore awarded the property to Exon.

This Cop Did His Mortgage Scamming On The Side

Susan W. Brooks, United States Attorney for the Southern District of Indiana, announced that MICHAEL C. SMITH, 45, Indianapolis, Indiana, JOSEPH BRITTON, 47, Fishers, and MARK SPECKMAN, 48, McCordsville, were sentenced to federal prison on Tuesday and Wednesday of this week by U.S. District Judge Sarah Evans Barker following their convictions for conspiracy, wire fraud, and money laundering by a federal jury on September 22, 2006, following a two week trial.

SMITH, who was an IPD police officer at the time of the indictment, was sentenced on Wednesday to 57 months’ imprisonment, 5 years supervised release, and ordered to pay restitution of approximately 1.1 million dollars. SMITH was convicted of two separate conspiracies to commit wire fraud and money laundering in connection with two mortgage fraud schemes ongoing in Indianapolis between 2001 and 2003. The schemes involved two separate mortgage brokerage companies—Quantum Investments and American Savings Mortgage (ASM). SMITH, who worked part-time as a licensed real estate appraiser, provided inflated appraisals for loans to purchase real estate in Indianapolis and Marion, Indiana to the two mortgage brokerage companies. The appraisals were used to obtain loans on properties well in excess of their true value. At the sentencing hearing, Judge Barker found that SMITH had attempted to obstruct justice during the investigation by attempting to persuade a co-conspirator to lie about the condition of the property that SMITH appraised during the scheme. SMITH was terminated from the Indianapolis Police Department following his convictions.

BRITTON and SPECKMAN were both sentenced on Tuesday to 33 months in prison, 3 years supervised release, and ordered to pay restitution of approximately $900,000 for their roles in providing properties for sale through American Savings Mortgage and then paying kickbacks to others in the scheme. BRITTON and SPECKMAN were partners in Pacific Group and BRITTON owned Aspen Group while Speckman owned HomeSource Investment LLC. BRITTON and SPECKMAN bought properties in the names of the three businesses that were sold at approximately double their true value. After BRITTON and SPECKMAN received the loan proceeds, they kicked back some of the money through a company called Senicure, to the others involved in the conspiracy including the owners of ASM and the buyers of the properties.

At the sentencing hearing for BRITTON, the government presented evidence that Aspen Group (owned by BRITTON), Pacific Group (owned by BRITTON and SPECKMAN), and Del Mar Charitable (owned by BRITTON) had been third on the City of Indianapolis’s Top Ten list of properties owners who failed to maintain their investment properties in a safe condition and that the companies had been cited by the city more than 450 times for health and safety violations on their properties.

This case was the result of a four-year investigation by the Internal Revenue Service, Federal Bureau of Investigation, and the Postal Inspection Service working as a team on the United States Attorney’s Mortgage Fraud Task Force. Susan Brooks stated: “I applaud the hard work and dedication of all those involved with unraveling the complex schemes that go into this crime. Mortgage fraud contributes to the deterioration of neighborhoods. Properties that remain vacant for long periods of time can contribute to a rise in crime in some of our neighborhoods. I am proud of the federal law enforcement efforts to help the City.”

According to Assistant United States Attorneys Donna Eide and James Warden, who prosecuted the case for the government, SMITH, BRITTON, and SPECKMAN were the last of 16 defendants charged in the schemes to be sentenced. All except one defendant was sentenced to federal prison.

A Qualified Acceptance of Offer or Counter-Offer Does Not Form a Binding Contract

Roth v. Malson (1998)
67 Cal. App. 4th 552

A buyer’s qualified response to a seller’s counter-offer in a real estate transaction does not operate as an acceptance of the counter-offer, and no contract is formed as a result. In this case, a buyer offered to buy a seller’s property for $41,650 in cash. The seller countered, increasing the purchase price to $44,000. The counter-offer form had a signature area labeled “Acceptance” and, below that, an area labeled “Counter to Counter-offer.” There was also a section labeled “Changes/Amendments.” The buyer signed in the “Counter to Counter-offer” area instead of the “Acceptance” area and wrote the following in the “Changes/Amendments” section: “Price to be $44,000 as above. Escrow to close on or before December 6, 1995 all cash.” The seller never accepted the buyer’s counter to counter-offer and the buyer sued for specific performance, claiming that he intended to accept the counter-offer and mistakenly signed in the wrong place.

The court of appeal affirmed the trial court’s grant of summary judgment in favor of the seller, pointing out that contract formation depends on objective manifestations rather than subjective intent, and the buyer’s qualified response was not an acceptance even though the buyer did not vary the terms of the counter-offer. Thus, because the buyer signed under “Counter to Counter-offer” and inserted language under “Changes/Amendments,” his acceptance was not the absolute and unqualified acceptance needed to form a binding contract, even though the substance of what he wrote did not alter the terms of the seller’s counter-offer.