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Source of Title Blog

Fidelity Company Sues Attorney For Relying On Its Commitment
by Robert Franco | 2009/06/18 |

Chicago Title, one of the Fidelity companies, recently filed a lawsuit against an attorney in New Jersey claiming that it was malpractice for him to rely on a title commitment he ordered for his client in the course of representing him in a purchase transaction.  I guess nothing in this industry should surprise me anymore, but I had to read this article twice just to make sure I wasn't missing something.  What does it say for the title industry when the nation's largest underwriter, controlling about 45% of the market share, sues an attorney who ordered its product for relying on its accuracy?

Source of Title Blog ::

An article on, Insurer Blames N.J. Lawyer for Blot on Title, chronicles the events that led to this very bizarre legal malpractice claim.  It began in 2001 when the estate of a man who died in 1999 sold a six-unit apartment complex to Danton Properties, LLC.  Danton hired Commonwealth Land Title, which is ironically now also a Fidelity Company, which issued a policy without any exception as to federal estate taxes.  Commonwealth apparently relied on the executor who certified that there were no estate taxes due.

In 2002, Danton sold the property to John Jhang, who was represented by attorney Albert Birchwale.  Birchwale ordered title work from Vested Title Inc., which searched the property and obtained a title commitment from Chicago Title. 

Apparently, nobody was aware that the executor of the estate that sold the property to Danton had failed to pay estate taxes.  In 2007, the IRS sued the executor to recover $2.7 million in back taxes and it filed an IRS lien on the property in question.

Chicago Title paid $300,000 to settle on behalf of Jhang, its insured, but they maintained their third-complaint against Birchwale alleging malpractice. 

Here's how Birchwale erred, according to an expert for Chicago Title, Stuart Reiser of Shapiro & Croland in Hackensack:

He should have noted from the title binder he reviewed before the closing that there had been an estate in the chain of owners within the preceding 10 years. Had he done so, Birchwale would have seen there was no Estate Tax Closing Letter in the record of that previous transaction and no exception to a federal lien in the Jhang's title binder.

And that would have prompted him to take action. "Armed with such knowledge, defendant should then have requested additional information or documents from the seller or their attorney which would have demonstrated that the estate taxes were either paid or unpaid," Reiser said.

Birchwale could have asked the seller for a closing letter from the IRS, a release from any liens, an affidavit of no taxes due, a bond for any unpaid estate taxes, an escrow of funds to pay taxes or an indemnification agreement, Reiser said.

Is Chicago Title really saying: "Hey attorneys, we want your referral work, but if you rely on our agents we may sue you for malpractice?"  Worse... is Chicago admitting that they don't do a very thorough title examination?  That is certainly the way I read its comments.

The title agent's review wasn't dispositive, Reiser added. In northern New Jersey, where title agents merely report on the status of title through research of public documents, lawyers are "obligated to exercise a greater degree of care than that which could or should be expected of a title agent," Reiser said.

Sure, Birchwale could have taken it upon himself to make a review of the probate records beyond the Chicago Title commitment, but isn't that why he hired Vested Title?  It seems rather disingenuous for Chicago to make the argument that Birchwale could have taken additional steps, but for some reason its agent couldn't or shouldn't be expected to do the same.  Birchwale put it best when he asked, "If lawyers are going to be held accountable for what title professionals are supposed to do, why should homeowners pay for searches and coverage?"

I'm just a small independent title agent - I'm certainly not in the same league as the nation's largest underwriter.  Still, I know that when an estate appears in the course of a title examination I need to make sure that there aren't any outstanding estate tax liabilities.  Somehow, I think that my underwriter expects that of me... but, I don't write for Fidelity. 

Several experts quoted in the article, not surprisingly, disagreed with Chicago's expert.  It is routine practice for attorneys to rely on the title company to search the title.  It seems rather elementary to me that Birchwale represented his client's interests rather well - he ordered title insurance for him and reviewed the title company's commitment.  In the event of defect, such as this one, his client's interests are protected by the policy.

If the client's interests are protected, how can that be malpractice?  Birchwale didn't represent Chicago Title - he did not owe any duty to Chicago to discover and correct its agent's negligence.

This case underscores the importance of knowledgeable, experienced title professionals in the title insurance industry.  Despite Chicago's expert's claim that "title agents merely report on the status of title through research of public documents," there is much, much more to a thorough title examination than this.  Aggregating documents is only the beginning; an experienced title examiner must also know the legal consequences of the documents and court proceedings such as probate.  Not only must the examiner know the effects of legal documents, they must also recognize when certain documents are missing - like the IRS Closing Letter that was not found here. 

Of course, the downside to being a knowledgeable, experienced title professional is that we can't sue our customers for relying on our work. 

Chicago Title voluntarily dismissed the case, but it has not altered its opinion that the suit had merit.  I guess everyone is entitled to their opinion.

Robert A. Franco


Categories: Attorneys, Risk, Liability and Claims, Title Problems

1404 words | 7574 views | 3 comments | log in or register to post a comment


The real question is "was Birchwale a principal in Vested Title Inc"????.And knowlingly hide or fail to discolse the Fed Tax Issue,with the intent to insure the title free of the Lien????

by Sal Turano | 2009/06/26 | log in or register to post a reply

Things that make you go, "mmm"

Unlike NJ Inheritance Taxes and NJ Estate Taxes with Federal Estate Taxes there is no constructive notice that there is none due and owing.Commonwealth relies on the Executor's affidavit that there are no Federal Estate Taxes and issues a policy in 1999. In 2002 Vested Title agent for Chicago Title issues an Owner's Policy to a subsequent title holder without exception to Federal Estate Taxes presumably because they had a copy of the Commonwealth Title Policy otherwise they would have obtained a 60 year search and since outstanding Federal Estate taxes are not a matter of public record they would have to raise an objection in their title commitment. We don't know the details. Maybe Vested raised the exception and obtained a letter of Indemnification from Commonwealth for Chicago Title. If that is true, it is ironic that by the time Chicago processed the claim and would have turned to Commonmwealth under the Indem agreement both Chicago and Commonwealth were absorbed by Fidelity. Since Chicago couldn't limit their liability and spread the risk to a prior Insuror they went after the Attorney/Closing Agent. I wonder if the Attorney sued Vested. As to Mr. Turano's speculation in his post: There are a handfull of NJ court opinions that lawyers with an ownership interest or as employees of Title Agencies or Underwriters may not represent a party and sell them an insurance policy in the same transaction.

by Richard Scott | 2009/06/27 | log in or register to post a reply

Fidelity suit

It certainly does not sould as though Mr. Birchwale had an interest in Vested Title.  Has that been the case, I would assume that Chicago would have made Vested a party to the action.

I would also guess that Vested did in fact rely on the Commonweath policy.  I base that on the depositions noted from Chicago and Vested in the original article.

I can't say I know all the details, but my guess is an attorney for Chicago tried to get a bit of the settlement money from the E&O carrier for Birchwale in the hopes they would roll rather than defend.  Chicago seems to rely on the fact that the current seller took title via an Executor's deed, so Birchwale was on notice as that was disclosed in the title commitment.

I would guess that Chicago Title will not be getting many referals from buyer's attornies in New Jersey for quite some time.

by Douglas Gallant | 2009/06/27 | 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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