by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
To me, this case has VERY significant implications. But I post it with some hesitancy, because my comments have to do with broker's duties to recommend lawyers. I don't want to start another "range war" between brokers and lawyers here. Let's try to stick to legal questions. Keep in mind that this case might apply beyond the residential context, and appears to apply even where lawyers are present in the transaction. The first question is the professional responsibility of the title insurer. But, as my comments indicate, the case has implications for other professionals as well.
TITLE INSURANCE; ABSTRACTOR'S LIABILITY: Title agencies must use due care to discover and disclose significant restrictions on real estate to their client and simple disclosure in a title report that reservations appear on the plat are not enough. Breck v. Moore 910 P.2d 599 (Alaska 1996). Title company delivered a title commitment noting that the property was subject to certain restrictions as described in a plat, but did not provide the plat until after closing. The plat stated that no dwelling could be placed upon the lot. Plaintiffs moved into the dwelling already constructed on the lot and never reviewed the title policy. The Alaska Supreme Court stated that title company's failure to provide notice to plaintiffs concerning this restriction was sufficiently negligent to maintain an action for professional negligence. The company could not rely upon its client to request a copy of the plat for review.
The court's conclusion regarding title company negligence is dicta in this case because the buyers were represented by a lawyer. Although the court does not hold specifically that the title company was entitled to expect that the lawyer would obtain and review a copy of the plat, it does hold that the lawyer's subsequent failure to review the plat that the company supplied after the closing triggered the running of the statute of limitations under Alaska's "discovery rule." Note that the client's failure to read the plat would not, in the view of the court, started the running of the statute, since it held that the client has the right to rely upon the professionals the client has retained to inform the client of any problems in the title documents.
Comment 1: This case, in which the title insurer got out on summary judgment, may in the end pose extreme concerns for title insurers. In those parts of the country where attorneys presently are not involved in residential closing, title insurers commonly supply title reports that indicate simply that the property is "subject to restrictions set forth in . . ." without supplying a copy of the restricting document. If the restrictions have a significant impact on the value of the property, will the title company be liable for failing to make the critical information available to the buyer?
Comment 2: Note that this case goes even further - it suggests that the title company perhaps must signal the existence of the restriction beyond merely supplying the documents containing it. The buyer in this case got the plat after the closing, and did not read it, but the court indicated that he had no reason to believe that the professionals he had hired would fail to appraise him of any problems. In referring to "professionals" the court may be including the title company.
Comment 3: The reality is that many properties have so much paper encumbering them that it would be impractical and undesirable to ship everything to all parties in each closing. Perhaps internet communication may make this case easier to live with, if title companies make documentation available through computer. But otherwise there's just too, too much paper. In the editor's view, we also should not expect the title company to separate the wheat from the chaffe.
Comment 4: Notwithstanding the fact the buyer had an attorney, the court found that the title company was in breach of its professional duty. Consequently, in the view of this court, the title company cannot rely upon the attorney to ask for the necessary documentation. It must highlight problems it finds in the documents. In the editor's view, this is an inappropriate transfer of professional responsbility to the title company. If the report indicates the presence of restrictions, an attorney holding himself or herself out as competent to represent the buyer knows when to ask for copies.
Comment 5: When there is no attorney in the transaction at least be required to recommend that the buyer obtain a lawyer to review title documentation?
Perhaps more to the point, if there is a broker, but no lawyer, and the broker fails to recommend that the buyer obtain an attorney to review the title report and documenation, does the broker assume the risk that the restrictions disclosed there will not affect value? The editor believes that this is not only a fair reading of the implications of the case, but probably an appropriate result. The court is right on target when it says that laypeople should not be expected to appreciate the significance of technical title documents. If a broker doesn't recommend a lawyer's review, it must be because the broker concludes that there is no risk. That's a professional judgment for which the broker, who is paid to provide expert judgments, should be accountable.
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