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Source of Title Blog

Bad News For Creditors
by Robert Franco | 2008/07/03 |

Though it's not the primary purpose of the title insurance industry, title companies have always played an important role in the process of collecting judgments.  When an interest in land was conveyed, whether it was a sale or a new mortgage, the title company did a thorough title search and if there were any judgment liens they were required to be paid off before the transaction could proceed.  The main function of this, of course, was to clear the title so a policy could be issued.  However, as a secondary matter, it assured creditors that they would get paid if the debtor tried to dispose of their interest in the encumbered property.

Today, shoddy workmanship and a drastic decline in search standards means that judgment creditors can no longer rely on the system.  That is bad news for creditors.

Source of Title Blog ::

One of the best title examiners I know called me recently to tell me about a search she had just completed.  A valid judgment lien was missed at least three times in three different transactions and now the lien is dormant.  The judgment creditor had no idea that they missed three opportunities to collect on their lien and because they failed to renew it, they are out of luck.

Here is a brief summary of the events.

In 2002 Dee Kay bought a house and wrote a $10,000 check to the title company... which bounced.  Criminal charges were filed and the title company obtained a $10,000 judgment and filed a lien against the property shortly thereafter.

In 2003, Dee Kay was foreclosed on by The Bank.  The lien was apparently not discovered in the title search, it was not shown on the preliminary judicial report, and the title company was not served notice. 

In 2005, The Bank sold the property to Kris Stew.  Again, the lien was apparently not picked up in the title search and the closing proceeded without paying off the title company's lien.

In 2006, Kris Stew was foreclosed on and the property went back to HUD.  Once again, the judgment lien was discovered in the search, not shown on the preliminary judicial report, and the title company was not served notice of the pending foreclosure.

Now, it's 2008 and HUD is selling the property.  In Ohio, judgment liens are good for five years.  Thus, the title company's lien expired in 2007.

There is no doubt that the title search for the first foreclosure in 2003 should have disclosed the existence of the lien.  Had it been included on the preliminary judicial report, the title company would have been served and, whether or not they would have received any payment, the lien would have been released as to this property.  That should have taken care of the issue.  However, the title company was not included as a defendant in the foreclosure and their lien survived.

My guess from there is that the on the sale from The Bank to Kris Stew, the abstractor saw that there was a foreclosure with a preliminary judicial report and it was relied on, rather than conducting a proper search.  Perhaps, it was even the title company's direction to do a short search.  It was probably assumed that it just came out of foreclosure, everything must be fine.

The law firm handling the second foreclosure for HUD most likely relied on the lender's policy and only conducted a current owner, or updated the policy.  This is becoming more and more common with foreclosure searches. In my opinion, it is a very hazardous practice.  The searches done for the loan policies are mostly short searches and, especially with the quality of work that passes these days, it is just not a safe assumption to rely on the accuracy of someone else's work.  Yet... it happens every day.

I know a few business owners who have had to obtain judgments and they have followed all of the proper steps to assure that they have a lien on the property.  They all assume the same thing... "at least I'll get paid if they sell or refinance their home."  That is just not a safe assumption anymore.  The title industry no longer protects the judgment creditors like it once did.  Should these creditors be forced into a position where they have to do title searches every know and then just to check to see if the debtor has conveyed any interest that was encumbered by their lien?  I don't think that should be necessary.

In this case, the title company creditor would not likely have gotten paid from any of these transactions anyway.  The first sheriff's sale probably did not provide enough to payoff the mortgage and the lien.  However, the creditor was deprived of their right to show up and bid on the property at the sale.  Who knows what the property was worth, or if they would have opted to do so, but they should have been given notice of the suit and afforded the opportunity to file an answer.  In any regard, at the conclusion of the action, the lien would have been removed from this property.

The criminal case against Dee Kay is still open while she makes restitution payments to the title company.  The debt may still get paid.  However, the fact that the lien was missed in three separate transactions should be enough to shake your faith in the system... I know it worries me.  This doesn't say much for the integrity of the title industry, and it is bad news for creditors.

Robert A. Franco


Categories: Abstractors, Foreclosures, Title Industry, Title Problems, Title Standards

1229 words | 8262 views | 9 comments | log in or register to post a comment


that is what is wrong with the current title work done. i always check for liens or judgments on a prop, even though the title companies i do the foreclosure work for send the prior committment. that should be every title abstractors job. that is what he/she is getting paid for. not  just to rely on the prior committment. i am appalled... humph...........................

by charles jetter | 2008/07/07 | log in or register to post a reply

Judgment Creditor at Fault for Its Loss

I would agree that the title searches in question left much to be desired. However, I think that any loss experienced by the judgment creditor was more directly the result of its own lack of diligence in duly executing on its judgment.

From the above blog I get the impression that the judgment creditor was the victim of criminal conduct in question. In criminal actions involving defalcation of funds the issue of restitution is paramount in sentencing. Following conviction the defendant is usually required to file financial affidavits with the court disclosing financial assets for purposes of restitution. The defendant's cooperation in this matter  impacts on leniency in the sentencing hearing and/or early release from prison. The blog does not indicate whether the judgment lien in question was the result of a separate civil action or the result of a crime victim's recovery statute. However, if the defendant's financial affidavits disclosed any assets restitution should have been forthcoming. If not, the judgment creditor had the right to record and foreclose on its judgment lien, but failed to do so in a timely manner.

If the judgment creditor did not benefit from the above mentioned financial affidavits...most states have procedures to enforce execution of a judgment. In Connecticut that would include a motion for examination of judgment debtor to discover the amounts and locations of non-exempt assets to satisfy the judgment. If the judgment debtor fails to appear at the motion calendar, a capias can be issued for his arrest and detention until the motion can be rescheduled on the court's docket. That could be another 30 to 60 days.

When representing a judgment creditor his attorney generally explores all options available for execution...the above mentioned motion, wage execution, bank execution, property execution and recording judgment liens on all the judgment debtor's property. When there is a delay in execution of the judgment it is usually the result of a lack of resources available to satisfy the judgment. In which case the judgment creditor leaves the judgment lien on the property until such time as foreclosure of the lien becomes attractive.

The above blog indicates that there was a mortgage with senior priority on record at the time the judgment creditor recorded its lien. This could explain the initial delay in execution, but not the subsequent delays. It has been my experience that judgment creditors are reluctant to expend more funds to protect their lien priority. In most cases they simply allow the lien to be extinguished rather than to expend money bidding on the property in a foreclosure by sale or redeeming the property on its assigned law date. It does not extinguish the debt, but simply transforms it to an unsecured debt.

If anything the judgment creditor benefited from the performance of the first title search. His lien was not foreclosed, and it resulted in leaving the judgment creditor with a first place priority for all subsequently recorded mortgages and liens.

Yes, the judgment creditor should periodically review the property subject to the lien to determine whether or not foreclosure is viable. After the initial mortgage was satisfied in the first foreclosure the judgment creditor should have pursued its own foreclosure. It enjoyed a first place position up until the time of its failure to record a continuation sheet extending the lien for an additional term. Connecticut has the same rule. Small claims judgments and Superior Court judgments both provide for recording of judgment liens, but they do have to be renewed by recording continuation sheets every five years for the duration of the judgment's term.

In any subsequent action by the judgment creditor against the abstractors who performed the searches...I think it would be an up hill battle for the judgment creditor. Since there was no contract between them, I would think that the judgment creditor would be left with an action in negligence. It is questionable whether the abstractors owed a duty to the judgment creditor. I think there would be huge problems with causation. Were there  damages experienced by the judgment creditor proximately caused by the failure to include the lien in the abstract or by the lien holder's failure to continue the lien? The judgment creditor continued to enjoy its first place priority regardless of the title searches, and only lost the benefit when it failed to continue the lien. It might even be argued that the lien holder's failure to continue the lien was an intervening cause of the damages.

Many, if not all,  states are now comparative negligence states. As such the judgment creditor's conduct would be weighed by the trier of fact to determine if there is a reduction of the damages even if the judgment creditor was successful in its negligence claim against any of the abstractors.

by Kevin Ahern | 2008/07/07 | log in or register to post a reply

That is a good explanation...

Thank you, Kevin.  I do understand.  But I still find it sad that the title industry cannot be relied on to facilitate the creditors with these issues.  You are absolutely correct... the judgment creditor must share some of the blame here.  However, I think creditors should be able to rely on these issues being discovered during a real estate transaction, especially a foreclosure.  The creditor's attorney probably dropped the ball here, but I wouldn't expect the average Joe Creditor to check the title of his debtors to see if his lien was missed.  I think 10 or 15 years ago, it would have been fairly safe to rely on the title industry - and, the creditor (or his attorney) would have been notified.

In Ohio, there would be no negligence claim against the abstractor by the creditor.  Ohio is one of the few remaining states that still requires strict privity of contract.  Courts still adhere to a 1910 Ohio Supreme Court case on the issue.

So far as we have been able to discover, there has been no exception to the general rule that an action against an abstracter to recover damages for negligence in making or certifying an abstract of title, must sound in contract, the general rule being that the abstracter can be held liable only to the person who employed him. (citing Nat'l Sav. Bank v. Ward, 100 U.S. 195, 199 (U.S. 1880))

Thomas v. Guarantee Title & Trust Co., 81 Ohio St. 432, 442 (Ohio 1910)

I'm not all that confident that if another case were to reach the Ohio Supreme Court that they wouldn't take the opportunity to overrule Thomas.  But, even as recently as the mid-90's the appellate courts have refused to stray from its holding.

If it had been discovered sooner and a claim filed on a title policy, the abstractor may have had something to worry about.  Now, however, it appears the abstractor is off the hook. 

by Robert Franco | 2008/07/08 | log in or register to post a reply

Judgment Perfected?

I don't know if anyone has considered this but was the judgment spotted and perhaps it was defective? Here in Florida we can rule out a judgment for several reasons. One of the main reasons in Fl. is that the judgment must be recorded, then a certified copy must be obtained and then recorded again or the judgment is ineffective. Yes you heard me right. Also the creditor's address (not the attorney's) must be on the judgment and as long as an affidavit of address was not put on record after the judgment it may be diregarded. So in either of these cases the judgment can be ignored by the abstractor/examiner. Here in Florida there are literally millions of judgments and if they are not perfected I do not believe that it is our business or duty to try to help the creditor against our client, it may actually be a breach of our fiduciary duty.

Also if the property is Homestead property an otherwise valid judgment cannot attach to the property. There are many procedures to follow for these scenarios but it is something to consider. I have not seen any one mention if the judgment contained any fatal defects.

by John Flaherty | 2008/07/08 | log in or register to post a reply

Judgment was valid

From the public records, it appears that the company had a valid judgment until it expired last year.  Those Florida requirements seem quite odd... and very technical.  I'm very surprised that such technicalities can invalidate a judgment - you would think so long as there is a public filing that provides enough information to put third parties on notice, it would be sufficient.  I'd be hesitant to ignore a lien.


by Robert Franco | 2008/07/09 | log in or register to post a reply

Interesting Ruling

Ohio definitely has an interesting approach to the matter of negligence.

I also think that the judgment creditor should have filed a judgment lien with the Secretary of State's office in addition to recording one in the land records. It would have encumbered the debtor's personal property, bank accounts and accounts receivable. It would also have shown up in a credit report which would have almost certainly shown up for purposes of the sale of the property, and may have had the desired result of obtaining payment for the creditor before he failed to continue his lien on the land records. Then again it may not since the one sale in the chain of events involved a seller who was not the debtor.

Normally an attorney moves to encumber everything he can discover following entry of judgment and the expiration of stay of execution pending appeal. It is hard to imagine how this debt slipped through so many cracks.

by Kevin Ahern | 2008/07/09 | log in or register to post a reply


Yes, Florida is quite complicated when it comes to judgments. I only scratched the surface. A judgment against one spouse is not valid against the RE held by a married couple. Also by underwriting standards we are allowed to use a male's middle initial to ignore a judgment but not a woman's and on and on. There are so many judgments here we have to have some sort of standard or we would spend weeks on some titles with common names, especially since a judgment here is good for 10 years and some involving mobile homes or the government can be good for 20 for the initial recording. There are also some complicated procedures I have to file so my customer does not have to pay a judgment that is not perfected. Also what many of these inexperienced agents do is they see a judgment and require the borrower to pay them off. What they don't understand is that if the title company requires them to pay them off and they were not perfected the borrower can make a claim against the title company!

The real kicker now is that due to the privacy laws the SS# of the debtor is not even in the file for the judgment any more. So it is almost impossible on common names to tell if the debtor and the customer are one and the same. We use a LOT of non-identity affidavits here!

by John Flaherty | 2008/07/09 | log in or register to post a reply

Yes, Ohio is in the minority...

I actually wrote my law review article on the subject of title abstractor's liability to third parties and I was surprised to discover just how different things are around the country.  I think there are only about 5 or 6 states that still adhere to the strict privity requirement in Savings Bank v. Ward.  And, of those Ohio was the only state that had any recent case law on the issue. 

Most states have relaxed the privity requirement by applying some sort of third party beneficiary theory and a few have moved even further by applying the tort law for negligent misrepresentation. By far the worst state for abstractors is Michigan. 

Because an abstracter is hired to determine what is in the public record, misstatements of, or failure to include, relevant items contained in that record are obviously examples of acts constituting failure to perform abstracting services in a diligent and reasonably skillful workmanlike manner.

This cause of action arising from breach of the abstracter's contractual duty runs to those persons an abstracter could reasonably foresee as relying on the accuracy of the abstract put into motion. The particular expert-client relationship accruing to a professional contract to certify the condition of the record of title  reposes a peculiar trust in an abstracter which runs not only to the original   contracting party. There is a clearly foreseeable class of potential injured persons which would obviously include grantees where his or her grantor or any predecessor in title of the grantor has initiated the contract for abstracting services with the abstracter.

Williams v. Polgar, 391 Mich. 6, 22-23 (Mich. 1974)

The Williams case was very interesting, but a bit scary from an abstractor's perspective.  The court painstakingly analyzed the issue in every state and somehow managed to go far beyond all of them to find the abstractor liable.  The decision was even critisized by a California court citing Prosser & Keeton on Torts (5th ed.).

The most recent edition of Prosser's treatise notes that in a narrow circumstance involving abstractors and surveyors, the Michigan State Supreme Court expressed a rule of liability based on the foreseeability of harm.   This, however, is an aberrant viewpoint. Prosser is emphatic that foreseeability of harm is not the test: "The plaintiff must have been a person for whose use the representation was intended, and it is not enough that the defendant ought reasonably to have foreseen reliance by someone such as the plaintiff."

Christiansen v. Roddy, 186 Cal. App. 3d 780 (Cal. Ct. App. 1986).

It was very interesting doing the research for this law review project.  I wish I had had more time to work on it - but I was swamped with my other course work at the time.  I managed to finish in time and did well enough to get my credit for law review, but it was not selected for publication.  I didn't really expect the editors to be all that interested in the subject matter anyway.  I really never expected to get it published.  I just wanted to learn more about this are of the law.  It was a very good experience.

by Robert Franco | 2008/07/09 | log in or register to post a reply

Right On Kevin

Astute response, shed the light on  a issue evenly. I read this for edification on that type of issue, thanks, great job.

by Matthew Sharpe | 2008/07/10 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco



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