Specific performance is the name of a remedy for breach of contract. The usual remedy is money damages. Say you buy a house for $400,000. You’re thrilled, because you think it’s really worth $450,000. Before escrow closes, the seller realizes he’s made a bad deal. He refuses to deposit his deed and close the sale. You sue. If you can manage to prove that the fair market value of the house is $450,000, you can get a judgment against the seller for $50,000.
But what if you want the house, not the $50,000? In that case, the complaint you file doesn’t ask for money. Instead it asks for “specific performance” of the contract. What you want is a judgment ordering the seller to perform the contract by closing the escrow. If the seller still refuses to deposit his deed after you get your judgment, the judge can appoint the court Clerk to sign the deed on the seller’s behalf and close the escrow without him.
Now, the seller’s not going to sit around waiting for you to sue him. He increases the asking price to $459,000 and leaves the house on the market. How do you stop him from selling the house to someone else? You stop him by suing him and recording a notice of pending action (which used to be called a lis pendens, Latin for, “pending lien”).
The notice of pending action has the same caption and case number as the complaint that starts your lawsuit, and it says that you, the plaintiff, have sued the seller, the defendant, over the ownership of the property, which must be clearly identified in the notice. Some people are under the mistaken impression that a frustrated buyer can record a notice of pending action without first starting a lawsuit. Not true, as the name (notice of pending action) indicates.
Under most circumstances, recording the notice in the County Recorder’s office will stop the second sale, but not the way you might think. The notice is not an order to the seller prohibiting the second sale. The notice only stops a second sale because a second buyer and his lender won’t close a second escrow without getting title insurance against anyone else claiming ownership of the property.
Here’s how it works. When an escrow is opened, the escrow officer orders a “preliminary title report” from a title insurance company. The company checks the chain of title and issues a report. The report identifies the property and its current owner, and it contains a list of all recorded documents showing claims to any other interest in the property, including tax liens, deeds of trust, and easements. The documents shown on the list are called “exceptions.” Copies of the report go to the seller, the buyer, and the buyer’s lender.
If you’ve recorded a notice of pending action, it’s supposed to show up on the list of exceptions in the report. When a second buyer and his lender saw it, both would refuse to close the escrow until it is removed. (Existing deeds of trust and any unpaid taxes will be paid off when escrow closes so they do not pose a problem; usually any other exceptions, like utility easements, are acceptable.)
If you are really lucky, within a few days of threatening the seller with a lawsuit for specific performance and a corresponding notice of pending action, the seller will deliver his deed to your escrow company, and your escrow will close. On the other hand, if you are only run-of-the-mill lucky, you will have to spend some money on a lawyer to convince the seller you’re serious, and the seller will extort a higher purchase price from you before backing down.
What if you are unlucky? If you’re unlucky, the seller won’t budge, and you will be forced to choose between walking away and actually filing your lawsuit and notice of pending action. I’ve never seen a specific performance lawsuit over a house last very long, but it doesn’t have to before the costs of continuing the lawsuit threaten to swallow the amount you thought you saved by getting a great deal, and to destroy your initial enthusiasm for becoming the owner of the house.