Kentucky Federal Court Holds Law Firm May Be Liable for Searching Title to Incorrect Property

The United States District Court for the Eastern District of Kentucky recently held that a lender might have a professional negligence claim against a law firm when the law firm conducted a title search for the incorrect property, the resulting mortgage encumbered the incorrect property and, as a result, the lender was forced to repurchase the mortgage.   See Crescent Mortg. Co. v. Freeman, 2022 U.S. Dist. LEXIS 59727 (E.D. Ky. Mar. 31, 2022).  In 2013, a lender issued a $114,000 loan to a couple to refinance their residential property on behalf of its investor, the plaintiff.  The lender retained the defendant law firm to conduct a title examination in connection with the loan.  The law firm, however, updated a title search that it had run five months earlier for the same lender and borrowers, but did not realize that the prior title search was for a separate, unimproved 8.15-acre property.  The loan and mortgage, which named the undeveloped property, were sold to Freddie Mac.  The borrowers later defaulted and, upon discovering that the mortgage encumbered the undeveloped property, Freddie Mac demanded that plaintiff repurchase the mortgage.  Plaintiff did, and brought this action against the law firm and individual attorney for professional negligence.  Defendants then moved for summary judgment, arguing that the claim was outside of the one-year limitations period, that the Court did not have jurisdiction because the amount in controversy did not exceed $75,000, and that plaintiff failed to produce expert testimony sufficient to prove its case.  Plaintiff cross-moved for summary judgment.

The Court granted plaintiff’s motion in part and denied it in part, and denied defendants’ motion in its entirety.  First, the Court held that plaintiff’s claim was timely because its “injury did not become fixed and non-speculative until January 2020, when Freddie Mac demanded . . . repurchase,”  and it brought its claim within one year of the repurchase demand.  Second, the Court found that plaintiff alleged damages of $91,931.30, which was more than the $75,000 threshold for diversity jurisdiction.  In doing so, the Court rejected defendants’ claim that their affirmative defense of mitigation of damages should be taken into account when determining the amount in controversy.  Third, the Court found that plaintiff had met its burden that defendants had breached their duty and that the breach caused plaintiff’s damages.  It further found that plaintiff did not need expert testimony for this claim:  “evidence in the record shows that Whitaker Bank requested a title opinion from Defendants for property at 126 Casey Road, Corbin, Kentucky. The Defendants did not run a title search for 126 Casey Road and provided the bank with a title opinion that included the legal description of a different property. That erroneous property description was then incorporated into the mortgage instrument and title insurance policy. Defendants have failed to identify any evidence that would create a genuine dispute of those material facts.”  Nonetheless, the Court found that there was a genuine dispute as to the amount of damages, finding that “[n]umerous questions of fact regarding damages remain unanswered: does the repurchased mortgage encumber the 8.15-acre parcel? Does [plaintiff] have the ability to foreclose and sell the property? What is the reasonable value of the property?”  Accordingly, it granted plaintiff’s motion as to the duty, breach and causation elements, but denied the motion as to damages.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com