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The Docket is a monthly TitleNews Online feature provided by ALTA’s Title Counsel Committee, which reviews significant court rulings and other legal developments, and explains the relevance to the title insurance industry.
May 18, 2023
The Docket is a monthly TitleNews Online feature provided by ALTA’s Title Counsel Committee which reviews significant court rulings and other legal developments and explains the relevance to the title insurance industry.
Michael R. O’Donnell, co-managing partner of the law firm Riker Danzig LLP, and James Mazewski, an associate with the firm, provided today’s review of a decision by the Texas Third District Court of Appeals that confirmed 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. O’Donnell can be reached at modonnell@riker.com and Mazewski can be reached at jmazewski@riker.com.
Citation: Houndstooth Capital Real Estate, LLC v. Maverick Title of Texas, LLC, No. 03-21-00093, LEXIS 1254 (Tex. App. 2023)
Facts: This case involved real property located on East 16th St. in Austin, Texas, which was originally purchased by Sam Higgins in 1974. On Aug. 8, 2017, Higgins purportedly transferred ownership of the property to the investment company CETA Invest Austin, with the transfer memorialized via the recordation of a warranty deed. CETA subsequently entered into an agreement to sell the property to Juanita 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 for $205,000. The plaintiff accepted William’s offer the same day it was made, Sept. 20, 2017. Later that day Houndstooth Capital Real Estate, William and CETA executed an assignment of purchase-and-sale-agreement rights.
The transaction closed on Oct. 6, 2017, and a commitment for title insurance was issued by Maverick Title of Texas, which was serving as a title agent for WFG National Title Insurance Co. 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. The plaintiff subsequently placed $205,000 into escrow, CETA executed a deed transferring the property to Houndstooth Capital Real Estate and the escrow agent wired the funds to CETA’s account.
On Oct. 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 Oct. 18, 2017, Maverick informed Houndstooth Capital Real Estate 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 Oct. 27, 2017, Higgins signed a fraud affidavit stating that the deed conveying the property to CETA was a forgery.
The plaintiff subsequently managed to recover $132,672.35 of its $205,000 transfer, later suing 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.”
Holding: The 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, the 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 the plaintiff to purchase the property. The court also noted the 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 the plaintiff to purchase the property or send escrow funds. Because this representation occurred after the plaintiff was already under contract, and because the plaintiff could not identify any other representation upon which it had relied to enter the purchase transaction, Houndstooth Capital Real Estate 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 the plaintiff had failed to satisfy the commitment’s requirements, WFG never became Houndstooth Capital Real Estate’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 the plaintiff even had coverage been owed. While 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 the 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 Houndstooth Capital Real Estate 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, the plaintiff’s claims failed, and the trial court’s grant of summary judgment was affirmed.
Importance to the title industry: This opinion reaffirms that the representations contained within a title commitment cannot serve as the basis for a fraud claim. In addition, it confirms 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.
