New Jersey Federal Court Dismisses Claims Against Title Insurance Company and Its Attorney After Owner Sold Property

The United States District Court for the District of New Jersey recently dismissed a breach of contract and a legal malpractice claim against a title insurance company after the insured owner sold the property.  See Westcor Land Title Ins. Co. v. Alicea, 2019 WL 6724311 (D.N.J. Dec. 10, 2019).  In 2004, a prior owner of the property at issue executed a mortgage on the property.  However, the mortgage was improperly recorded.  In 2009, the defendant purchased the property and obtained a title insurance policy from First American.  In 2014, defendant learned about the misrecorded mortgage and informed First American.  According to defendant, an attorney at First American replied that “they would handle [it].”  In 2015, the lender commenced a foreclosure action on the misrecorded mortgage and, in 2016, defendant sold the property and executed an affidavit of title without informing the new purchaser of the mortgage or the foreclosure action.  In 2019, the title insurance company who issued the policy in connection with the 2016 sale brought this action against defendant for negligent and fraudulent misrepresentations.  Defendant then brought a third-party complaint against First American and its attorney for breach of contract and legal malpractice.  The third-party defendants brought this motion to dismiss. 

The Court granted the motion to dismiss.  The Court first dismissed the breach of contract claim against First American.  First, the Court found that the policy’s continuation terms states that coverage continues after the insured sells the property for warranties made in the deed.  In this case, defendant’s deed to the new owner only contained a covenant as to grantor’s acts, which other courts have found is not a warranty under this policy term.  Accordingly, defendant’s coverage under the policy terminated on sale.  Second, the Court found that the complaint made claims of negligent and fraudulent misrepresentations against defendant based on the affidavit of title defendant signed in 2016.  Because this claim arose post-policy, it was barred under Exclusion 3(d) of the policy.  Finally, the Court found that there was no attorney-client relationship between First American’s in-house attorney and the defendant, and dismissed the malpractice claim.

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.