In New York, someone filing a lawsuit that would affect title to real property can file a lis pendens, a document that makes it difficult for the defendant to sell off the land. The lis pendens is also filed when the lawsuit would affect use and enjoyment of the property. The document alerts future buyers of the land that a pending lawsuit involves that very property. While the landowner can sell the land, realistically, it's impossible with a lis pendens, because the buyer will have to live with the result of the lawsuit, and that result may frustrate the buyer's use of the property. Who would buy land with an active lis pendens? That's the point.
The lis pendens can be filed without the defendant's knowledge. The dramatic consequences of a document like this gave rise to a class-action lawsuit challenging the New York lis pendens law as a violation of constitutional due process, which guarantees notice and a right to be heard before the government deprives you of a property interest. Interesting case, to the say the least. So interesting that the Court of Appeals devotes 40 pages of analysis to the issue. In the end, the lawsuit fails. The lis pendens law satisfies due process.
The case is Diaz v. Peterson, decided on October 17. The Court of Appeals sidesteps the issue of whether the lis pendens represents a property deprivation, as it decides instead that even if it does, the law provides the property owner with sufficient due process.
Due process claims are more complicated than people think. The courts apply a balancing test, taking into account the property rights of the landowner, the risk of unfair property deprivation and the government's interesting in efficiently ensuring fair process. We call that the Matthews balancing test, after a Supreme Court case, Mathews v. Eldridge, 424 U.S. 319 (1976).
Under Mathews, the plaintiffs lose. First, since the property owner subject to a lis pendens continues to be able to inhabit and use the property, receive rental income from it, enjoy its privacy, and even sell it, lis pendens is deemed one of the “less restrictive” means of protecting a disputed property interest. Second, there is little risk of erroneous property deprivation under the statute, as the property owner is entitled to a hearing to make sure that the lis pendens was not filed in bad faith. While notice and hearing are afforded post-deprivation, this procedural safeguard suffices where “the nature of the issues at stake minimizes the risk” of wrongful deprivation. Finally, New York has an interest in safeguarding the property while the parties litigate the dispute in court. The concern is that an unsuspecting property buyer will walk into a legal dispute and be forced to live with the result of that lawsuit over which he has no control. This would only spawn additional litigation. The lis pendens allows New York to protect the property buyer.