Bank of America, NA v. First American Title Ins. Co. (Opinion - Leave Granted)Annotate this Case
Plaintiff Bank of America brought an action against First American Title Insurance Company, Westminster Abstract Company, and others, alleging breach of contract and negligent misrepresentation in connection with mortgages that plaintiff had partially financed on four properties whose value had been fraudulently inflated and whose purchasers were straw buyers who had been paid for their participation. Shortly after closing, all four borrowers defaulted. After discovering the underlying fraud in the four loans during the foreclosure proceedings, plaintiff sued, among others, First American, which had issued closing protection letters that promised to reimburse plaintiff for actual losses incurred in connection with the closings if the losses arose from fraud or dishonesty, and Westminster, alleging that it had violated the terms of the closing instructions. The other defendants either defaulted or were dismissed. The Court of Appeals held that plaintiff’s claim against First American relating to the properties on which it had made full credit bids was barred by "New Freedom Mtg Corp v Globe Mtg Corp," (281 Mich App 63 (2008)). With respect to First American’s liability on the other two closings, the Court of Appeals concluded that the trial court properly granted summary disposition to First American and Westminster because plaintiff had failed to produce evidence that created a question of fact regarding whether Westminster knew of or participated in the underlying fraud in those closings. Finally, the Court of Appeals concluded that plaintiff had not established a link between Westminster’s alleged violations of the closing instructions and the claimed damages and, even if a link had been established, there were no damages because of plaintiff’s full credit bid at the foreclosure sale. The Supreme Court reversed, finding the Court of Appeals erred by concluding that plaintiff’s full credit bids barred its contract claims against the nonborrower third-party defendants. To the extent that New Freedom held that the full credit bid rule barred contract claims brought by a mortgagee against nonborrower third parties, it was overruled. Further, the closing instructions agreed to by plaintiff and Westminster constituted a contract upon which a breach of contract claim could be brought. Finally, the lower courts erred by relying on New Freedom to interpret the credit protection letters given that the terms of the letters in New Freedom differed materially from the ones at issue here.