Volume 19, Number 7
REAL ESTATE LAW
By Deborah L. Wilson
Most of us know the basics of real property law-fee simples, easements, and covenants-but venturing outside your normal practice area to handle a real estate matter comes with risks. The typical lawyer does not do evictions, redeem property post-foreclosure, or keep abreast of every amendment to the real estate laws. Therefore, it is important to know when to refer out a case to a specialist.
The first thing you should do to ensure you provide proper representation can be summed up in two words: web research. There is a checklist for everything now. Whether it is a due diligence checklist for a real estate closing or a step-by-step guide for evictions, almost everything is there. A good checklist can remind the inexperienced attorney to consider CERCLA issues in a commercial lease review or to consider bankruptcy concerns in handling a foreclosure. There are chat rooms for quick answers, and every statute and case is available with a few keystrokes.
Here are a couple of common mistakes and tips for the unwary practitioner.
Forgetting to file a lis pendens. One valuable tool for protecting your client's interests and often overlooked by solo practitioners is the lis pendens. A lis pendens gives the world and prospective buyers/lenders notice of a dispute over title to the property. Upon filing suit for quiet title, foreclosure, or corporate dissolution, a lis pendens should be filed/recorded on any real property at issue to protect your client from subsequent transfer/sale of the property. However, the lis pendens extends much farther.
In a divorce case, for example, after filing of the petition for dissolution, you should file/record a lis pendens on each piece of real property in which your client has a potential marital property interest (unless your client already has exclusive, recorded title). The lis pendens is an excellent tool to frustrate a spouse from improperly encumbering or selling the property during the divorce process. The lis pendens also protects your client in the event the spouse files bankruptcy after the filing of the divorce petition. In a race-notice jurisdiction, your client will be in the chain of title by way of the lis pendens before bankruptcy is filed and therefore will be better protected from the trustee's cutting off rights of unrecorded interests.
However, a lis pendens does not last forever. You should record the final property settlement agreement on any real property immediately after the order is granted. This increases your client's protection from possible "preferences" in the event the ex-spouse files bankruptcy. A settlement agreement should include the property description, parcel number, value of the property, and adequacy of consideration given. Quitclaim deeds should be signed in conjunction with execution of any property settlement agreement, or language should be included in the agreement that "the property is transferred free and clear of ex-spouse's claims to recipient and no quitclaim executed by ex-spouse is necessary to effectuate the order." Such recording could avoid allegations of "fraudulent transfer" by a bankruptcy trustee.
Recorded judgment liens. Most lawyers occasionally deal with judgment liens on real estate. For example, you represent a client who is divorcing his wife. The family residence is held in joint tenancy, and a title search reveals a judgment lien recorded against the residence. The judgment is against the wife only. What concerns should you have?
Whether the parties intend to sell the property outright and share the proceeds of sale equally or the wife intends to quitclaim the property to your client in exchange for a promissory note, you must determine whether your client may be liable on this judgment. If the wife incurred the debt while married and the debt was for the benefit of the marriage, the husband may also be jointly and severally liable. If this is not a marital debt, the creditor may still demand to be paid before you can transfer title or sell the property. Addressing these issues in any property settlement agreement is a first step.
However, keep in mind that even if the agreement requires the wife to pay off the judgment, it does not fully protect the husband from having to pay a judgment creditor. The recorded lien is superior to any allocations pursuant to the settlement agreement. The husband may be forced to pay off a creditor to obtain a lien release but discover that reimbursement from the ex-spouse is made difficult or is frustrated by a bankruptcy filing. In some states, the spouse may be able to remove involuntary liens recorded against the property to the extent they encumber the homestead exemption. Creating defeasible fees or similar remedies in your titling of property is also a possible safeguard for default or insolvency.
Eviction violations. Most solo practitioners have done one or two simple evictions in their careers. Although you know the basic, statutory steps, you may run afoul of other federal laws. A tip: Never sign a demand for payment. Attorneys are now subject to the Fair Debt Collection Practices Act (FDCPA) and may be considered debt collectors for the client. Accordingly, if you sign a demand without fully complying with the disclosures and warnings mandated under the FDCPA, you (and perhaps your client) could be subjected to penalties of up to $1,000 or more. Let your client sign demand notices.
Because simple real estate questions often implicate other federal and state laws, not covering the basics or failing to consider bankruptcy, tax, or other federal statutes often prove disastrous for your client. Do your research, know your limitations, and have a real estate attorney on your speed dial. It's okay to venture outside your comfort zone-just have a safety net.
Deborah L. Wilson is a shareholder in Springman, Braden, Wilson & Pontius, PC, which specializes in representing landlords and community associations in Denver, Colorado. She can be reached at firstname.lastname@example.org.