Navigating Lis Pendens: Why Due Diligence is Your Best Defense When Buying Property

Buying property is a significant investment, and ensuring a clean title is paramount. This case highlights the critical importance of due diligence, especially concerning notices of lis pendens. Ignoring such notices can lead to inheriting not just property, but also ongoing legal battles, potentially losing your investment and your home. Always conduct thorough title checks and seek legal advice before purchasing property to avoid becoming entangled in pre-existing litigation.

G.R. No. 102675, October 13, 1999

INTRODUCTION

Imagine finding your dream home, only to be served with an eviction notice shortly after moving in, due to a legal battle you knew nothing about. This is the harsh reality faced by Henry Seveses in this Supreme Court case. He purchased a property, believing he had a clean title, only to discover later that his ownership was challenged due to a prior legal dispute and a notice of lis pendens he failed to properly acknowledge. The central legal question: Can a buyer, despite a cancelled lis pendens, be considered a purchaser in good faith and protected from prior claims on the property?

LEGAL CONTEXT: UNDERSTANDING LIS PENDENS AND GOOD FAITH PURCHASERS

Philippine law strongly protects the rights of innocent purchasers for value and in good faith. This means someone who buys property without knowing about any defects in the seller’s title and pays a fair price is generally protected. However, this protection has limits, especially when a notice of lis pendens is involved.

What is Lis Pendens?

Lis pendens, Latin for “suit pending,” is a legal concept embodied in Section 14, Rule 13 of the Rules of Court. It’s essentially a public notice, officially registered with the Registry of Deeds, that a specific property is involved in a lawsuit. This notice serves as a warning to the world, particularly potential buyers, that acquiring the property comes with inherent risks tied to the ongoing litigation. As the Supreme Court emphasized in Villanueva v. Court of Appeals, “a notice of lis pendens is an announcement to the whole world that a particular property is in litigation, and serves as a warning that one who acquires an interest over said property does so at his own risk, or that he gambles on the result of the litigation over said property.”

Good Faith Purchaser Defined

A “purchaser in good faith and for value” is defined in jurisprudence as someone who buys property: (1) without notice that someone else has a right to or interest in the property, and (2) pays a full and fair price at the time of purchase or before receiving notice of another person’s claim. The absence of notice is crucial. Notice can be actual (direct knowledge) or constructive (inferred from circumstances, like a registered lis pendens).

The Significance of Notice

The presence of a lis pendens on a property title constitutes constructive notice. Even if a buyer claims they didn’t personally see it, its registration in the public record legally means they are deemed to know about the pending litigation. This significantly impacts their claim to be a good faith purchaser. As a transferee pendente lite (during litigation), the buyer essentially steps into the shoes of the seller and is bound by the outcome of the lawsuit. Their title offers no special protection against the results of the pending case.

Rule 19, Section 2 of the Rules of Court (prevailing at the time of this case) also governs intervention, stating motions must be filed “before rendition of judgment.” This rule is pertinent when a new party, like a property buyer, seeks to join an existing case affecting their newly acquired property.

CASE BREAKDOWN: SEVESES V. COURT OF APPEALS

The story begins with Rexcon Philippines owning a property and selling it to Ramon Carreon in 1977. Carreon took possession and started payments. Unbeknownst to Carreon, just three days after their contract, Rexcon mortgaged the property. Although this mortgage was later cancelled, another mortgage followed in 1979 to Ayala Investment, after Rexcon transferred the title to its owner, Reyes.

Carreon, discovering these encumbrances, demanded Rexcon clear the title. When Reyes ignored him, Carreon stopped payments. Reyes then sued Carreon in 1979 for rescission (Civil Case No. 7648-P), and Carreon was dispossessed via a preliminary injunction. Crucially, Carreon registered a notice of lis pendens on Reyes’ title in 1981.

Years later, in 1987, Henry Seveses bought the property from Reyes. The lis pendens was still on the title, but Seveses claims Reyes told him the case was over. After obtaining a certificate of finality (seemingly improperly, as the Supreme Court later noted) the lis pendens was cancelled, and title transferred to Seveses. He even used the property as collateral for a bank loan, further solidifying his belief in a clean title.

However, Carreon had actually appealed the Pasay RTC decision (CA-G.R. CV No. 06498) and won in the Court of Appeals in 1988, reversing the rescission and ordering Reyes to restore Carreon to possession and clear the title. This CA decision became final in 1989 after the Supreme Court denied Reyes’ petition.

In 1990, Sheriff De Guzman served Seveses an eviction notice based on the final CA decision in favor of Carreon. Seveses then tried to intervene in the original case, arguing he was a good faith purchaser and due process was denied. The RTC denied his intervention as it was filed too late, after final judgment. The Court of Appeals upheld this denial, leading to Seveses’ petition to the Supreme Court.

The Supreme Court sided with the lower courts, firmly stating Seveses could not be considered a purchaser in good faith due to the registered lis pendens. The Court reasoned:

To begin with, despite petitioner’s protestations, he cannot qualify as a buyer in good faith. A purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property… To be sure, the notice of lis pendens of private respondent Carreon was annotated in Reyes’ title as early as April 1, 1981. It was on the title when Reyes sold the property to petitioner on September 22, 1987 and was carried over to petitioner’s title. Hence, it is clear that petitioner cannot be considered an innocent purchaser for value and in good faith.

The Court further emphasized that the improper cancellation of the lis pendens did not erase its legal effect. Seveses, as a transferee pendente lite, was bound by the outcome of the Carreon-Reyes litigation. Regarding intervention, the Court agreed it was untimely, as it was filed after final judgment. Even if timely, intervention would likely fail because Seveses, standing in Reyes’ shoes, was already represented by his predecessor in interest.

Finally, the Supreme Court rejected Seveses’ argument that changed circumstances (property now in his name and mortgaged) justified non-enforcement of the judgment. These circumstances existed before the judgment became final and could not excuse compliance. The Court concluded:

Thus, we cannot grant the reliefs prayed for by petitioner.

PRACTICAL IMPLICATIONS: PROTECTING YOURSELF FROM HIDDEN PROPERTY LIABILITIES

Seveses v. CA serves as a stark reminder of the risks of neglecting due diligence in property purchases. The ruling underscores the power of lis pendens as constructive notice and the limited protection afforded to buyers who ignore or are misled about such notices.

Key Lessons for Property Buyers:

• Always Conduct a Title Search: Never rely solely on the seller’s word. Always verify the title at the Registry of Deeds. Check for any annotations, including mortgages, liens, and notices of lis pendens.
• Understand Lis Pendens: If a lis pendens exists, investigate the underlying lawsuit. Understand the nature of the case and its potential impact on the property.
• Seek Legal Counsel: Engage a lawyer to review the title, explain any encumbrances, and advise you on the risks involved. A lawyer can help you understand the implications of a lis pendens and guide your decision.
• Don’t Assume Cancellation is Valid: Verify the legitimacy of any cancellation of lis pendens. Improper cancellations don’t negate the original notice’s effect. Judicial authority is required for valid cancellation.
• Due Diligence is Paramount: Thorough investigation before purchase is your best protection against inheriting legal problems along with the property.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q: What happens if I buy property with a Lis Pendens?

A: You become a transferee pendente lite, bound by the outcome of the lawsuit. If the lawsuit is decided against the seller, your ownership can be affected, potentially losing the property.

Q: Is a Lis Pendens always a bad sign?

A: Not necessarily, but it’s a significant red flag. It indicates an active legal dispute concerning the property’s ownership or rights. It demands careful investigation before proceeding with the purchase.

Q: Can a Lis Pendens be removed?

A: Yes, lis pendens can be cancelled. This can happen if the lawsuit is resolved in favor of the property owner, or if the court orders its removal for other valid reasons. However, cancellation should be judicially authorized and properly recorded.

Q: What if the seller tells me the Lis Pendens is no longer valid?

A: Don’t rely on verbal assurances. Verify with the Registry of Deeds if the lis pendens is still active or if its cancellation is legitimate and properly recorded. Seek legal advice to confirm.

Q: Am I protected if I didn’t personally see the Lis Pendens on the title?

A: No. Registration of a lis pendens constitutes constructive notice. Philippine law assumes you are aware of publicly recorded notices, regardless of whether you physically saw them.

Q: What should I do if I find a Lis Pendens during a title search?

A: Immediately consult with a lawyer specializing in property law. They can investigate the lawsuit, assess the risks, and advise you on the best course of action. This might involve negotiating with the seller, requiring them to resolve the issue before purchase, or even reconsidering the purchase altogether.

ASG Law specializes in Real Estate Law and Property Rights. Contact us or email hello@asglawpartners.com to schedule a consultation.