A&A Property Management owned a gas station in the City of Detroit.  It purchased the gas station by taking out a secured loan from Comerica Bank. It also maintained its fuel supply through a mortgage arrangement with Armada Oil and Gas.  Armada recorded its mortgage first.  When A&A defaulted on its loan payments with Comerica, Comerica got a court-appointed receiver and was granted permission by the court to sell the gas station at auction.   The Court order specifically provided that any sale conducted on Comerica’s behalf would be subject to Armada’s first-recorded lien.

Plaintiff entered the winning bid at the auction.  At the time of sale, Plaintiff signed a purchase agreement specifically stating that the property was being sold “AS IS” and “WHERE IS” and “WITH ALL FAULTS”.   On the date of the sale, neither the Armada nor Comerica loan had been discharged.  Plaintiff purchased title insurance from Defendant.  The sale closed on January 24, 2008.  The defendant title insurance company issued an owner’s title insurance policy benefiting plaintiff, and this policy covered plaintiff against Armada’s claimed first lien on the property.

While plaintiff’s purchase was still pending, Armada filed suit against Comerica seeking payment of its undischarged mortgage debt.  Armada later added plaintiff as a named defendant in the lawsuit. When plaintiff notified its title insurance company, the company hired counsel to represent Plaintiff and covered all the costs involved in the litigation.  The title insurance company settled the Armada lawsuit and discharged the Armada mortgage.

Although the title company represented plaintiff in court and did ultimately clear the title, causing no harm to plaintiff, plaintiff filed suit against the title insurance company, complaining that the length of time that the litigation took was too long.  Plaintiff pointed to the fact that the title insurance policy stated that a defense would be provided “without unreasonable delay.”  The trial court dismissed the lawsuit and the Court of Appeals agreed.

The Court of Appeals held that while the policy requires defendants to provide a legal defense “without unreasonable delay”, it does not specify a particular length of time for the litigation.  Further, the plaintiff bought the property “as is” and “where is” and “with all faults,” which limits any liability.  And the policy gives the title insurance company, not the plaintiff, the right to decide whether to defend the case in court or simply pay the insured.    Finally, although the plaintiff accused the title insurance companies of fraud and misrepresentation, the plaintiff did not show the requisite reliance on the alleged fraudulent statements.

 What This Means For Persons Who Purchase Title Insurance:

     Once you have succeeded in turning a real estate lawsuit over to your title insurance company, the company has a lot of leeway in the steps it takes to defend the case.  It can vigorously defend the case or pay you and settle.   A claim that they are not pursuing the case in a timely manner would likely fail.

Authored by Barbara A. Assendelft