The Court of Appeals of Washington, Division Two, recently held that the release of a lis pendens is not effective until it is recorded. Furthermore, it held that where there is a recorded lis pendens on a property on the day it is sold, the purchaser of that property cannot claim to be a bona fide purchaser for value even where the release of that lis pendens was effectuated the day prior. See Guardado v. Taylor, et al., 2021 WL 1985442 (Wash. Ct. App. May 18, 2021). In 2008, Otto and Diana Guardado dissolved their marriage, and as part of the dissolution decree, Otto (“Guardado”) was awarded the couple’s home. Later, Diana brought a suit for breach of contract stemming from an agreement that Otto would take Diana’s name off the home’s mortgage, and the court in that matter ordered that the dissolution decree be modified, allowing for a special master to sell the property. Otto sought to stay this judgment pending an appeal, and was required to post certain bonds to do so. He did not, but instead recorded a lis pendens on the property. Meanwhile, Mark and Michelle Taylor were interested in purchasing the property, and they, among other things, received a title report that informed them of the pending appeal and the lis pendens, as well as communicated with Guardado himself about the same. On November 16, Guardado signed the release on the lis pendens. The next day, the Taylors closed on the property, paying $240,000 and a deed conveying the property to them was signed. The deed, as well as the release of the lis pendens, was recorded on November 18.
After the sale to the Taylors, an appellate court vacated the dissolution order that allowed for the sale of the property. Guardado then filed a complaint for specific restitution and unjust enrichment against the Taylors, seeking to have the property returned to him. The Taylors asserted as an affirmative defense that they “were good faith purchasers, the property had no recorded lis pendens at the time of sale,” and that Guardado had failed to post the required bonds to stay enforcement of the underlying court order. The Taylors moved for summary judgment, and the trial court denied that motion, saying there were material issues of fact as to whether they were good faith purchasers. On a later motion for reconsideration, the trial court certified the question of whether the Taylors were good faith purchasers, and the Court of Appeals granted discretionary review of that question.
The Court found that the Taylors were not bona fide purchasers, and that judgment should be entered in favor of Guardado. As an initial matter, the Court laid out Washington’s Recording Act, which states that if a “purchaser in good faith” acquires an interest in a disputed property pursuant to a trial court’s decision, the purchaser’s interest “shall not be affected by the reversal or modification of that decision.” Then, the Court found that the Taylors’ actual knowledge of Guardado’s pending appeal of the court order did not affect their status as good faith purchasers, because such knowledge would only bear on that status if the Taylors knew such judgment was obtained by fraud, which they did not. However, the Court found that the Taylors had both actual and constructive knowledge of the lis pendens, which defeats bona fide purchaser status and “is effective from the time of its filing.” Further, the Court held that the lis pendens remains effective until the time the release is recorded, rather than effectuated. Therefore, despite the fact that the lis pendens had been released prior to the closing and recording of the Taylor’s deed to the property, because the release was not recorded until after such closing/recording, the lis pendens still remained in effect during that time. Therefore, the Taylors were not bona fide purchasers under the recording act, and summary judgment for Guardado on his restitution/unjust enrichment claims was warranted.