The Trusted Adviser August 2009 | Volume 2 - Number 6

ATTORNEYS | Practice Notes



Title Insurance

Stewart Title Guaranty Company v Residential Title Services, Inc, 607 F Supp 2d 959 (Wis ED 2009).

Facts:Misook Choi Kim (Kim) took out a $200,000 loan with BNC Mortgage, Inc. (BNC), which she secured with a mortgage on a residential property. As a result of this loan, BNC ordered title insurance from Stewart Title Guaranty Company (Stewart) through its agent, Residential Title Services, Inc. (Residential). Stewart and Residential had an agency contract in place, governing Residential's authority and obligations as agent.

The transaction was originally scheduled to close on November 27, 2002, and, as such, Residential conducted a title search regarding the property on November 8. This search was effective as of October 22, 2008 - documents recorded between October 22 and November 8 were not yet available to the public. The search was updated in mid-November, at which time the effective date was November 1. On November 5, Countrywide Home Loans, Inc. (Countrywide) recorded a $175,000 mortgage on Kim's property.

The Kim/BNC closing was then postponed to December 26. Residential did not update the title search beyond the mid-November update, even though Residential did conduct the December 26 closing. Residential then issued a title insurance policy to BNC in the amount of $200,000 on January 15, 2003, without exception for the Countrywide mortgage.

In December 2004, Countrywide initiated a foreclosure action against Kim on the property. Because the Countrywide mortgage had been recorded before the BNC mortgage, Countrywide had priority. After BNC made a claim on its title insurance policy, Stewart paid Countrywide $194,508.42 to place BNC in the first lien position.

Stewart sued Residential for breach of contract, claiming it was negligent in its title search. Further, Stewart filed a motion for summary judgment.

Holding:Motion granted. In this case, the contract between Stewart and Residential provided that Residential would be responsible for losses due to negligence from failure to discover instruments of record, to follow underwriting guidelines, and to prepare a title policy showing defects that were or should have been disclosed in the title search. The question before the court, therefore, was to determine the meaning of negligence in the context of this contract, because the term was left undefined in the agreement.

Due to the testimony of several individuals involved in the underwriting and title industry, the court concluded that there was no issue of material fact that title insurance practice is to update the title search as close as possible to the closing. The court found that this breach of industry practice showed Residential to be negligent by failing to update the title search properly.






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[Last update: 7-27-09]