Bought a House, Lost It to the City: The Hidden Danger of Lis Pendens

Real estate investment can be a powerful growth strategy, but it also carries risks that are often hidden until it’s too late. One of the most challenging situations our company has faced came from what initially appeared to be a routine wholesale purchase: a property on Thoman Street.

A Simple Deal That Went Sideways

The transaction was completed quickly, with no immediate red flags. However, shortly after closing, our internal review revealed multiple parties listed on the title. Legal counsel advised that a quiet title action would be necessary to clear ownership. In order to proceed, we were required to waive title insurance. At the time, this seemed like an acceptable risk with private capital funding the deal rather than a traditional lender.

The house on Thoman before demolition.

Demolished Before the Dust Settled

Four days later, our construction team arrived on site to begin work—only to find the home had been demolished by the city. Before this, a lien from the city had been identified and fully paid. The payment was even hand-delivered to the appropriate office. Unfortunately, a breakdown in communication between city departments meant the demolition order was never halted. The property was bulldozed despite the lien being resolved.

A $20K Bill and No House

The situation escalated further when the city issued a bill for $19,580 to cover the demolition costs. With the original structure gone, the lot vacant, and the lien payment apparently disregarded, our company was forced to absorb the financial burden while also repaying the private lender who had funded the acquisition.

Turning a Loss Into a Lesson

Rather than accept the loss, our team began evaluating how to turn the situation around. Working with our in-house design lead, plans were drawn for a new construction project on the lot. We presented the situation to a trusted financial partner, who agreed to fund the new build and pay off the city’s demolition charge as part of the construction financing. The home was successfully built, listed, and sold. After commissions and closing costs, the project netted a modest profit of approximately $4,000. While far from the returns typically expected, completing the project allowed us to protect our investors, settle all debts, and recover from a highly disruptive situation.

Lessons Learned

This experience underscored several critical lessons for our team and should serve as a cautionary tale for others in the industry:

• Title insurance should never be waived lightly. It provides essential protection against unforeseen title issues, especially in cases involving multiple owners or complex histories.

• Lis pendens and municipal liens can carry lasting consequences. Even when a lien is paid, miscommunication within government agencies can still lead to enforcement actions such as demolition.

• Strong partnerships matter. The ability to collaborate with an experienced lender allowed us to pivot and recover from a near-total loss.

Real estate investment requires a disciplined approach to due diligence, legal risk, and financial structuring. While challenges are inevitable, how those challenges are managed defines long-term success.