Title Company Has No Liability For Free Information Provided

Written by Posted On Monday, 22 June 2015 11:46

It is common both for real estate agents and for active real estate investors to develop on-going relationships with title companies and their employees. Frequently, an informal quid pro quo exists whereby the provision of services and information by the title company results in the direction or placement of business by the recipient. Agents need to be careful in this regard, as RESPA violations may occur. Principals are not so tightly constrained.

Whereas both investors and agents routinely rely on information they receive from title companies, a ruling by California's 2nd Appellate District Court of Appeal (Soifer v. Chicago Title) reminds us that, in many situations, they ought not to be too reliant on that information.

According to the court record, Ben Soifer "was an investor in distressed real estate. His business plan involved the purchase of real properties that were being foreclosed upon by mortgage holders. In order to decide whether to bid on a particular property, he needed to know if the foreclosing lender was in fact the senior lender on the property." Thus it was that he entered into an oral agreement with a Chicago Title agent, Miguel Escutia, "in which it was agreed that Escutia, on behalf of Chicago, would provide title information upon which [Soifer] would rely in deciding whether to make a bid at a particular foreclosure sale." In return for that information, Soifer agreed to place business with Chicago when he subsequently resold the properties. The information that Soifer needed "was limited, specific and time sensitive. He needed, usually within twenty-four hours before a particular foreclosure sale, a ‘yes' or ‘no' answer to the question of whether a particular designated foreclosing loan was a senior lien."

In March of 2008, Soifer requested such information regarding a property in Encino, California that was about to be foreclosed upon. Through Escutia, he was informed that "yes" the foreclosing loan in the amount of $990,000 was in senior position. Soifer submitted a bid of $1,000,000.01 and acquired the property at the foreclosure sale.

But, uh oh, it turned out that the foreclosing loan was not in senior position. In fact, it was junior to a first trust deed held by Citimortgage, Inc. in the sum of $1,600,000. Soifer was able to negotiate some reduction in the balance, but he could still only sell the property for $1,200,000. He claimed a loss of $1,000,000. Naturally, he sued.

Soifer argued that the information he obtained from Chicago Title constituted the services of an "abstractor" with respect to which he and Chicago had entered into an enforceable oral contract and that those services had been negligently performed. In response, Chicago argued that a title company can only be liable for negligently misstating the status of a title if it issues an "abstract of title" and that the communications involved in this case were not proper abstracts. The court agreed.

In its discussion, the appellate court noted that title insurance is closely governed by the provisions of California's insurance code. There it is spelled out that there are only two types of instruments for which a title company may have liability. One, the most commonly known, is a policy of title insurance; the other is an abstract of title. An abstract of title is a "written representation provided pursuant to a contract, whether written or oral, intended to be relied upon by the person who has contracted for the receipt of such representation, listing all recorded conveyances, instruments, or documents which, under the laws of [California] impart constructive notice with respect to the chain of title to the real property described therein."

Title companies may issue a whole variety of other reports for which they may or may not charge, but they cannot be held liable for errors or omissions in those reports. The reports that Soifer received were not abstracts nor were they policies of title insurance; hence Chicago could not be held liable for them.

The lesson in all this: Real estate agents and investors routinely seek information about properties from title companies in documents such as a "property profile." Those who are extra cautious will sometime seek a preliminary title report. That's fine, and the information is probably accurate in almost every case. But no one should think the title company has liability if those and similar reports are erroneous or incomplete.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way.

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Bob Hunt

Bob Hunt is a former director of the National Association of Realtors and is author of Ethics at Work and Real Estate the Ethical Way. A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at scbhunt@aol.com.

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