The Docket: Missouri Court of Appeals Rules in Case Involving Timing of Claim Notice
August 3, 2017
The Docket is a monthly TitleNews Online feature provided by ALTA’s Title Counsel Committee, which reviews significant court rulings and other legal developments, and explains the relevance to the title insurance industry.
Shawn T. Briner reviews a recent decision by a Missouri appeals court that addresses the significance of timely and accurately recording all of the documents necessary to establish title. Briner practices with Briner Law Group and has extensive experience representing title insurance companies and their insureds. He can be reached at shawn.briner@brinerlaw.com.
Citation: Green Tree Servicing, LLC v. Chicago Title Insurance Company 499 S.W.3d 771 (Mo.App.E.D. 2016)
Facts: In 2004, the borrower/homeowner granted a second-priority deed of trust in favor of Citibank to secure a $40,000 home equity loan. In 2005, borrower/homeowner refinanced the loan secured by his first-priority deed of trust and signed a new deed of trust in favor of America’s Wholesale Lender (AWL) to secure his $166,800 refinance loan. Immediately prior to closing, Citibank signed a written agreement subordinating its 2004 deed of trust in favor of the 2005 deed of trust. The closing agent recorded the 2005 deed of trust, but did not record Citibank’s Subordination Agreement. The borrower/homeowner defaulted on Citibank’s deed of trust in 2011. Citibank initiated foreclosure and sent written notice to AWL, which did not respond. Citibank acquired the subject property at foreclosure sale and then sold it to a bona fide purchaser in 2012. AWL subsequently ordered a title report and discovered that Citibank purported to have foreclosed Citibank’s foreclosure on March 7, 2012. It filed a title claim on March 14, 2012. Chicago Title Insurance Company (CTIC) denied coverage because AWL failed to provide prompt notice of Citibank’s foreclosure the previous year. After AWL executed an assignment in favor of Green Tree Servicing LLC, Green Tree sued CTIC for vexatious refusal, breach of contract and negligence. CTIC moved to dismiss the claims for breach of contract and vexatious refusal under the theory that AWL failed to comply with the policy provision requiring prompt notice of adverse claims. The trial court granted CTIC’s motion. Green Tree appealed.
Holding: On appeal, Green Tree argued that AWL did not know that Citibank’s subordination agreement had not been recorded when it received Citibank’s foreclosure notice, that AWL believed that Citibank was foreclosing a junior lien, that AWL did not acquire knowledge of Citibank’s adverse claim until March 7, 2012 when it discovered that the subordination agreement was not recorded, and that it tendered its claim promptly thereafter. CTIC argued that AWL had knowledge of Citibank’s adverse claim in 2011 because any senior lienholder exercising due diligence would have investigate the nature of a junior lienholder’s sale and that its tender of claim in March 2012 was untimely. The Missouri Court of Appeals, Eastern District, agreed with Green Tree “because a senior lienholder’s interest is not at risk during a foreclosure sale if it has been properly recorded.” Id. at 776. In other words, the policy’s notice requirement was not triggered unless AWL knew that Citibank’s Subordination Agreement had not been recorded. Consequently, the appellate court reversed the trial court’s dismissal and remanded the case for a determination of timeliness under the specific facts of the case.
Importance to the Title Industry: This case is relevant to the title industry in two regards. First, it reinforces the significance of timely and accurately recording all of the documents necessary to establish title as insured. If the closing agent had timely recorded Citibank’s Subordination Agreement, Citibank’s post-foreclosure purchaser would not have been a bona fide purchaser and would have acquired title subject to AWL’s Deed of Trust. Second, this case helps illustrate the policy’s requirement that insureds timely tender notice of claims. This particular case stands for the proposition that an insured must have knowledge that a claim is actually adverse to its insured title before its obligation to tender notice is triggered under the policy.
Contact ALTA at 202-296-3671 or communications@alta.org.