Georgia Appellate Court Holds Lender’s Diminution-In-Value Loss Required to Be Calculated as of the Date Of Foreclosure under Title Policy

The Court of Appeals of Georgia recently held that a trial court erred in calculating a lender’s loss under a title insurance policy as of the date the lender’s predecessor-in-interest closed on the loan, rather than the date of foreclosure.  See Old Republic Nat'l Title Ins. Co. v. RM Kids, LLC, 2016 WL 3563732 (Ga. Ct. App. June 29, 2016).  In the case, the lender issued a loan in the amount of $11,400,000 for the purchase of the insured property, which was to be used for residential development.  A previous grantor’s deed to the property included an exhibit stating there were “petroleum contamination” issues with the property and, therefore, that a number of limitations for the use of the property existed.  The title insurance policy did not mention either the environmental issue or the limitations on the property.  After the insured discovered the issues, it filed a claim with the insurer.  When the insurer did not respond, the insured sued the title insurer for coverage and, while the litigation was ongoing, purchased the property at a foreclosure sale for $750,000.  Before trial, the trial court ruled that the date of the insured’s loss for the purpose of measuring damages was the closing date of the loan and not the date of the foreclosure sale.  At trial, a verdict was entered in favor of the insured.  On appeal, the insurer challenged, among other things, the date of the loss.  The appellate court, citing to “the majority view” of other jurisdictions, agreed and held that the insured did not actually suffer a loss until the date of the foreclosure and that the loss should not be measured until then.  Based on this holding, it reversed the lower court’s decision and ordered a new trial.  This decision is contrary to that of the Supreme Court of Arizona from two weeks earlier in First Am. Title Ins. Co. v. Johnson Bank, 2016 WL 3247545 (Ariz. June 13, 2016).  

The analysis of the Johnson Bank decision can be found here.

For a copy of the decision, please contact Michael O’Donnell at