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Source of Title Blog

Attorney Sued Over Inadequate Title Search
by Robert Franco | 2009/12/05 |

In an industry dominated by short searches it seems rather odd to see an underwriter sue an agent for professional negligence for only searching 40 years, rather than 60.  But that is exactly what is happening in Putnam County, West Virginia.  When an attorney, acting as an agent for First American, missed a corrective deed filed in 1958, First American paid the claim and filed suit against him.

Source of Title Blog ::

According to an article on The West Virginia Record, attorney Alexander Ross issued a $495,000 policy on a small strip mall.  The policy insured a 0.69 acre parcel, but Ross's search failed to discover a corrective deed file in 1958 which reduced the acreage by 0.2 acres.

Unfortunately for Ross, his agreement with First American only authorized him to issue policies up to $250,000 without prior approval.  In addition, First American alleges that Ross failed to conduct the customary 60-year search.

Because the outconveyance was not discovered in Ross' title search, and he insured the $495,000 without their authorization, First American says they had to pay a claim [the insured] made against them.

The claim, records show, was settled in April.

Because Ross did not first obtain their consent to insure a purchase exceeding $250,000 or conduct a 60-year title search, First American alleges he committed both breach of agency agreement, and professional negligence. As a result, First American is asking it be awarded unspecified damages, attorney fees, court costs and interest.

Granted, this was commercial property, which generally means a more thorough search is warranted.  However, it is getting harder to determine what is customary in the title industry.  At one time, in my part of Ohio it was customary to do at least 42-year searches on everything that was to be insured.  For acreage parcels and commercial searches it was customary to extend that search back 60-years or more, determined by local knowledge of utility easements and oil & gas leases. 

Today, custom has been thrown out the window and most insured transactions are based on short searches.  Sometimes that means a a current owner, two owner, or three owner search.  More common now, it may only entail updating from a prior loan policy.  Short searches used to be limited to the equity market for uninsured products, but they have made their way in to the residential title insurance market, and even foreclosures. 

From my perspective, it was the underwriters that led the charge to do less thorough title searches.  As I recall from my title abstracting experience, First American was among the first of the underwriters to adopt short-search standards.  It came during the refi-boom when there simply wasn't time to do full searches on everything and appease the busy loan originators and Realtors.  Up against demanding pressure and expiring rate-locks on loan approvals, the industry abandoned "customary" search standards and took the risk that a short search was "adequate."

Though most underwriting agreements still leave the agent on the hook for claims relating to "searching errors," it seems rather disingenuous for First American to sue an agent over a 40-year search, calling it "inadequate." 

After more than a decade of eroding search standards, how is anyone to know what the "customary" search standards are anymore?  First American may be sending mixed signals to their agents with this type of lawsuit.  On one hand, they have been indicating for years that a short search is acceptable.  On the other, they seem to saying that if you conduct short searches, you do so at your own risk.

Even though this was commercial property, the same thing could happen on a residential policy.  The coverage amount wasn't even beyond the realm of what we see on residential property these days.

I wonder what would have happened if Ross had sought approval from First American before insuring the transaction, as he should have.  From my experience, an excess risk approval generally entails answering some basic questions about the transaction and forwarding a copy of the search to the underwriter for review.  Had Ross complied, would First American have declined to approve the issuance of the policy and required a 60-year search?

The 40-year search probably looked fine.  Just like most of the current owners look okay on the many policies that are issued today.  Are agents opening themselves up to liability on claims if the fail to conduct a more thorough search?  Or was this situation unique because it was commercial property?

Underwriters should set more clear search standards for their agents.  Relying on what is customary just doesn't work today.  The title industry voluntarily abandoned customary practices long ago. 

Robert A. Franco
SOURCE OF TITLE




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Categories: Abstractors, Attorneys, Small Agents, Title Problems, Title Standards

1080 words | 7285 views | 5 comments | log in or register to post a comment


Edward

Robert: Apparantly First American did not have a problem  accepting its premium share for this policy amount. Why didn't they object then? Do they have any responsibility to verify underwriter approval for large policies before taking the money?

 
by edward hartung | 2009/12/07 | log in or register to post a reply

Wow

That's quite a wakeup call.

 
by Kristine Bjorge | 2009/12/07 | log in or register to post a reply

Breach of Authority on Title Insurance Issuance

Regarding the attorney that was sued for not conducting a 60 year title search, of importance is the issue of his breach of underwriting authority.  Many E&O policies for title agents will exclude coverage for breach of underwriting authority, so this individual could have a double wammy in that he is sued by the title insurance company and he is denied coverage on his E&O policy because he exceeded his authority. This is an intentional act and is often excluded.

MIke W. Smith

Axis Insurance Services, LLC

www.axisins.com

 

 
by Mike Smith | 2009/12/10 | log in or register to post a reply

Tile work

Oxford Universal defines 'Tile' as "To protect from intrusion" using the alternative spelling 'tyle'. The useage is as to guard the entrance, to protect the proceedings. In our recent era of 'tilus maximus', a term I created now used to describe the huge increase in the supply of newly constructed luxery homes and a seemingly standardized feature evident of there being some part of the home covered with tile (referring to the more standard useage of the word). I seem to have dropped a letter 't', intending to describe a problem with 'title', and have described a totally different item. But, having first set eye upon an index book in 1973 and having spent years preparing and/or verifying title chains of duration 'at least' ninety years, I am dismayed to read of but generally understand how the problem of missing an early title instrument for the reason the search was not exhausting enough. We have selves to blame. Look at 'the crew' at the courthouse, then look at 'the management' of the crews. Some of them were literally flipping hamburgers last week, and today get $2.00 more per hour and an extra paid week off working in jeans, thong, and flip flops with their BFF! Could not happen if the 'standard' were set back to where it was when 'we' learned it. I'll define what I mean as soon as I find my 'Webster's' - it is here someplace under one of these burger boxes ...

 
by Joseph Grabiel | 2009/12/29 | log in or register to post a reply

West Virginia Isssue/Attorney sued

I believe this is sad. I supplied searches in Virginia, West Virginia and North Carolina from 1980 until my retirement 4 years ago. I stopped doing reserch in West Virginia 15 years ago. It seems the recorder only indexes under THE NAME SIGNED ON THE DOCUMENT!! There may be several names noted on the instrument, ie man and wife, individuals, or CORPORATE NAME. However, the clerk only indexes under the name that is signed and notarized!. If running his chain, the name he is looking for is listed on the deed (or any other instrument), BUT NOT SIGNED ON THE DEED AND NOTARIZED, the recorder DOES NOT INDEX HIS/HER/CORPORATE NAME! Looks to me like the attorney needs to name the recorder/register of deeds as a third party defendant. Would be very interesting how the courts would look at this for "giving notice"!!

John C. Brewer

Gatefully retired!

Eden Title Services

 
by John Brewer | 2010/01/11 | 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
SOURCE OF TITLE

 

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