Saturday, August 21, 2010

question from Bob

A Lender’s Policy was issued by a Title Company for private financing in the amount of the loan on a single family home with a LTV of 50% or less.  A good portion of the loan proceeds were used to cure delinquent taxes and acquire an adjacent property.

Borrower signed as a Personal Representative of an Estate with minors.  Title Company failed to discover borrower’s PR status had expired.  This error was discovered when borrower petitioned the Estate, represented by the Public Fiduciary, to pay delinquent loan payments and back taxes as Lender had commenced a Trustee’s Sale.

The Public Fiduciary sued Lender in Superior Court asking for a Declaratory Judgment that the Note and Deed of Trust be judged invalid and unenforceable.  Lender filed a claim against Title Company who hired an attorney to represent Lender but, it was discovered, only for the amount of the Policy plus costs.  The Title Company informed Borrower that Borrower must sue Title Company Escrow separately on Title Company’s E&O, a separate agency, to hopes of recovering accrued interest and penalties which are now substantial because of time elapsed.

In the parallel world of home insurance where there has been a total or substantial loss, the insured frequently hires a Public Adjustor to negotiate a settlement taking a percentage of new money when the settlement offered is not satisfactory.

Are there Public Adjustors who specialize in Lender’s Policy issues?

Hi, Bob, and thank you for your question.  I have never heard of Public Adjustors in title insurance.

Loan policies insure the validity of a lien and in this case it seems that the loan policy performed.

I do not understand why the borrower would seek to hold the title agent liable for the borrower's failure to perform as a fiduciary for an estate.  You might argue that the title agent could have noticed and raised the issue but the title agent was charged with issuing a loan policy as a representative of the title insurance company and in that capacity should not also be acting as an attorney for the borrower.

In fact, the question you pose does not mention that the title agent was an attorney and so in any case would not be expected to give advice to the borrower.  The title agent may have presumed that the borrower had knowledge of the responsibility of the fiduciary and was able to execute the loan documents.  That was an error in judgment for which the title insurance company paid a claim.

In my opinion, the borrower would not have standing to go after a title agent for an error created by the borrower's own negligence.

So, that's my non-attorney title agent two cents.

I'm not certain if this response is helpful, but I hope it is. If there are readers out there with another take on this issue, please chime in with a comment.  

Thanks for raising the issue, Bob, and thanks for reading. 

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