On February 28, 2023, the Texas Third District Court of Appeals (“the Court”) entered its opinion in the matter of Houndstooth Capital Real Estate, LLC v. Maverick Title of Texas, LLC, No. 03-21-00093, LEXIS 1254 (Tex. App. 2023), confirming that title insurers are not fiduciaries to their insureds and that the contents of a title commitment cannot serve as the basis for a fraud or fraudulent inducement claim.

Background

This matter centered around real property located on East 16th Street in Austin, Texas (“the Property”), which was originally purchased by Sam Higgins (“Higgins”) in 1974.  On August 8, 2017, Higgins purportedly transferred ownership of the Property to the investment company CETA Invest Austin (“CETA”), with the transfer memorialized via the recordation of a warranty deed.  CETA subsequently entered into an agreement to sell the Property to Juanita William (“William”) for $200,000, who in turn, while the sale was pending, offered to assign her right to purchase the Property to Plaintiff Houndstooth Capital Real Estate, LLC (“Plaintiff”) for $205,000.  Plaintiff accepted William’s offer the same day it was made, September 20, 2017, and later that day Plaintiff, William, and CETA executed an assignment of purchase-and-sale-agreement rights.

The purchase closed on October 6, 2017 and a Commitment for Title Insurance (“the Commitment”) was issued by Maverick Title of Texas (“Maverick”), which was serving as a title agent for WFG National Title Insurance Company (“WFG”).  In the Commitment, WFG represented that it would only issue a title policy on the Property if multiple conditions precedent were met, one of which was the resolution of any “matter that may affect title to the land or interest insured, that arises or is filed after the effective date” of the Commitment.  Plaintiff subsequently placed $205,000 into escrow, CETA executed a deed transferring the Property to Plaintiff, and the escrow agent wired the funds to CETA’s account.

On October 13, 2017, Maverick was alerted that CETA was suspiciously attempting to withdraw the full amount of the settlement funds from its account, that CETA’s account had only recently been opened, and that all payment on the funds would be stopped due to fraud suspicions.  On October 18, 2017, Maverick informed Plaintiff that due to fraud no title policy would be issued, the funds that had been placed in escrow would not be returned, and the chain of title was now in question.  On October 27, 2017, Higgins signed a Fraud Affidavit stating that the deed conveying the Property to CETA was a forgery.

Plaintiff subsequently managed to recover $132,672.35 of its $205,000 transfer, later bringing suit against Maverick and WFG for numerous causes of action including fraud and breach of fiduciary duty.  The trial court ultimately granted Maverick and WFG summary judgment dismissing all claims raised against them, but failed to issue an opinion in which it “specif[ied] the basis for its judgment.”

The Appeal

Plaintiff then appealed with the Court affirming the trial court’s dismissal.  First, as to the fraud claim, the Court observed that the Commitment did not operate as a “representation of the state of the title” upon which Plaintiff could rely.  As a practical matter, Plaintiff had also taken assignment of the purchase contract with CETA prior to contacting WFG and thus, even if the Commitment could have been relied upon, due to the timing it could not have served as a means of inducing Plaintiff to make the purchase of the Property.  The Court also noted that Plaintiff had failed to satisfy the Commitment’s condition precedent of resolving any title issue that arose after the Commitment was effective, as Higgins’ Fraud Affidavit was never addressed.

The same was true for the fraud claims raised against Maverick.  The Court held that the Commitment’s statement that title “appeared” to be vested in CETA did not serve as an inducement for Plaintiff to purchase the Property or send escrow funds.  Because this representation occurred after Plaintiff was already under contract, and because Plaintiff could not identify any other representation upon which it had relied to enter the purchase transaction, Plaintiff had no basis for a fraud or fraudulent inducement claim and thus its fraud claims failed.

As to the allegations of breach of fiduciary duty, the Court observed that because Plaintiff had failed to satisfy the Commitment’s requirements, WFG never became Plaintiff’s title insurer and thus owed no duty.  Further, because title insurance is a contract of indemnity that gives rise to an indemnitor-indemnitee relationship only, WFG would never have stood in a fiduciary relationship to Plaintiff even had coverage been owed.  While title-insurance underwriters could be considered fiduciaries if they undertook to act as escrow agents, WFG never performed any escrow duties and the agency agreement between WFG and Maverick expressly stated that Maverick was not appointed as WFG’s agent for escrow services.  Thus, the Court held that Plaintiff’s breach of fiduciary duty claims failed.

The same was true for Maverick.  The Court held that Maverick did not owe a fiduciary duty to Plaintiff based upon its involvement as a title agent, performed all its services owed, and never undertook any duties associated with acting as an escrow agent.  Therefore, Plaintiff’s claims failed, and the trial court’s grant of summary judgment was affirmed.

Takeaways

This opinion reaffirms that the representations contained within a Title Commitment cannot serve as the basis for a fraud claim, that title insurers will not be considered fiduciaries unless they undertake to act outside the scope of their contract, and that a denial of coverage based upon an insured’s failure to satisfy the requirements of a Commitment will be upheld.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, James Mazewski at jmazewski@riker.com, Kevin Hakansson at khakansson@riker.com or Kori Pruett at kpruett@riker.com.