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New York Supreme Court Holds Recorded Declaration on Property Was a Government Regulation Excluded from Coverage Under Title Policy Banner Image

New York Supreme Court Holds Recorded Declaration on Property Was a Government Regulation Excluded from Coverage Under Title Policy

Month: November 2018

New York Supreme Court Holds Recorded Declaration on Property Was a Government Regulation Excluded from Coverage Under Title Policy

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The Supreme Court of New York, Suffolk County, recently granted a title insurance company’s motion for summary judgment and held that a declaration recorded by a prior property owner limiting the number of houses that could be built on the insured property was a “government regulation” excluded from coverage under the policy.  See JBGR LLC v. Chicago Title Ins. Co., 2018 WL 6055884 (N.Y. Sup. Ct. Nov. 13, 2018).  In the case, a corporation purchased the insured property in 1994 to develop a residential community and golf course.  As part of the development, and in exchange for the zoning board’s approval of the golf course, the corporation proposed that it would reduce the number of building lots from 218 to 140.  The zoning board agreed and adopted a resolution stating “[t]hat in the event that a golf course is developed as proposed, a covenant be filed limiting the residential development of the property to no more than 140 lots or units[.]”  The golf course was developed and this covenant/declaration was recorded in 1997.  The corporation eventually sold the property to another entity (“Great Rock”), who then agreed to sell it to a third entity.  This third entity assigned its right to purchase to plaintiffs in 2006, and plaintiffs obtained a loan from Great Rock secured by a mortgage on the property.  In 2009, plaintiffs learned about the declaration and that they could not build any additional houses on the property.  After plaintiffs defaulted on the loan and Great Rock obtained a judgment against them, plaintiffs sued the defendant title insurance company to indemnify plaintiffs for their losses.  The parties cross-moved for summary judgment.

The Court granted the title insurance company’s motion.  It found that Exclusion 1(a) of the policy expressly excludes from coverage “[a]ny law, ordinance or governmental regulation (including but not limited to building and zoning laws, ordinances, or regulations) . . .”  In that vein, it further found that a “[z]oning regulation is not an encumbrance on title to property, nor does it render title unmarketable” and that “[z]oning regulates the manner in which the property can be used and is not an encumbrance on the title.”  Based on these findings, the Court held that the declaration was recorded in connection with the town’s site plan approval.  “In view of the foregoing, the court finds that the Declaration is not a defect in or lien or encumbrance on title to the Property and that it is a zoning regulation, which falls squarely within Exclusion 1(a) of the Policy.”  Thus, the claims against the title insurance company were dismissed.

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

Connecticut Court Holds Real Estate Broker Did Not Have Standing to Sue Closing Attorney for Failing to Provide Purchasers With Title Search

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The Superior Court of Connecticut recently held that a closing attorney was not liable to a real estate agent or broker for not providing a title search to the purchasers of a property.  See Carroll v. Lyman, 2018 WL 5793531 (Conn. Super. Ct. Oct. 19, 2018).  In the case, plaintiffs purchased a property that had been advertised as including “direct lake frontage as well as a private dock.”  After purchasing the property, they discovered that the property immediately adjacent to the lake and dock, as well as the dock itself, were owned by a neighbor.  Plaintiffs sued the sellers and the real estate agent and broker for this misrepresentation.  The agent and broker then brought two claims against plaintiffs’ closing attorney.  The first, a claim of common law indemnification, was based on the argument that the attorney was negligent by not providing plaintiffs with the title search prior to the closing.  The second, a claim of breach of fiduciary duty, was based on the argument that the attorney breached her fiduciary duty to plaintiffs by not providing them with the title search and/or not giving them the option to purchase a title insurance policy.  The closing attorney moved to dismiss.

The Court granted the closing attorney’s motion, finding that the agent and broker lacked standing to bring these claims against the closing attorney.  First, the Court found that the indemnification claim failed as a matter of law because there was no duty between the closing attorney and the real estate agent and broker.  It held: “Attorneys do not owe persons other than their own clients a duty, and are therefore not liable to persons other than their clients for negligence acts,” nor were the agent or broker “the intended or foreseeable beneficiary of the attorney’s services.”  Second, the Court found that this same analysis applied to the breach of fiduciary duty claim, holding that the closing attorney did not owe any duty to the agent or broker, and that the claims against the attorney should be dismissed.

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

NJ Appellate Division Finds NJDEP Policy and Guidance Unenforceable

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New Jersey courts will prevent regulators from enforcing requirements through guidance that have not been formally adopted through appropriate rulemaking.  Just recently, the Appellate Division of the New Jersey Superior Court determined that the NJDEP wrongfully imposed penalties on a radon testing company for failing to comply with certain agency policies and guidance that had not been promulgated through the rulemaking process prescribed by the Administrative Procedure Act (“APA”). NJDEP v. Radiation Data Inc., Docket No. A-1777-17T3 (N.J. Super. Ct., App. Div. Nov. 2, 2018).  This decision follows a line of cases, starting with the New Jersey Supreme Court’s seminal decision in Metromedia, Inc. v. Dir. Division of Taxation, 97 N.J. 313 (1984), wherein the courts set standards for when state administrative agencies are required to engage in formal rulemaking, which includes public notice and comment procedures, before imposing new requirements on the regulated community.  

Radon is a colorless, odorless, radioactive gas that derives from the natural breakdown of uranium in soils and is recognized as the second leading cause of lung cancer in humans.  Radon tests are often conducted in connection with real estate transactions, commonly as part of the home inspection process.  Radiation Data Inc. (“RDI”), the defendant in this case, is the largest radon testing business in the State and has processed more than one million radon tests since its inception in 1987.  The NJDEP Radon Section, which administers the State’s radon program, requires companies that test for and mitigate radon to be appropriately licensed and to use or employ certified measurement and mitigation professionals.  Between 2009 and 2014, the NJDEP levied several penalties against RDI for alleged violations of the radon program’s rules.

A number of the violations alleged against RDI were related to radon tests performed by technicians that were “affiliated” with RDI, but were either self-employed or worked for home inspection businesses.  RDI argued that it should not be held accountable for the actions of affiliate technicians that it does not employ, pay or control, particularly because the NJDEP had not formally adopted rules establishing and clarifying that the testing companies would be vicariously liable for the actions or noncompliance of affiliates.  Additional violations alleged by NJDEP were related to RDI’s failure to comply with an agency “Guidance Document” that set forth certain, essentially mandatory requirements for quality assurance and control plans.  Again, RDI argued that the requirements of the guidance were not enforceable because the Department had not engaged in formal rulemaking.

In Metromedia, the New Jersey Supreme Court set forth several factors that guide the analysis of whether formal rulemaking for a regulatory requirement is necessary, including for example, whether the requirement “prescribes a legal standard or directive that is not otherwise expressly provided by or clearly and obviously inferable from the enabling statute.” 97 N.J. at 331.  Here, in Radiation Data, the Appellate Division found that the policies and guidance that the NJDEP was seeking to enforce met the Metromedia test and, therefore, agreed with RDI that the imposition of penalties was improper.  The court found that the Radon Section’s “affiliate” policy is not expressed or readily inferable from the existing statutes or rules.  With respect to the Guidance Document, the court found that it contained mandatory language and added regulatory requirements not found in the rules.  The court “urged” the NJDEP to engage in prospective rulemaking to clarify its requirements consistent with the APA.

The use of substantive guidance in regulatory practice and by the NJDEP is rampant.   The Radiation Data case demonstrates that the courts will require state regulators to adhere to the APA and will not enforce penalties for violations of regulatory requirements that were not appropriately promulgated.  In light of Radiation Data, and the pervasive use of guidance in environmental programs, the regulated community should be reminded that NJDEP guidance and internal policies may not have the force of law, especially if they include requirements that should have been adopted through formal rulemaking in accordance with Metromedia and the APA.

For more information, please contact the author Jaan M. Haus at jhaus@riker.com or any attorney in our Environmental Practice Group.

New York Federal Court Holds Bank Not Liable for Providing Tips to the Government That Customers’ Safe Deposit Boxes May Contain Evidence of Illegal Acts

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The United States District Court for the Eastern District of New York recently held that a bank was not liable to its customers for losses caused by the bank’s tips to the government that the customers’ safe deposit boxes may contain evidence of counterfeiting or drug trafficking, even after no evidence is found.  See Tarazi v. Valley National Bank, et al., 11-cv-4464 (E.D.N.Y. Sept. 29, 2018).  In April of 2009, Plaintiffs leased three safe deposit boxes from the bank in order to store coins and jewelry.  One month later, Secret Service agents confronted one of the plaintiffs and asked to search the boxes based on a tip that they contained counterfeit currency.  The search did not uncover any evidence of counterfeiting.  Another month later, the DEA obtained a warrant to search the boxes based on a tip that they contained drugs or drug residue.  Again, the boxes were searched but no evidence was found.  In 2011, plaintiffs brought this lawsuit, claiming that the items were taken from the boxes and alleging negligence and breach of contract against the bank for allegedly reporting its unsubstantiated suspicions of counterfeiting and/or drug trafficking to the government.  The bank filed a motion to dismiss.

The Court granted the bank’s motion.  The Annunzio-Wylie Anti-Money Laundering Act includes a provision stating that “[a]ny financial institution that makes a voluntary disclosure of any possible violation of law or regulation to a government agency . . . shall not be liable to any person . . . for such disclosure or for any failure to provide notice of such disclosure[.]”  31 U.S.C. § 5318(g)(3)(A).  Likewise, the Code of Federal Regulations states that “[t]he safe harbor provisions of 31 U.S.C. 5318(g), . . . covers all reports of suspected or known criminal violations and suspicious activities to law enforcement and financial institution supervisory authorities, including supporting documentation, regardless of whether such reports are filed pursuant to this section or are filed on a voluntary basis.”  12 C.F.R. § 208.62(a).  Although plaintiffs argued that this safe harbor does not apply when the disclosure is made in bad faith, this argument was explicitly rejected by the Second Circuit in Lee v. Bankers Tr. Co., 166 F.3d 540 (2d Cir. 1999) and the Court likewise rejected it.  Additionally, the Court found that this safe harbor applies even if the bank did not file an official Suspicious Activity Report.  Finally, the Court held that even if plaintiffs’ theft-related claims were attenuated enough from the bank’s reporting to fall outside the safe harbor, plaintiffs failed to plead sufficient facts to support these claims, and the Court dismissed the action.

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

Connecticut Court Holds Lender’s Loss Under Title Insurance Policy Is Limited to Amount of Prior Lien

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The Superior Court of Connecticut recently held that a lender’s loss under its title insurance policy is limited to the amount of a prior undisclosed lien on the property that the lender had to discharge.  See RCN Capital, LLC v. Chicago Title Ins. Co., 2018 WL 4655965 (Conn. Super. Ct. Aug. 27, 2018).  In 2012, plaintiff issued a $600,000 loan to a borrower that was secured by a mortgage on the borrower’s property.  Defendant issued a lender’s title insurance policy to plaintiff.  In 2015, after the borrower defaulted and plaintiff commenced a foreclosure action, plaintiff learned that its mortgage was second to a previously-undisclosed $1.4 million first mortgage from 2007.  During the foreclosure action, the Court found that the property had a fair market value of $304,000.  Later in 2015, the city initiated a tax foreclosure action against the property for unpaid taxes, and plaintiff purchased the property at the city’s tax foreclosure sale.  After the sale, plaintiff paid $108,000 to the first mortgagee to discharge the first mortgage.  Plaintiff then filed a claim with defendant and, when defendant denied coverage, plaintiff brought this action seeking the damages caused to it by the first mortgage.

After defendant conceded liability, the parties disputed the amount of the lender’s loss under the policy.  Defendant argued that the loss was limited to the $108,000 plaintiff paid to the first mortgagee.  Plaintiff argued that it was entitled to the full market value of the property minus the amount it paid in taxes because “[b]ut for the . . . first mortgage, the Plaintiff’s strict foreclosure would have vested title in the Plaintiff subject only to the City of Norwich’s taxes.”  The Court issued a decision in favor of defendant, holding that “the measure of actual loss where an undiscovered lien damages an insured party is the amount by which the lender’s security is impaired.” (emphasis in original).  In doing so, it rejected plaintiff’s expert report and found that plaintiff’s “own self-interested estimate combined with its nebulous connection to anything [defendant] did is too tenuous to be a measure of actual loss.”

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

New Jersey Appellate Division Holds 20-Year Limitations Period Applies to Accelerated Residential Mortgage Loans

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In a
decision approved for publication, New Jersey’s Appellate Division recently
made clear for all that the six-year statute of limitations set forth in
N.J.S.A. 2A:50-56.1 runs from the stated maturity date in a residential
mortgage and not upon the acceleration of the loan after the borrowers’
default.  See Deutsche Bank Tr. Co. Americas as Tr. for
Residential Accredit Loans, Inc. v. Weiner, 2018 WL 5831060 (N.J. Super.
Ct. App. Div. Nov. 8, 2018).  In the case, defendants borrowed $657,500 in
2005, and the loan was secured by a mortgage on their home.  The loan was
scheduled to mature in June 2035.  Defendants defaulted on the loan in
2009 and, after four discontinued foreclosure actions, plaintiff brought this
action in 2016.  Defendants argued that their 2009 default triggered the
acceleration of the loan, which meant that the six-year limitations period
applied.  The trial court granted plaintiff’s motion for summary judgment
denying, among other defenses, the statute of limitations defense.

On appeal,
the Court affirmed the lower court’s decision and held that the applicable
statute of limitations for this default was 20 years.  This is because
N.J.S.A. 2A:50-56.1 provides that a residential foreclosure action must be
commenced by the earliest of: (a) six years from “the date fixed for the making
of the last payment or the maturity date set forth in the mortgage or the
note”; (b) 36 years from the date the mortgage was recorded or, if not
recorded, from the date of execution; or (c) 20 years “from the date on which
the debtor defaulted, which default has not been cured.”  The Court held
that “[t]o interpret subsection (a) as triggering the same event encompassed by
subsection (c) would wreak havoc with the clearly delineated provisions
of N.J.S.A. 2A:50-56.1. We refuse to inject such confusion into what the
Legislature carefully planned when it adopted this multi-part statute of
limitations.”  The Court, therefore, found that accelerating the loan did
not give rise to the six-year period as the statute clearly stated that it only
barred actions brought more than six years from “the maturity date set forth in
the mortgage or the note,” which in this case was June 2035.  Accordingly,
the Court found that the 20-year period applies and the action was not barred.

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

Lessons from NJDEP’s Recent Enforcement Actions

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The State of New Jersey ratcheted up its environmental enforcement activities earlier this year with the filing of six lawsuits seeking to recover environmental damages, as we previously reported in There Is A New Sheriff In Town – State Files Six New Environmental Enforcement Cases.  While we wait for these lawsuits to move forward, one question remains: If “there is a lesson in everything,” as a wise man once said, what lessons are to be learned from the filing of these suits?  The obvious lesson, and the one touted by the State, is: “If you pollute [New Jersey’s] natural resources, [the State is] going to make you pay.”   However, further reflection suggests that there are other lessons to be learned.

Lesson #1: New Jersey Will Broadly Distribute its Remediation Resources

While we do not know for certain how the NJDEP chose the six sites involved in its recent lawsuits, it seems that the State made a conscious effort to select sites that are spread across New Jersey.  One of the sites is situated in Atlantic County, two are situated in Middlesex County, two are situated in Essex County, and one is situated in Warren County.  As Attorney General Grewal said at his press conference on the filing of the recent suits: “The truth is that environmental pollution affects us all, North and South, rural and urban, rich and poor.”   This statement and the geographic distribution of the enforcement actions suggest that the State intends to clean up sites across New Jersey, and allocate its limited financial resources, without focusing on any specific region.

Lesson #2: New Jersey Prioritizes Sensitive Receptors

It also seems that the State focused its enforcement efforts on sites that impact sensitive receptors.  At least four of the six new actions involve a sensitive resource or population.  One action involves a former manufacturing facility in the Ironbound District of Newark, on which residential homes were subsequently built; a second involves another former manufacturing facility in the Ironbound, where a school was recently built; a third involves the former site of a manufactured gas plant near the Beach Thorofare waterway in Atlantic City; and a fourth involves a former petroleum refinery located on the Arthur Kill.  While the NJDEP has long focused its publicly funded remediation efforts on the protection of receptors, these lawsuits suggests that the State will also use the threat of future litigation as a tool to promote remediation that protects sensitive resources and populations.  Further, given that the State plans to file additional lawsuits, sites that impact sensitive receptors may be the next to receive a complaint.

Lesson #3: New Jersey May Impose Liability on an “Interim Owner”

In one of the recent lawsuits involving a former gas station in Fords, the State seeks to impose responsibility for historical contamination on an interim owner because it knew or should have known of contamination when it acquired the property and, therefore, did not qualify as an “innocent purchaser,” which is statutorily exempt from environmental liability.  As discussed in another article, The Impending Expansion of Interim Owner Environmental Liability, New Jersey courts previously seem to agreed that an interim owner (i.e., an entity that purchased property after it was contaminated, did not cause or contribute to the contamination, and has since sold the property to a new owner) is exempt from liability for pre-existing contamination.  See, e.g., White Oak Funding, Inc. v. Winning, 341 N.J. Super. 294, 300-01 (App. Div.), certif. denied 170 N.J. 209 (2001).  In the recent lawsuit, the State does not allege that the interim owner caused or contributed to the contamination, but it does allege that the interim owner was unjustly enriched by the remediation of the property with public funds during the time it owned the property.  If the State is successful in imposing liability on an interim owner because of its failure to qualify as an innocent purchaser, this will represent a significant expansion of liability under the New Jersey Spill Compensation and Control Act.

Conclusion

The regulated community will continue to look for lessons in the State’s ongoing environmental enforcement activities, and there are likely to be many lessons in the coming months, whether as a result of the progress of the above litigation or new lawsuits brought under Governor Phil Murphy’s aggressive environmental enforcement policy.

For more information, please contact any attorney in our Environmental Practice Group.

New Jersey Appellate Court Holds 2009 Statute of Limitations for Foreclosure Action Does Not Apply Retroactively

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New Jersey’s Appellate Division recently held that a foreclosure action commenced more than six years after the underlying loan’s maturity date was not barred by the six-year statute of limitations because that statute was not enacted until the year after the maturity date and could not be applied retroactively.  See Pfeifer v. McLaughlin, 2018 WL 4167334 (N.J. Super. Ct. App. Div. Aug. 31, 2018).  In the case, plaintiff gave a $53,000 loan to the borrowers in 2007, and the loan was secured by a mortgage on the borrowers’ property.  The note had a maturity date of 2008.  After the borrowers failed to make the final two payments, plaintiff brought a foreclosure action in 2009, but the court later dismissed the action for failure to prosecute.  In 2010, the borrowers sold the property to defendant.  Due to an issue with how the mortgage was recorded, defendant was unaware of plaintiff’s mortgage and it was never paid off.  In 2015, plaintiff brought a new foreclosure action against defendant.  Among other defenses, defendant argued that the six-year statute of limitations had run.  The trial court agreed and dismissed the action, and plaintiff appealed.

On appeal, the Court reversed.  Under N.J.S.A. 2A:50-56.1, an action to foreclose must be brought by the earliest of: (i) six years from the maturity date; (ii) 36 years from the date of recording (or if the mortgage was not recorded, the date of execution) so long as the repayment period under the mortgage does not exceed 30 years; or (iii) 20 years from the date of default.  The trial court had applied the first limitations period and found that plaintiff had until six years from the maturity date to bring this action and had missed this deadline by one year.  However, N.J.S.A. 2A:50-56.1 was enacted in 2009, and the Appellate Division found that there was no indication that it was to apply retroactively.  “Without a clear expression of contrary intent, a statute that relates to substantive rights and changes settled law will be applied prospectively.”  Accordingly, because the default occurred prior to the 2009 statute’s enactment, the Court found that this action was subject to the 20-year limitations period that existed before the statute and reinstated the case.

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

Past NRD Cases Highlight Vulnerability of Future Claims

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The New Jersey Department of Environmental Protection (“NJDEP”) filed three lawsuits seeking Natural Resource Damages (“NRD”) in August 2018.  In these lawsuits, which are NJDEP’s first in eight years, NJDEP is seeking damages for injury to groundwater, sediments, surface water, wetlands and biota.  Given the amount of time that has passed since the last NRD case was filed by the State, a review of where we left off may be helpful to understand the hurdles NJDEP will continue to face with respect to NRD and the defenses that potentially responsible parties may assert when presented with an NRD claim.

As an initial matter, an NRD claim can consist of both restoration and compensatory damages.  Restoration costs are those incurred to restore, rehabilitate, or replace a damaged resource.  Compensatory damages include the value of the services lost during the time it takes to restore or replace the damaged resource.  With respect to any NRD claim, restoration and compensatory damages must be reasonably calculated.  At the federal level, there are regulations setting forth an assessment process for calculating NRD; but NJDEP never has promulgated similar rules, although encouraged to do so by New Jersey courts.  In the past, the lack of regulations to calculate NRD has impaired NJDEP’s ability to recover NRD and may continue to do so into the future.

Although NJDEP has not adopted regulations to calculate NRD, with respect to its earlier NRD claims, NJDEP did develop a formula to calculate damages for injury to groundwater.  The formula was used primarily as a basis for settlement discussions with potentially responsible parties.  In NJDEP v. Exxon, Mer-L-2933-02 (Law Div. Aug. 24, 2007), when NJDEP attempted to use the formula in litigation, the court rejected it.  The court held that because NJDEP did not adopt rules setting forth how to calculate NRD, it was required to prove each element of any calculation used to determine its damages.  After reviewing NJDEP’s groundwater formula,  the court found that the formula did not support NJDEP’s claimed damages.  This case, however, did not prompt NJDEP to promulgate NRD rules and, as such, NJDEP will continue to face challenges on each aspect of its NRD calculation. 

In two subsequent cases, NJDEP attempted to recover restoration costs from potentially responsible parties that were remediating the sites at issue.  In NJDEP v. Essex, 2012 WL 913042 (N.J. Sup. Ct., App. Div., March 20, 2012), and NJDEP v. Union Carbide Corp., Mid-L-5632-07 (N.J. Sup. Ct., Law Div., March 29, 2011), NJDEP was seeking to have the potentially responsible parties conduct additional remedial work at a substantial cost to the parties in order to expedite the remediation.  The courts in both cases found that NJDEP could not justify the additional costs because the parties already were cleaning up the sites.  The courts stated that in order for NJDEP to recover NRD in these cases it must demonstrate that there is a threat to human health, flora or fauna that is not being addressed by the remediation.  NJDEP could not meet this burden in either case.  The holdings in Essex and Union Carbide provide potential arguments to combat NRD restoration claims at sites that are being remediated.   

Conversely, the court in NJDEP v. Amerada Hess Corp., 323 F.R.D. 213 (D.N.J. 2017), allowed NJDEP to recover NRD at a site that was being remediated.  The court distinguished Essex and Union Carbide by explaining that the remediation in Essex and Union Carbide would reduce the contaminants of concern to their practical quantitation level, which would result in the contamination being at its lowest quantifiable limit, essentially restoring the site to pre-discharge conditions.  In Amerada Hess, however, the court found that the remediation would not reduce the contamination to the lowest measurable level, and therefore, NJDEP could require additional remediation to address NRD. As evidenced by the Amerada Hess case, the contaminant of concern at the site and the limits reached by the remediation may drive whether NJDEP can recover NRD for restoration.

NJDEP also has faced difficulties when seeking compensatory damages  In fact, in Essex, NJDEP wanted Essex to purchase and preserve land to compensate for the damaged groundwater at the Essex site.  The court found that requiring Essex to purchase this land would result in a windfall to NJDEP because its preservation would protect not only groundwater, the damaged resource, but also flora and fauna found on the newly acquired property.  Further, in other cases involving compensatory damage claims, NJDEP was unable to support its damages with expert testimony.  Given that there are no regulations on how to calculate compensatory damages, which is difficult to do, potentially responsible parties may be able to defeat claims for such damages by providing proper challenges to the NJDEP’s compensatory approaches or experts.

As briefly described above, a look back at earlier cases and claims by NJDEP involving NRD may assist potentially responsible parties in formulating defenses to new NRD claims.  Until NJDEP promulgates regulations regarding NRD, and possibly even after, NRD calculations and claims will remain vulnerable to challenge.

For more information, please contact the author Laurie J. Sands at lsands@riker.com or any attorney in our Environmental Practice Group.

Nevada Supreme Court Holds CPL Does Not Protect Loan Assignee

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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 or Dylan Goetsch at dgoetsch@riker.com.

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