Litigating Commission: Lis pendens and liens

Under what circumstances would it be appropriate for a broker to file a lis pendens to protect a commission arising from a residential property about to be sold?

The short answer to this question is never. The longer answer is: Don’t file it, but if you have done so already, call a lawyer.

A lis pendens is a notice of a potential ownership dispute on a property. The phrase “lis pendens” is Latin for lawsuit pending. Its purpose is to put the world on notice that there is an ownership dispute about a property. Thus, if John Doe filed a lis pendens alleging some degree of ownership in a property, any purchaser of that property acquires their interest in the property subject to John Doe’s lawsuit. It is clear, then, that a claim of ownership is essential to the placement of a lis pendens. Realtors® will often see this come up in the context of passing marketable title to a buyer because a lis pendens will “cloud” title. When the Agreement of Sale is contingent upon receipt of clear title, a lis pendens is a very easy way of cancelling the sale.

The issue with a broker placing a lis pendens on a property over a commission is that the broker has no actual ownership interest in the property. A right to a sales commission is different from an ownership interest in a property. The right to the sales commission is governed by contract law. A lis pendens filed to protect a commission is therefore legally erroneous.

A broker filing a lis pendens may open up a floodgate of lawsuits. The first type of lawsuit is called slander of title. Slander of title occurs when someone publishes a false and disparaging remark about the quality of a person’s title to property. It is similar to slander, but rather than saying something false about a person, you are saying something false about their ownership interest in a property.

The second is a claim for the abuse of legal process. This is a lawsuit in which the plaintiff claims that the defendant used a legal process to procure a result, other than which the process was designed. In this case, a broker filing the lis pendens would be attempting to leverage an erroneous ownership claim as a means of securing a commission.

The final type of lawsuit is called the wrongful use of civil proceedings. This is also often referred to as a Dragonetti suit. As the name of the tort suggests, this action is where a person initiates legal proceedings in a grossly negligent manner and the proceedings were ultimately terminated in favor of the person against whom, the action was brought. For all three of these lawsuits, you may face liability for not just the actual damages suffered, but may face punitive damages as well.

Going back to the original question, the answer will vary if the property is commercial.

A lis pendens would still be improper to file, however a broker (broker of record more specifically) could file a broker’s lien on the property to secure the unpaid commission. The process and procedure necessary to file this is left for another day, but there is one last issue to discuss.

If you can file the broker’s lien on commercial property, but you cannot file a broker’s lien on residential property where exactly is the line drawn? Unfortunately, “commercial property” is not defined in terms of what it is, but rather what it is not. For purposes of a broker’s lien, a commercial property is not:

• Real estate containing one to four residential units
• Real estate that is zoned for agricultural purposes and that is not subject to an Agreement of Sale contingent upon the rezoning of all or any portion of the real estate to provide for non-agricultural uses
• Single-family residential units
• Building lots such as condominiums, townhouses or homes in a subdivision when sold, leased or otherwise conveyed on a unit-by-unit basis

For residential real estate, brokers protecting their commission generally means filing a lawsuit after the breach has occurred.

Attorney James Goldsmith contributed to this article.