Nebraska Appellate Court Holds Title Insurer Not Obligated to Indemnify Insured for Foreclosure of Excepted Mortgage, Even if Foreclosure Was Caused by Prior Owner’s Cross-Default Under Separate Loan

The Court of Appeals of Nebraska recently held that an insured owner was not entitled to coverage when a lender foreclosed on its property based on a prior mortgage that the insured had assumed and that was excepted in the policy, even if the foreclosure was initiated based on the mortgage’s cross-default provision and caused by the prior owner’s default on a separate loan not mentioned in the policy.  See Fo Ge Investments LLC v. First Am. Title, 27 Neb. App. 671 (2019).  In the case, the insured agreed to purchase a property in 2006.  As part of the agreement, the insured agreed to purchase subject to the seller’s existing mortgage on the property and to take over the seller’s monthly payments.  The mortgage was from 2002 and secured a loan to the seller in the amount of $272,000.  In December 2006—six weeks before the closing—the seller obtained a second loan from the same lender, and this debt was secured by the assignment of a life insurance policy.  The title insurance company issued a policy and specifically excluded the 2002 mortgage.  The policy did not mention the 2006 second loan because that loan was not secured by a mortgage on the property.  The lender later brought a foreclosure action against the property based on a default under the 2002 mortgage.  The insured filed a claim under the policy and the insurer denied it.  The insured then brought this action.  According to the insured’s complaint, the 2002 mortgage contained a cross-default position that allowed the lender to foreclose when the seller defaulted on its 2006 loan, which the insured did not assume.  The insured sought coverage under the argument that the 2002 note and mortgage were excepted from the policy, but the 2006 note was not.  The trial court granted the title insurance company’s motion for summary judgment.

On appeal, the Court affirmed.  The Court found that “[e]ven if a default on the 2006 note was the basis for foreclosure, it was still the 2002 mortgage that was being foreclosed. That mortgage was a known lien at the time the title insurance policy was issued and a specific exception was made.”  The insured also argued that the exception in the policy was limited to a default under the 2002 note because the exception stated that the mortgage was “securing the principal amount of $272,000.00.”  The Court found that this description of the mortgage did not limit the exception to the 2002 note:  “The language that identified $272,000 as being the principal amount secured merely gives a more specific description of the mortgage. It does not limit in any way what is being excluded.”

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.