Nevada Supreme Court Holds CPL Does Not Protect Loan Assignee

The Nevada Supreme Court recently held that the assignee of a deed of trust was not entitled to bring a claim against the title insurance company arising out of the closing protection letter.  See PennyMac Holdings, LLC v. Fid. Nat’l Ins. Co., 423 P.3d 608 (Nev. 2018).  In the case, a title agent issued a title insurance policy and closing protection letter (“CPL”) to a lender as part of a 2007 refinance.  One week prior to the lender’s deed of trust being recorded, however, the homeowners association (the “HOA”) for the subject property recorded a lien for unpaid fees.  In 2013, the insured was assigned the deed of trust and, that same year, the HOA served the insured with a notice of foreclosure.  When the insured did not respond, the HOA foreclosed on and sold the property.  The purchaser then brought a quiet title action to establish that the insured’s deed of trust was extinguished.  The insured filed a claim with the title insurance company, and the title insurance company responded that it was only obligated to pay the amount of the HOA lien.  The insured brought this action.  The title insurance company moved to dismiss, and the district court granted the motion.  This appeal followed.

On appeal, the Court affirmed in part and reversed in part.  First, it reversed the district court’s holding that the policy claims should be dismissed because the insured did not provide timely notice.  Although the Court confirmed that the insured was required to provide timely notice of any adverse claims, it also found that the insured had pleaded that it did not have actual notice of the HOA claim. Thus, this issue was not resolvable on a motion to dismiss. More importantly, however, the Court found that the district court properly dismissed the CPL claims.  The insured had argued that it was entitled to enforce the CPL as an assignee of the loan because the CPL was issued to the original lender and its successors and assigns.  However, the CPL states that “[i]f you are a lender protected under the foregoing paragraph . . . (ii) your assignee who provides funds, instructions or documents to the Issuing Agent or Approved Attorney for such closings shall be protected as if this letter were addressed to your assignee.”  Based on this definition, “the CPL only protects an assignee who participated in the closing of the loan transaction by providing funds, instruction, or documents,” which does not include the insured who was assigned the loan six years later.  Thus, the CPL claims were properly dismissed.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, or Dylan Goetsch at dgoetsch@riker.com.