In 1986, land developer 100 Investment Limited Partnership assembled a 300-acre tract of land that it intended to develop for homes. As part of the assemblage, the developer bought a 1.1-acre parcel from sisters-in-law Frances and Mildred Miller. The developer paid more than $7 million for title insurance on the 300 acres.
100 Investment subdivided the 300 acres. The 1.1-acre Miller parcel was conveyed to home builder NVR Homes Inc. in 1995. That parcel was ultimately conveyed to three separate homeowners.
Purchase Bob Bruss reports online.
However, four years before 100 Investment bought the 1.1 acres, the Millers previously sold the same property in 1982 to Ahsan S. Khan, M.D. In 2001, he conveyed the same property to Meadowridge Properties, which then sold it to developer Courtyards at Timbers LLC.
After 100 Investment was informed in 2001 of this double sale of the same land, it repurchased the 1.1 acres from Courtyards for $175,000, thus enabling 100 Investment to “clean up” the title it conveyed to NVR Homes in 1995.
However, in 2002, Dr. Khan sued 100 Investment for trespass on the Miller property during 1986-1995 while 100 Investment purportedly owned the property.
100 Investment notified its title insurer, Chicago Title, of the double conveyance by the Millers, requesting Chicago Title reimburse the $175,000 100 Investment paid to repurchase the land from Courtyards, and requesting defense of Dr. Khan’s trespass lawsuit.
Chicago Title denied coverage and then sued its insured, 100 Investment, for a declaratory judgment, arguing its title insurance liability to 100 Investment ended when the insured partnership conveyed the property to NVR Homes. 100 Investment replied that Chicago Title was liable because it insured the defective title 100 Investment received from the Millers.
If you were the judge would you rule Chicago Title is liable to its insured, 100 Investment, for reimbursement of the $175,000 paid to “clean up” the title?
The judge said no!
One of the conditions in a title insurance policy is it provides coverage to the insured property owner as long as that owner holds an estate or interest in the land, the judge began. This coverage also includes any liability the insured owner has by reason of covenants given in the transfer of the title to a subsequent owner, he continued.
However, 100 Investment’s deed to NVR Homes passed on the defective title, the judge emphasized. That deed only implied 100 Investment had not created any title defect, he noted.
When 100 Investment undertook to correct the pre-existing title defect to the Miller property, the judge commented, it was doing more than what it promised in its deed to NVR Homes and it therefore incurred expenses, which were not covered by Chicago’s title policy.
“In sum, 100 Investment’s conveyance of the 1.1-acre Miller tract terminated any insurance coverage as to defects in title to that tract because the conveyance ended 100 Investment’s ‘estate or interest’ in that tract and because 100 Investment did not give a general warranty of title,” the judge ruled.
Therefore, Chicago Title is not liable for the $175,000 expense 100 Investment incurred six years after selling the land when it volunteered to resolve the title defect by repurchasing the tract and conveying marketable title to NVR Homes and its home purchasers, the judge concluded.
But Chicago Title is responsible to defend 100 Investments in Dr. Khan’s lawsuit for alleged trespass damages during 1986-1995, the judge added.
Based on the 2004 U.S. Court of Appeals decision in Chicago Title Insurance Co. v. 100 Investment Limited Partnership, 355 Fed.3d 759.
Real Estate Center).