Title Company Duties Explained
The basic expectation is that the title company and its escrow agent will ensure clarity of title and correct documentation of the closing, including any disbursements of money and the recording of documents. Throughout the transaction, a title company is required to conduct two main activities: A title company must research the public land records in order to prepare the Title Insurance Commitment, which outlines the chain of title. The title company must also ensure that there are no judgments, liens, or encumbrances on the title to the property being sold, except those listed in the Title Insurance Policy. If an encumbrance is not foreclosed or paid off by the seller during the closing process, a buyer could be stuck with the debt . A title company performs a closing by preparing the documents necessary to close the transaction and ensuring that each party has signed each document, even if a person executes the document outside the presence of a notary public. All funds due at closing must be disbursed, including real estate taxes and assessments for the year to date, utilities, title insurance premiums, and easement payments. Without a careful review, the deed may not be recorded resulting in a problem with the chain of title, or the seller may have moved and not received a tax bill, resulting in penalties. These issues are serious enough to justify suing an agent or escrow company for professional negligence.
What is Negligence in Title Services?
Negligence is generally defined as the failure to use reasonable care. Accordingly, the inquiry into whether a title company was negligent in a particular transaction will depend on an examination into whether the title company acted reasonably in providing services to the parties to the transaction. In other words, did the title company act reasonably, or unreasonably, in issuing a policy of title insurance (or failing to do so), preparing closing documents and/or disbursing the sale proceeds at closing? These questions are of course fact sensitive, but some actions, or failures to act, may be more generally considered negligent and/or unreasonable.
A title insurer might be considered negligent if it fails to disclose material title defects identified prior to closing. For example, if the title company is aware of a construction lien that applies to the property to be acquired by the insured prior to closing, the title insurer may be deemed negligent in failing to disclose such material title defect prior to the closing. Of course, the materiality of the "defect" is at issue and is a fact sensitive question.
A title insurer might also be deemed negligent if it misdescribes property matters on a title commitment or policy, or makes guarantees in the closing documents that are not actually delivered. For example, if the title insurer notes in a title commitment that a mortgage encumbers 50 feet of land, but the mortgage actually encumbers only 45 feet, and therefore, a portion of the insured property is not actually encumbered by the mortgage, the title insurer may be liable for the negligence of its title examiner.
Similarly, if the title insurer issues a policy of title insurance to a lender that promises to pay the lender monies it is required to pay out to other lienholders in order to enforce its mortgage, and the lender must, in fact, incur expenses to enforce the mortgage solely because the title lawyer failed to provide a mortgage endorsement, the title insurer may be deemed negligent.
The Basis of Suing a Title Company
The following are some of the legal grounds for suing a title company for negligence, if such limitation of liability is allowed or not depending on how the majority of states view such clauses.
Negligence is a theory that has been tested in courts for many years and has evolved to its present form over time. In the context of property damage caused by a title searcher, the elements required to establish a claim for negligence against a title insurance company are 1) duty, 2) breach of that duty, 3) proximate causation, and 4) damages as a result of that breach.
In a negligence action, the plaintiff must also prove that there was a duty owed by the defendant to the plaintiff (i.e. a specific creditor/debtor relationship); that duty was breached due to the negligent actions of the defendant and directly caused the damages suffered by the plaintiff.
In plain terms, the plaintiff (as creditor) must show that the property was not free and clear of liens. The plaintiff must prove that the title company was responsible for searching for existing liens on the property and failed to discover the lien which resulted in a loss to the creditor.
Insured’s claims against their title insurance company may be based on negligence, breach of contract, or misrepresentation. Generally, to have a claim against the title company the insured must suffer an actual financial loss.
Instances of Title Company Negligence
In 2013, the Ohio Bureau of Workers Compensation (OBWC) filed a lawsuit against Old Republic Title and Independence Title (which was acquired by Old Republic in 2006). The OBWC alleged that these title companies engaged in noncompetitive bidding practices, which resulted in inflated rates on property sales. The agency sought damages to recover the amount overcharged. Prior to the hearing, Old Republic settled the suit for $149,750, while Independence settled for $250,000. In 2012, Pepco Holdings (which is made up by Delmarva Power & Light, Atlantic City Electric, and Delmarva Power) filed a complaint against First American Title Insurance Company and other parties. In short, Pepco alleged that it purchased tax liens against certain tax-delinquent properties and then ended up paying more than fair market value. Pepco also alleged that the tax liens were not properly recorded and that the title insurance did not prove valid. Ultimately, the matter was settled out of court. In 2006, Steven & Patty Sanchez purchased property from Defendants Clifford & Mary Casserly. Defendants responded to a letter from Plaintiff’s General Counsel asking if they would sell the property for the purpose of commercial development. Instead of calling Defendants back after the initial inquiry into sale, Plaintiff’s General Counsel simply showed up at the property and handed Defendants a purchase agreement and a check for $100. Defendants signed the real estate contract without reading it. When the Casserlys and the Sanchezes signed the documents their only intention was for a simple real estate transaction for future commercial development. However, unbeknownst to them, the title agent was representing both parties’ interests. Instead of its regular practice of going through a checklist of required aspects of the transaction, the title agent neglected to document pertinent information such as environmental restrictions on the property. Therefore, when the state comes in and informs Plaintiffs that environmental regulations were put in place and a permit was issued on the property Plaintiffs began to suspect something was wrong. After years of litigation this case was decided through a settlement of $940,000 in favor of Plaintiffs. In 1997, Kevin & Jennifer Ransom entered into a contract to purchase a home in Sylvania, OH for $109,750. The Ransoms qualified for a 4% down payment mortgage as long as the seller could pay their real estate commissions. The seller paid Ransom’s title insurance company a commission of $3,700 for procuring the financing on the loan. The Ransoms were not informed of the commission until years later and believed the practice was common place. As it turned out, this statement was false. The Ohio Department of Insurance investigated the allegation of secret kickbacks from lenders through the title insurance companies and released its findings in December of 2001. The Ransoms sued the title insurance agency and the title insurance underwriters involved but in 2005 both the agency and underwriters were held liable. In 2009 the case was settled for an undisclosed amount.
The Statute of Limitations and Filing a Suit
The statute of limitations can vary depending on the jurisdiction. A lawsuit against a title company for negligence may need to be filed within 1, 2, or 3 years after the time of the negligent act. Some jurisdictions may allow an injured party longer. But not many. If you intend to sue a title company for negligence, you should consult with a real estate or foreclosure attorney. If your case has merit, the attorney will be able to protect your rights to ensure that you are not barred from bringing a suit by an early statute of limitations. One of the steps that an attorney would typically take in such a situation is sending a demand letter to the title insurance company . This letter is often drafted just like a complaint (the title company is a private company) and might outline the salient facts of the case, the damages caused by the actions of the title insurance company, and specific legal claims purportedly made out by the injured party. The reason lawyers send demand letters is to put the insurance company on notice, which is required in many states prior to filing a lawsuit in court. The Omnibus Rule suggests that the letter ought to be sent via certified mail (signature required) and regular mail (to the same address), so that the attorney can later prove that it was sent.
Proving Negligence and Potential Obstacles
To successfully sue a title company for negligence, you must be able to prove that the company acted negligently and that the negligence directly caused you some type of loss. Proving negligence in court is very difficult to do, no matter who you are suing. You have to provide compelling evidence that the title company’s actions fell below an established standard of care.
For this type of lawsuit, the burden of proof falls on you to show that the title company was negligent. The standard of proof is preponderance of evidence, meaning you only need to prove that it is more likely than not that the title company was at fault. You must provide evidence showing how the company failed to act according to a reasonable standard given the circumstances. The courts will look at these facts, consider how a reasonable person would have acted in that situation, and determine whether the title company’s actions were negligent.
Easily proven examples of negligence abound when it comes to an insured closing transaction. Among these can be failure to require a particular document, e.g., tax compliance certifications, in accordance with statutory requirements. The defendant title company would find it extremely difficult to rebut a properly put forth fact scenario that included strong evidence of loss directly due to the company’s failure to require the document; such as in the case of a violation of the American with Disabilities Act.
The severity of the negligence and the damages you suffered will determine the number of potential challenges the title company can allege to avoid liability for damages. In an instance where the defendant’s negligence was less obvious, or there are disputed issues of material fact in a complex transaction, the defendant title company may be able to successfully rebut the plaintiffs claims that the defendant was negligent or liable for the plaintiff’s damages. There are also a number of additional affirmative defenses a title company may assert in an attempt to defeat a suit for negligence.
Damages and Remedies of Negligence
A successful lawsuit for negligence against a title company can result in a number of different forms of compensation. One form of compensation is a return of the overcharged or lost portion of the closing costs. If the title company failed to accurately provide the funds necessary to complete the transaction, the embezzlement or the improper execution of the documents could be the value of the compensation that you are entitled to. Another form of compensation can be damages to your credit from being unable to purchase a property or penalties that the lender has mistakenly placed on the borrower because of errors or unfair practices by a title company employee. A third form of compensation would be to sustain all of your legal fees and disbursements that were necessary in order to institute the suit. These legal fees would be the lawyer’s fee, if he or she worked on an hourly basis, the court filing fees, and any other fees that needed to be paid to a government office or clerk of court. In some cases, a jury can provide exemplary damages as well, if the party feels that the conduct of the title company or the title company employee was intentional or egregious. If the lawsuit was in the nature of trespass, the jury in some cases can award punitive damages, as well. There are other forms of compensation, but it factually depends on the circumstances of the lawsuit.
Seeking Legal Help for Title Disputes
If you find yourself in a title dispute, it is important that you consult with professionals who are experienced in real estate or title litigation. A qualified real estate attorney can not only negotiate and mediate with the title company in an effort to resolve the dispute, but, if necessary, can ultimately proceed with filing a lawsuit. Some procedures are required to be followed before commencing a lawsuit against a title company , including providing time for the title company to cure the problem with the title issue. In addition, filing before the Courts may be unavoidable as title disputes often involve deadlines to resolve title issues by. Filing suit will almost always be a last resort, but retaining a qualified real estate attorney that practices in the county where the subject property is located will assist you in understanding your options and best course of action for your specific case.
