Nebraska Supreme Court: Lis Pendens Protects Buyer’s Right to Acquire Real Estate by Court Order
Wilkinson Development, Inc. v. Ford & Ford Investments, 311 Neb. 476 (2022).
This case concerns dueling purchase agreements, each obligating Ford & Ford Investments (“Ford”) to sell the same parcel of commercial real estate in Dawson County, Nebraska. Ford first entered into a purchase agreement with Wilkinson Development, Inc. (“Wilkinson”) as buyer. That agreement had a purchase price of $325,000.
Before closing, however, Ford purported to terminate the agreement. Wilkinson still delivered the full purchase price to the closing agent. Ford then executed a second agreement to sell the same property to PSK, LLC (“PSK”). This agreement had a purchase price of $365,000.
Wilkinson sued Ford for specific performance and filed a notice of lis pendens. Because of the notice, the title company refused to insure title to the property. PSK and Ford nonetheless closed their sale and recorded the deed.
The District Court for Dawson County granted Wilkinson’s claim for specific performance. Ford did not appeal. This appeal is PSK’s collateral attempt to overcome the court’s decree of specific performance.
The Nebraska Supreme Court rejected PSK’s attempt to overturn the decree and affirmed the court below. This highlights the importance of specific-performance clauses in real-estate contracts.
Under section 25-531 of the Nebraska Revised Statutes, a notice of lis pendens provides “constructive notice” to any person intending to purchase the subject property. It alerts prospective purchasers to the property dispute and offers them an opportunity to defend their interests therein. The court held that the notice of lis pendens provided PSK constructive notice of Wilkinson’s adverse claim to the property. Accordingly, the decree of specific performance bound PSK as if PSK had been a party to that action.
PSK next claimed that Wilkinson should have joined PSK in its request for specific performance. The court held that such joinder was unnecessary. The court found that Ford had owed no duty to join PSK because the evidence did not show that Wilkinson had known of PSK’s adverse claim when filing the lis pendens notice.
The court held that the necessary and indispensable party doctrine also did not help PSK because the lis pendens statute specifically subjected any subsequently claimed property interests to the interest alleged in the notice of lis pendens. See Neb. Rev. Stat. § 25-531. Although PSK could have tried to intervene, it did not do so. It accordingly lost its chance to substantively challenge the order of specific performance.
PSK additionally claimed rights to the property under an equitable-conversion theory. The court disagreed. Equitable conversion protects certain buyers of real property by presuming that they hold a valid equitable interest as of the purchase agreement’s effective date. The court, however, found that at least two exceptions prevented application of that doctrine.
First, because PSK had executed its purchase agreement knowing that Wilkinson’s purchase agreement had predated its own, PSK could not claim protection. Second, the court found no evidence in the record that PSK had paid the entire purchase price before Wilkinson’s notice of lis pendens. Thus, PSK lost its appeal, and Wilkinson’s court-ordered acquisition of the subject property stands.
This case provides a good reminder about the power of specific-performance provisions in real-estate contracts. If the parties would have agreed to waive buyer’s right of specific performance, Ford could have made an economic choice to sell the property to PSK at a higher price. Wilkinson’s only recourse would have been damages. The specific-performance provision in this purchase agreement, by contrast, protected Wilkinson’s right to receive the specific property at issue.