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Source of Title Blog

Liability Disclaimer On Title Searches
by Robert Franco | 2007/03/16 |

After my problem with A Missed Judgment Lien, I started thinking about the liability disclaimers that some abstractors use on their search forms. I have always had mixed feeling about them and have never tried to limit our liability is this way. I thought this would be a good time to revisit the issue.

When I began abstracting 14 years ago, this was a profitable business. It certainly wasn't a career where I expected to become a millionaire, but I was able to make a comfortable living and put a little money away for a rainy day. I considered it to be a fair and reasonable profit. Now there are abstractors out there charging less than I was charging 14 years ago; not one or two, but several of them.

In addition to the increased competition, we are seeing the volume of work decreasing. This decrease was caused not only by the normal cyclical market effected by interest rates, but also more damaging long term trends that no longer require an abstractor's search. Refinances, second mortgages, and equity lines are all being handled with an automated title search, or worse yet, a deed copy and credit report. This could mean that the market will not rebound as it has in the past.

Yet, despite downward pressure on abstracting fees, the costs of producing a thorough title search are still increasing. Errors and omissions insurance, health care, utilities, gas, copy fees, and the like, have all gone up since I have been in the business. While that is to be expected, the decline in abstracting fees was not something I had anticipated. I had always assumed that I would be able to keep my prices in line with those business costs.

Now, we have more clients requiring their abstractors to carry E&O and they utilize the abstractor as a means of outsourcing the liability of issuing their policies. Even the minor claims that I would have willingly paid just to keep a client happy can be devastating to our bottom line.

Still there are two problems I have with using a disclaimer to limit liability for our work: (1) I have some doubt as to their enforceability; and, (2) What message does it send to our clients?
 

Source of Title Blog ::


There are two cases, both in Pennsylvania, that squarely addressed the issue of whether or not an abstractor could effectively limit his liability in this manner. While one upheld the limitation, the other did not.

In Express Financial Services Inc. v. Gateway Abstract Inc., Gateway had missed a $292,000 mortgage and Express had to pay $220,000 to their underwriter to reimburse them for the claim. The search that Gateway had completed contained the following statement:
 

"This title search is based upon the examination of recorded evidence from courthouse records. This is not a title policy nor is it a commitment for title insurance. Upon payment, liability is assumed by Gateway Abstract Inc., for any negligence, mistakes or omissions as an abstractor and only for the time period searched. This search excepts any defects, liens, encumbrances, adverse claims or other matters, as a result of or caused by computer error, program error, programmer error, or programming limitations, including but not limited to any misspellings or derivations of the surname when searching any courthouse automated system liability hereunder is assumed by the company for its negligence, mistakes or omissions in a sum not exceeding the cost of the search." (emphasis added)


The Court found that an oral contract existed between the parties based on their course of dealing, the delivery and acceptance of the order, its completion and the $40 payment for the search. The remaining question was whether the disclaimer effectively limited the liability of Gateway to $40. Because Express did not object the use of Gateway's forms containing the statement and the language of the disclaimer was clear and unambiguous, the Court held that Gateway's liability was limited to $40.

In Fidelity National Title Insurance Company of New York v. Suburban West Abstractors, Suburban missed a $318,750 judgment. Fidelity defended that claim and was able to recover part of the loss through a settlement agreement. Fidelity then sued Suburban for their remaining loss and attorney's fees and received a jury verdict for $176,000. Suburban appealed.

In the first trial, Suburban introduced their search report, which contained a statement purporting to limit the company's liability to $25, and a price list, which indicated the existence of a $10,000 errors and omissions insurance policy. On appeal Suburban claimed that Fidelity should not have been permitted to refer to the insurance policy and that the disclaimer limited Suburban's liability to $25.

Pennsylvania Rule of Evidence 441 states:
 

Evidence that a person was or was not insured against liability is not admissible upon the issue whether the person acted negligently or otherwise wrongfully. This rule does not require the exclusion of evidence of insurance against liability when offered for another purpose...



The Court found that Rule 411 applied and that "the evidence was offered for the sole purpose of determining whether the parties had agreed to restrict liability." Furthermore, the court stated that Suburban "cannot now object to the inclusion of evidence which it voluntarily introduced."

The Court upheld the judgment against Suburban, finding no error in the jury verdict. The disclaimer, limiting liability to $25, and the $10,000 errors and omissions insurance indicated a sufficient discrepancy allowing the jury to find that there was no agreement between the parties to limit the liability of Suburban.

Thus, it would appear that by furnishing a copy of an E&O insurance policy to the client, it would be difficult to later establish that a disclaimer was a part of an agreement with the client to limit liability for searching errors. This is especially difficult now that most clients require a copy of the policy. It seems clear that by requiring the abstractors to carry E&O insurance that they expect the abstractor to remain liable for losses they cause and they are not assenting to be bound by any disclaimer on the search forms.

Given the doubt about the enforceability of such a disclaimer, it would be foolish of an abstractor to provide services without E&O insurance. But, it doesn't seem possible to carry the coverage for your own protection, and effectively limit liability through a disclaimer; unless, perhaps, you do not mention to, nor provide, the client with information regarding the policy.

My other thought, regarding the message it sends the client, presents another complex issue. Would clients still be willing to work with an abstractor that claims no liability for their mistakes? Carrying E&O and taking responsibility for errors presents a much more professional image. And all else being equal, they would certainly choose one who did over one who did not.

Perhaps if all of the abstractors could effectively limit their liability to the amount paid for the search, which still remains doubtful, it would force a change in the industry. Clients would be forced to use the best abstractors to limit their exposure to liability, rather than any inexperienced abstractor who obtains an E&O policy.

The clients could still request the abstractor to pay for their mistakes by threatening to pull their work if the abstractor does not take responsibility for their errors, and the abstractors may comply rather than lose a good client. Yet, it would make them think twice about jeopardizing a good relationship with a skilled abstractor over an honest mistake.

What would make the most sense is for abstractors and their clients to share the liability. The clients charge much more for their services and are compensated for the risk they incur. While that does not exculpate the abstractor from liability, those who charge for the potential risk should bear some of the burden of mistakes. After all, a client with employee abstractors would still have a risk and no one to share in the liability. The proper way to manage that risk is to choose their abstractors carefully, based on skill and experience, rather than price and turn-around time. Just as they would fire an employee who is careless and makes too many mistakes, they should drop an independent abstractor who is similarly unqualified.

I have not yet decided to adopt a disclaimer for liability. But if I do, I will make it clear that it is not because we do not take pride in our work, nor strive to be well educated and informed of our duties. Rather, it will be because, no matter what we do, we cannot guarantee that we will never make a mistake and our compensation is simply insufficient to bear the full risk. I would also require an agreement in writing to the effect of our liability limitation. I would not solely rely on a disclaimer on our search forms.

At this point, I do not know what the answer is. But, something has got to change. Abstractors are not sufficiently compensated for the risk they assume. As the trend continues the better abstractors will realize that they can no longer justify remaining in the business and the industry will be left with a glut of inexperienced abstractors. The price will be cheap, but the cost will be enormous - to the abstractors, the title industry, and the consumers.

Robert A. Franco
SOURCE OF TITLE
rfranco@sourceoftitle.com
 




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Categories: Abstractors, Risk, Liability and Claims

2204 words | 5978 views | 10 comments | log in or register to post a comment


We've used a standard disclaimer on...
We've used a standard disclaimer on our searches since about mid-2003. A couple of my colleagues have said they like the idea; I've never had a client comment on it, good or bad. My guess is that most companies don't scrutinize the report much beyond what they need to complete the file. 
by Scott Perry | 2007/03/16 | log in or register to post a reply

I have only asked an abstractor to ...
I have only asked an abstractor to cover my share of a claim once. He was aware of a judgment but decided himself without consulting me that it wasn't the same person. The title company wanted me to pay 50% of the judgment. I did and the abstractor worked for free until he reimbursed me. We settled on a new policy of reporting all judgments and letting me be the judge of whether or not it's our person.

We've had two other claims related to abstractor error. Both were fully covered by the title underwriter. We stopped using the abstractor because she apparently didn't understand outsales. She had come highly recommended by the title underwriter and many people still use her services.

I believe the abstractor is not a title insurer and should not expect to pay claims. That's the job of the title insurer. If the abstractor was flagrantly negligent, then the title company may seek to recover damages.

The lender who took the deed in lieu could have purchased an owner policy if they so desired.
 
by Diane Cipa | 2007/03/16 | log in or register to post a reply

That's why I take particular care i...
That's why I take particular care in the wording of certain things on a report. Any notes or info I include are taken verbatim from the document or stated in a way that makes it clear that I am not rendering a legal opinion, just reporting facts.

If I encounter a judgment under a similar name in the record, I report it along with a note that the person could not be positively identified.
 
by Scott Perry | 2007/03/16 | log in or register to post a reply

That's why we love you, Scott. AND...
That's why we love you, Scott. AND you type a thorough report AND you give me an invoice WITH the report!!! 
by Diane Cipa | 2007/03/17 | log in or register to post a reply

I also took the liberty to post on ...
I also took the liberty to post on SOT but this is an issue that I sort of feel strongly about so I saw a viable chance to voice my opinions on both forums and took it.
First regarding the disclaimer, as I said on SOT the title companies and underwriters make sure to include their own little disclaimer regarding including items that couldl effect that are not disclosed on the policy, they are covering their a** so why shouldn't I cover mine? Or in a reality at least TRY to? There is question here in NJ if they work, if they are enforceable, etc.. I am not a lawyer, I don't have an answer for that but in the meantime how can having a disclaimer hurt me? If a client won't use me because of that disclaimer then I don't want them as a client, to me it seems that they want a guaranteed way to "pass the buck" or rather pass the lawsuit onto me. No one wants a lawsuit and of course I search each and everyday thoroughly and cautiously but human error can and does occur and that disclaimer really only serves to protect me against mistakes that the COUNTY could make...not my negligence. Why should I or the title company be forced to pay or take the blame for a mistake made by some county worker in a hurry to get home on a Friday? I often tell my clients that when I sit down to a computer I search the name by entering it with wild cards, then by block and lot, etc. but I do NOT sit down to search it and try to come up with every way a county employee could of screwed up the name.

As for the judgments...I and everyone who works for me or under me reports EVERY judgment we find under a name. I can look at a federal tax lien and know with certainty it isn't my person but I show it anyway. I have trained people over the years and have told them, you might run a name exact for one thing but judgments aren't it. You show EVERYTHING and you let the reader/examiner make the determination of what stays and what is omitted. I tend to show too much information and let them decide what should or should not go into the policy, that's what they are paid for anyway not me. My job is to report the records as they appear and not to make a decision regarding what could or could not affect. They make you sign omit forms at the closing so let them worry about it not me. I've discovered that here in NJ most examiners don't search and most searchers don't examine and as a searcher I would never presume to cross the line and do something that so easily could bring a lawsuit. The theory here (as far as my opinion) is "when in doubt run it out" and therefore I throughly search and I have the feeling personally when it comes to documents/judgments/possible easements and the like "if you don't want to take the fall, then you don't make the call"

As like my post on SOT this is all my 2 cents worth straight out of bed on a Sunday morning with coffee in hand ready to sit down and clean up the "office" (home office) before Monday morning hits.
 
by Candi Richter | 2007/03/18 | log in or register to post a reply

I appreciate the plug, DC! I thank...
I appreciate the plug, DC! I thank you, and my E & O carrier thanks you! ;) 
by Scott Perry | 2007/03/18 | log in or register to post a reply

This is ignorance talking, so pleas...
This is ignorance talking, so please enlighten and educate me. Doesn't the borrower or seller have some liability when they sign a title affidavit stating that there are no mortgages, liens or outstanding judgments against them?  
by Lee/AR | 2007/03/19 | log in or register to post a reply

Lee: I think that the seller most ...
Lee: I think that the seller most certainly would have some liability, but if you can't get them to pay it, someone else gets stuck with it. That is what makes preliminary judicial work so risky - the seller is already in default.

In this case, nothing can be collected from the seller. And because the lien holder refused to assign the judgment, they get off the hook.

Its not fair, but the abstractor is at the end of the chain. Thus, we get stuck with the liability.
 
by Robert Franco | 2007/03/19 | log in or register to post a reply

Abstractor liability to the title a...
Abstractor liability to the title agent/insurer is one thing, but those who lend on an O&E report shouldn't get anything they didn't pay for, namely title insurance coverage. I'm not sure all that many people know the difference between a title report and a commitment to insure title, and getting $50 to $100 to expose yourself to what, in the best case scenario, is a convenient misunderstanding isn't worth it.  
by John Povejsil | 2007/03/21 | log in or register to post a reply

SIGNED TITLE REPORT
I recently attempted to have a title company examiner sign and notarize (acknowledgement of her signature only) a preliminary title report! No title company in Houston Texas would agree to have their report signed--much less notarized. If signed and notarized it could then be filed and recorded as an affidavit---which  would be good to be viewed by potential investors online. All good investors and buyers constantly peruse the ONLINE PUBLIC RECORDS. 
by DANDAN ZHU | 2019/01/04 | 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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