Idaho Supreme Court Affirms Dismissal of Lender’s Claims Against Title Company and Holds Non-Judicial Foreclosure Extinguished Underlying Debt

The Idaho Supreme Court recently held that a lender’s claims against a title company should be dismissed because the lender’s full-credit bid at a non-judicial foreclosure extinguished the underlying debt, and the lender therefore had no damages to allege.  The Court further found that there could be no negligence claim because there was no relationship between the parties.  See First Bank of Lincoln v. Land Title of Nez Perce Cty., Inc., 165 Idaho 813 (2019).  In 2011, the plaintiff lender loaned the borrower $440,000 to purchase a property, and the loan was secured by a deed of trust on the property.  The borrower also assigned his interest in a note and deed of trust on a bowling alley to plaintiff.  However, unbeknownst to plaintiff, the bowling alley was later sold, and the defendant title company disbursed the proceeds to the borrower and other parties rather than plaintiff.  The borrower later defaulted and plaintiff held a non-judicial foreclosure sale of the property.  It placed a full-credit bid of $425,000, and later sold the property for $190,000.  Plaintiff then brought this lawsuit against the title company alleging negligence and breach of contract, and sought the deficiency.  The parties cross-moved for summary judgment, and the district court granted the title company’s motion.  Applying Montana law based on the choice of law provision in the loan documents and the fact that the property was in Montana, the trial court held that the full-credit bid and sale extinguished the borrower’s debt, and plaintiff accordingly had no damages to recover as against the title company.

On appeal, the Court affirmed.  First, the Court found that when a lender forecloses on a property via a non-judicial foreclosure, it is prohibited from seeking any deficiency against the borrower under Montana law.  “If no deficiency can exist against [the borrower] then [plaintiff] subsequently has no action against [the title company] because its action against [the title company] exists solely based on the deficiency it claims against [the borrower].”  Second, the Court found that, even if plaintiff were to have damages, it could not claim negligence against the title company.  Citing Idaho law for this negligence claim, the Court found that there is a general rule prohibiting “purely economic losses in . . . negligence actions” with three exceptions: (i) when loss is “parasitic to an injury to person or property”; (ii) when “unique circumstances require a different allocation of the risk”; or (iii) “in cases involving a ‘special relationship’ between the parties.”  Here, the Court found that plaintiff and the title company had no relationship, and that the only relationship was between the title company and the borrower, for whom the title company held the proceeds in escrow. 

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, or Anthony Lombardo at alombardo@riker.com.