Q: The title company made a mistake and conveyed three additional land lots to us at closing. Six months later, the title company now wants us to reconvey the lots back. Shouldn’t the title company pay the seller for his loss? It was (the company’s) mistake — doesn’t the title insurance cover its mistakes? The seller wants out of those lots anyway; he is planning to put them on the market for sale. Could I be sued by the title company for not fixing its mistake? –Anonymous, Houston, Texas
A: There are several levels of answers to your question and dilemma, and I’ll take a stab at all of them. Fortunately, they all point in the same direction, indicating that your best bet, legally, financially, contractually and ethically is to sign the correction documents and reconvey the lots to the seller, with no further ado.
This situation clearly arose from a clerical error, due to no fault of either yours or the seller’s. I’m assuming there was a purchase and sale agreement that you both signed, indicating the property that you agreed to buy for a certain price, also known as valuable consideration.
Due to the clerical error, you accidentally received more property than you paid for. In a court of law — which, by the way, has the power to act "in equity" (i.e., basing decisions on what is plain old fair) — these facts would be clear to all, and you would very likely be ordered to cooperate with a reversal to the extent necessary.
It’s entirely possible that the court would forcibly revert title to the seller’s name. It’s also very possible that for your failure to cooperate you would end up being liable for either the title company’s or the seller’s attorney fees, depending on state law, the terms of your contract and escrow instructions. If you continue to intentionally delay the seller’s ability to sell those three lots, you might end up being responsible for additional damages.
You don’t mention whether your transaction involved any mortgage financing, but if it did, the mortgage documents you signed at closing likely included an errors and omissions correction agreement or similar document form, in which you agree to sign or re-sign any documents necessary to correct clerical errors in the closing documents.
These documents often include the legal fees and costs clauses, under which you will be exposed to potentially significant expenses for your non-cooperation with the correction.
In these situations, the title company generally drafts a correction deed, and, as it was their mistake, covers any fees associated with notarizing or recording the correction documents with the county. As a result, you have experienced no damages whatsoever from the title company’s clerical error (unless you have paid any property taxes or insurance costs on the lots that were erroneously conveyed).
Title insurance insurance to the benefit of the buyer and/or the buyer’s mortgage broker — if you had been damaged by receiving title to less than what your title insurance policy described, that would be different. Instead, the seller has been damaged, so the title insurance policy(ies) issued at closing would not cover that.
If, by any chance, you have incurred any damages from what I’m sure all involved parties would call a serious, serious fiasco, you would have a much better chance of getting those covered by the title policy.
On another level, though, let me just mention that it’s more than a little absurd for you to believe that you could actually luck your way into three lots of land by virtue of a clerical error. I don’t know of any court or alternative plane of reality in which you would be able to lay claim to property that was not yours, that you didn’t pay for, and that clearly belonged to someone else based strictly on this type of error.
Some would reference the law of adverse possession, or squatting, but even that takes 30 years of openly hostile possession and property tax payment by the squatter to result in a transfer of title — not six months and a clerical error.
Part of me wants to yell, "Are you kidding?!" and another part wants to say, "Good try! But no dice." Internally, I’m chuckling, shaking my head, and saying, "Get the heck out of here." OK, actually, I guess that last one wasn’t so internal.