The United States District Court for the Southern District of Florida recently held that a third-party defendant title insurance company was entitled to summary judgment on the defendant sellers’ claim for negligence in connection with a short sale, on the ground that the insurer owed no duty to the defendant sellers.  See Merger to Bac Home Loans Servicing LP v. Zaskey, 2016 WL 4761857 (S.D. Fla. 2016).  In the case, the defendant sellers participated in a short sale of a residential property, and another third-party defendant acted as the closing agent.  After the closing, however, the closing agent allegedly failed to transfer the monies to the mortgagee on the property.  Upon realizing the issue over a year later, the insurer, who had issued a title policy to the purchasers of the property, obtained the proceeds and tried to convince the mortgagee’s successor servicer to accept the proceeds and discharge the mortgage.  Although the servicer initially claimed that it did not have any record of approving a short sale, it eventually agreed to accept the proceeds and record the satisfaction.  The sellers then brought a negligence claim against the title insurance company, arguing that it had a duty to have the mortgage discharged in a timely manner and inform the sellers of the issues in recording the satisfaction, and that it had breached that duty.  The title insurance company moved for summary judgment, and the court granted it.

In dismissing the sellers’ claim for negligence against the insurer, the court determined that the sellers failed to establish that the insurer owed them a duty of care, or that any such duty was breached.  The court rejected the sellers’ argument that the insurer “wrongfully retained” the short sale proceeds and failed to “properly advise” the sellers of any issues.  Further, the funds at issue were not the sellers’ funds, because they were paid by the purchaser to satisfy the mortgage.  The court held that the insurer owed a duty “only to its insured,” and the insurer’s only duty was to remove the mortgage from the chain of title, which it ultimately did.  The court also rejected the sellers’ argument that by accepting the short sale proceeds after becoming aware of the closing agent’s failure to disburse same, the insurer created a “foreseeable zone of risk” that the sellers would suffer damages if the insurer failed to immediately notify them that it had come into possession of the short sale proceeds and failed to immediately transfer the short sale proceeds to the servicer.  The court declined to broadly construe or expand the “foreseeable zone of risk” standard for establishing a duty owed to third persons, and found that nothing done by the insurer could have prevented the harm allegedly suffered by the sellers.  Further, it held that “even if a legal duty existed, there is no ultimate liability due to the absence of any causal link between the alleged ‘failure to communicate’ and the failure to ‘immediately’ make the unpaid mortgage disappear[.]”  Accordingly, the insurer was entitled to summary judgment on the sellers’ claim for negligence.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

The United States District Court for the Southern District of New York recently held that a mortgagee who sent a mortgage satisfaction for recording on the thirtieth day after receiving payment in full did not “present” the satisfaction to the clerk within 30 days, in violation of RPL § 275 and RPAPL § 1921 (together, the “Statutes”).  See Bellino v. JPMorgan Chase Bank, N.A., 2016 WL 5793417 (S.D.N.Y. Oct. 3, 2016).  In the putative class action,  the defendant mortgagee received payment in full from the plaintiff borrower on a mortgage on May 14, 2012.  The defendant then sent a mortgage satisfaction to the clerk via Federal Express on June 13, 2012, or 30 days after receiving the payment.  The plaintiff then filed this action, alleging that the defendant had violated the Statutes, which require that the lender either “arrange to . . . present” or “present” the satisfaction to the clerk within 30 days of payment.  The defendant filed a motion for summary judgment, arguing that it had complied with the statute by sending the satisfaction within the period.  The court, however, denied the motion.  Citing dictionary definitions, case law and legislative history, it found that the Statutes required that the clerk receive the satisfaction within the 30-day period, and that sending the satisfaction within that time frame was insufficient.  This decision is one of a series of recent decisions interpreting the Statutes.  For an analysis of whether plaintiffs who had not suffered any actual damages under the Statutes have standing, click here.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

The United States District Court for the Southern District of New York recently held that plaintiffs in a putative class action alleging violations of New York state statutes requiring mortgagees to file timely mortgage satisfactions do not have Article III in light of Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016).  See Villanueva v. Wells Fargo Bank, N.A., 2016 WL 5220065 (S.D.N.Y. Sept. 14, 2016).  In the action, which is one of a series of putative class actions arising under New York’s RPL § 275 and RPAPL § 1921 (together, the “Statutes”), the plaintiffs alleged that the defendant mortgagee had not recorded their mortgage satisfactions within 30 days, as required by the Statutes.  The court stayed the action while the United States Supreme Court decided Spokeo.  After Spokeo was decided, the court asked the parties to brief the standing issue raised in the Spokeo decision.  The court then held that the plaintiffs lacked standing to bring this action because they did not allege anything more than “bare procedural violations[.]”  Specifically, the court reviewed the legislative history behind the Statutes, finding that the harm that the legislators sought to address was both the paying of duplicative fees to discharge a mortgage and impediments to the sale of property.  Although the court acknowledged two other New York federal decisions in which the courts held the plaintiffs had standing in similar cases, it stated that it was not bound by either decision.  See Jaffe v. Bank of Am., N.A., 2016 WL 3944753 (S.D.N.Y. July 15, 2016); Zink v. First Niagara Bank, N.A., 2016 WL 3950957 (W.D.N.Y. July 1, 2016).  It further noted that the Jaffe court discussed the cloud on title as being enough to give standing to the plaintiffs in that case, but that the plaintiffs in the instant case did not allege the same.  Nonetheless, the court allowed the plaintiffs to replead their claims in light of Spokeo.

For an analysis on the Jaffe decision, click here.

For an analysis of another decision interpreting the Statutes, click here.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

The United States District Court for the Northern District of Georgia recently ruled that a title insurance company was not liable to an insured lender for a reverse mortgage fraud scheme perpetrated by the title agent. See James B. Nutter & Co. v. Old Republic Nat’l Title Ins. Co., 2016 WL 5792686 (N.D. Ga. Oct. 3, 2016).  Between September 2008 and September 2009, the insured lender entered into 11 reverse mortgage loans (the “Loans”) with various borrowers, and obtained title insurance through the title insurance company’s agent, a non-party to this action.  The title agent also served as the lender’s agent in closing the transactions.  In 2011, Fannie Mae discovered that a number of loans it purchased from the lender and that had been closed by the title agent were tainted by fraud, however, there had been no accusations of fraud regarding the Loans.  As a result, Fannie Mae required the lender to repurchase ten of the Loans.  The lender then filed a claim with the insurer, which the insurer denied.  The lender then brought this action against the insurer.

The insurer moved for summary judgment, which the court granted.  In granting the motion, the court first determined that the lender had failed to demonstrate any actual cloud of title on the properties.  Although other loans closed by the agent were fraudulent, the lender “failed to forecast anything more than the possibility that at some point far off in the future, there could, perhaps, be a cloud on title [on the Loans]. A mere possibility is not enough.”  Therefore, the breach of contract claim failed.  The court further rejected the lender’s claim that insurer committed various torts by and through its agent’s actions in closing the Loans, holding that “when an agent is working for two principals that are aware of the dual agency, neither principal can be held liable by the other for the agent’s actions unless they participated in the agent’s wrong.”  As there was no evidence that the insurer had participated in the frauds, these claims failed as well.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

The United States District Court for the Southern District of New York recently held that, in light of Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016), plaintiffs in a putative class action alleging violations of New York state statutes requiring mortgagees to file timely mortgage satisfactions have Article III standing.  See Jaffe v. Bank of Am., N.A., 2016 WL 3944753 (S.D.N.Y. 2016).  In the case, the plaintiffs sued the defendant bank for failing to file timely mortgage satisfaction notices for recording in violation of RPL § 275 and RPAPL § 1921 (together, the “Statutes”).  Plaintiffs claim they are entitled to statutory damages based solely on defendant’s alleged violations of the Statutes; they do not allege they suffered any additional harm based on defendant’s failure to timely file the proper documentation.  On March 7, 2016, the Court preliminarily approved a class-action settlement and conditionally certified a class.  After this approval, however, the United States Supreme Court decided Spokeo.  Accordingly, the court then analyzed whether the Supreme Court’s decision affects its prior ruling that plaintiffs have Article III standing.  The court, quoting Spokeo, held that “[t]o establish injury in fact, a plaintiff must show that he or she suffered an invasion of a legally protected interest that is concrete and particularized and actual or imminent, not conjectural or hypothetical.”  Although the court acknowledged that Spokeo held that federal statutes can define an injury and “give rise to a case or controversy where none existed before,” it noted that the Second Circuit has never made a similar finding regarding state statutes.  Nonetheless, the court found the reasoning of decisions in the Seventh and Ninth Circuits persuasive and held that state statutes “may create a legal right, the invasion of which may constitute a concrete injury for Article III purposes.”  The court then determined that the concreteness requirement is met because the Statutes create a procedural right to a timely-filed mortgage satisfaction notice, the violation of which is a concrete injury.  Accordingly, the court concluded that the matter would not be dismissed for lack of subject matter jurisdiction.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

In Title News’ “10 Lawsuits You Can’t Ignore” issue in October, our article covering the Anastasi v. Fid. Nat. Title Ins. Co. case was included.  The “10 Lawsuits” feature story provided summaries of key cases that are considered highly relevant to the title industry.   Our article, entitled “Hawaii Supreme Court Addresses Bad-faith Claim,” provided claims counsel with importance guidance regarding attorney-client privilege, exercising the right to defend title, and communicating with the insurer about litigation.  Title News is the publication of the American Land Title Association.  Read the full article here.