United Gen. Tit. Ins. Co. v RC Abstract, Inc.

[*1] United Gen. Tit. Ins. Co. v RC Abstract, Inc. 2011 NY Slip Op 52529(U) Decided on May 25, 2011 Supreme Court, Westchester County Lefkowitz, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on May 25, 2011
Supreme Court, Westchester County

United General Title Insurance Company, Plaintiff,

against

RC Abstract, Inc. d/b/a TRIBOROUGH LAND SERVICES, Defendant.



6620/09



Daniel G. Walsh, Esq.

DelBello Donnellan Weingarten Wise

& Wiederkehr, LLP

Attorneys for Plaintiff

One North Lexington Avenue

White Plains, NY 10601

Bryan F. Lewis, Esq.

Lewis Johs Avallone Aviles, LLP

Attorneys for Defendant

425 Broad Hollow Rd., Ste. 400

Melville, NY 11747

Joan B. Lefkowitz, J.

Upon the foregoing papers it is ORDERED that the motion is granted. Defendant, as a limited agent of plaintiff, conducted a closing on the sale of real property and had plaintiff [*2]issue a title and insurance policy. Unbeknown to defendant, a prior mortgage from the seller in favor of Bank of America existed and was recorded the same day as the closing. The purchaser obtained funds from Amnet and gave Amnet two mortgages which, when recorded, were now in subordinate positions. The record at the time of the closing showed that the seller's prior mortgage to N Bank was satisfied. Apparently, the source of the funds to satisfy that mortgage came from the Bank of America. Claims were made against plaintiff on the Amnet mortgages, and plaintiff paid $731,000 to settle those claims.

There is no dispute that the amount paid was reasonable. Pursuant to the parties' agreement, defendant was to indemnify plaintiff under certain circumstances including:

"5.2 Errors or omissions which are disclosed by the application for title insurance, examiner's report, searcher's report or other defects, liens, encumbrances or matter affecting title to real property which were known to the Agent or, in the exercise of ordinary care and due diligence, should have been known to Agent."

Plaintiff claims that defendant had a duty to make inquiry as to the source of funds to satisfy the N Bank mortgage and had it done so it would have uncovered the fraudulent scheme the seller was engaged in. Defendant, in turn, argues that no such duty exists under Colorado law which governs the parties' agreement. However, the cases cited by defendant from Colorado merely note that the title agent is not required to examine documents outside the chain of title.[FN1] These cases are inapplicable, where, as here, the parties' agreement requires the exercise of ordinary care and due diligence. Indeed, at a pretrial deposition, a witness for defendant testified that it was "not common" for a mortgage of record to be satisfied without evidence of a refinancing and the title agent "could ask about it" but it was not "our job" to determine the source of the payoff (Exhibit 17 to Plaintiff's moving papers at pp. 26-27).

At bar, the Court concludes that in the exercise of ordinary care, a title agent is obligated to make inquiry as to the source of funds of a satisfied mortgage. Defendant failed in its duty to plaintiff to make such inquiry. Had such an inquiry been made and no rational response offered, the closing could have been adjourned or moneys held in escrow or the title agent could have conferred directly

with the title insurance company as to how best to proceed. Consequently, plaintiff may enter judgment against defendant in the sum of $731,000, with interest, costs and disbursements.

DATED:May 25, 2011

White Plains, NY

ENTERED:/s/

JOAN B. LEFKOWITZ, J.S.C.

To: Footnotes

Footnote 1:New York law is to the same effect. Lyons Holding Corp. v. Home Title Ins. Co., 250 App Div 640 (2d Dep't 1937); see, 1 NY Jur.2d., Abstracts, §6; 1 AM Jur.2d, Abstracts of Title, §10; Patton & Palomar on Land Titles, (3rd ed.), passim.