Watson V. Muirhead

The issuance of title insurance began after the 1868 case of Watson v. Muirhead was filed in Pennsylvania. Muirhead was a conveyancer who had searched and abstracted a title for Watson, who was purchasing a parcel of real property.

Muirhead found a lien on the title during his search. He supplied a copy of the lien to an attorney for a legal opinion. The attorney advised the judgment was not a valid lien. With this assurance, the purchaser completed the transaction.

Shortly thereafter, the property was sold at a Sherriff's sale in order to pay off the lien. Watson sued Muirhead to recover his losses. The Pennsylvania Supreme Court did acknowledge the lien and subsequent Sherriff's sale was indeed lawful, but dismissed the case.

The court determined the conveyancer was not liable for misinformation since the legal standard in those days for a conveyancer to be held liable, required the buyer to prove the conveyancer was negligent or failed to act with due care. Since the conveyancer had relied upon an attorney's opinion it was determined the conveyancer had used due care, even though the opinion was incorrect.

Watson, an innocent purchaser who had suffered financial damages because of the encumbrances on his title, had no recourse. The decision demonstrated the existing conveyancing system could not provide total assurance to purchasers of real property.

As a result, the Pennsylvania legislature passed an act, "…to provide for the incorporation and regulation of title insurance companies." The first title company was founded in Philadelphia in 1876. This new type of insurance provided:

1. Responsibility without proof of negligence;

2. Financial protection through a reduction of the risk of insolvency; and

3. The assumption of risks beyond those disclosed in the public records (for which the conveyancer was not liable).

Since then, the title insurance industry has become an essential component in real estate transactions in this country.

Multiplicity

In October 2018, a deed of trust which secured the construction loan for a home located in a luxury golf course neighborhood was released by a reconveyance recorded of public record. The release was not recorded as the result of an insured transaction, which caused Kim Pora, Escrow Associate with ServiceLink, to look closer at the details.

Kim reviewed the file carefully keeping in mind the following tips provided by her Underwriting Department:

• If a property is free and clear of any loan and the owner has owned it for less than 10 years, conduct appropriate due diligence to confirm the property is unencumbered. Some factors to consider: Was the prior transaction a cash purchase with no vendor's lien or deed of trust? Was the property recently foreclosed?

• If a deed of trust has been released of record without a corresponding sale or refinanced within the prior 12 months, contact the lender for confirmation that the deed of trust has been released. A "corresponding sale or refinance" would involve a conveyance of the land for value with an accompanying deed of trust or a refinance deed of trust. In either event, the new deed of trust should be in an amount sufficient to satisfy the released deed of trust.

• If the seller, buyer or third party presents a release for an outstanding deed of trust either at or prior to closing, contact the lender for confirmation that the loan has been released. Use independent means to obtain the lender's telephone number. Do not rely upon a number supplied by the parties to the transaction.

• Any time a recent quit claim deed is found in the chain of title, conduct appropriate due diligence to determine its validity (call the grantor, check with the notary, etc.).

Kim started her due diligence by looking over the signatures found on the deed of trust, grant deed and reconveyance. She noticed the same person signed a lot of the documents in the chain of title. She began to note the different entities involved in the purchase of the lot as the borrower and the lender, so she accessed the Texas Secretary of State website.

She discovered that one person, Homan Provement, was named as either the President, Trustee or Managing Member of at least nineteen entities. She did more research and discovered the same Homan was recently indicted for allegedly defrauding investors out of millions of dollars.

Kim also discovered there were four other orders opened on the same day with very similar parties and circumstances. The combined liability of these orders was $9,000,000.

Kim shared her findings with her management team and the orders were immediately cancelled. Management shared her story with us stating, "She exhibited a Bias for Action in looking at the data and taking the proper measures to ensure the Company's risk was minimized."

Way to go Kim! It is examples such as these which prove how prudent the underwriting requirements and thorough title examination are to protect the property rights of our customers. We thank you by presenting you with a $1,500 reward and a letter of recognition from the Company.

This article was provided by contributing author: Diana Hoffman, Corporate Escrow Administrator FNTG, National Escrow Administration

MOVIN' on up

In August 2017, Nate Hidalgo transferred up to Fidelity National Title's Whitefish, Montana operation working as an extraordinary escrow assistant. On November 13, 2018, he was working on a residential sale transaction where the seller had just emailed her payoff authorization, giving the payoff lender permission to send the payoff statement for her loan directly to Fidelity National Title.

Nate called the payoff lender and ordered the payoff statement using its automated system. The payoff statement arrived via electronic fax shortly thereafter and was placed in the file.

The following day, November 14, 2018, Nate received an email from someone who appeared to be the seller that read:

I made contact with my lender regarding the payoff and they told me the payoff has been fax to your office this morning. Can you please confirm if you received the payoff statement? If you have any questions, please drop me an email.

Nate responded to the seller and let her know the payoff was received. Another email from someone who appeared to be the seller read:

Okay good. If you have any question, please drop me an email.

Nate responded that he needed to clarify where to send the funds for the payoff and that he was on hold with the payoff lender. The supposed seller responded:

I am sure the details will be in the payoff letter, but I will also try to get a hold on them to clarify as well and see if I can have a copy of the payoff letter.

As you read this exchange, it might make you wish all sellers were as helpful in obtaining payoff statements from their lenders — right? The next message from the person purporting to be the seller read:

Here is the payoff statement I received from them and they said the funds for payoff should be send to the law firm debt collector of Kappa. The information's are in the payoff letter, let me know if you need anything else.

A payoff statement was attached, just like the one Nate had received previously. He compared the two. The payoff statement the seller supposedly emailed was dated November 14, 2018, but:

1. The per diem was removed

2. The mailing address for the payoff lender was removed

3. The contact email and telephone number for the payoff lender was removed

4. A new contact number for "Kappa" was inserted

5. The bank wire information had been changed directing the payoff proceeds to another bank in an account under the name of "Kappa"

Nate picked up the phone and called the payoff lender. They confirmed the payoff figures and the bank wire information was correct on the first payoff statement, not the second. For Nate's efforts to verify the bank wire, he has received a $1,500 reward and a letter of recognition from the Company.