Beneficial Mut. Sav. Bank v. Stewart Title Guaranty Co.
| Decision Date | 11 August 2014 |
| Docket Number | Civil Action No. 12–6256. |
| Parties | BENEFICIAL MUTUAL SAVINGS BANK, Plaintiff, v. STEWART TITLE GUARANTY COMPANY, Defendant. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
BENEFICIAL MUTUAL SAVINGS BANK, Plaintiff
v.
STEWART TITLE GUARANTY COMPANY, Defendant.
Civil Action No. 12–6256.
United States District Court, E.D. Pennsylvania.
Signed Aug. 11, 2014.
Patrick J. Hughes, Connell Foley LLP, Cherry Hill, NJ, for Plaintiff.
Frederick W. Alworth, Joshua R. Elias, Scott J. Etish, Gibbons PC, Newark, NJ, for Defendant.
MEMORANDUM
EDUARDO C. ROBRENO, District Judge.
| Table of Contents |
|---|
| I. | INTRODUCTION | 539 |
| II. | BACKGROUND | 540 |
| III. | STANDARD OF REVIEW | 543 |
| IV. | DISCUSSION | 544 |
| A. | Applicable Law | 544 |
| B. | Analysis | 545 |
| 1. | Parties' Burdens | 545 |
| 2. | Terms of Exclusion 3(a) | 545 |
| 3. | Application of the Exclusion | 546 |
| 4. | Lender's Objections to Applying the Exclusion | 547 |
| a. | Lender's Knowledge | 547 |
| b. | Lender's Negligence | 548 |
| c. | Lack of a Specific Exclusion | 549 |
| 5. | Exclusion 3(a) Warrants Denying Coverage of the Defect | 549 |
| V. | CONCLUSION | 550 |
I. INTRODUCTION
The plaintiff in this action, Beneficial Mutual Savings Bank (“Lender”), is a lender. The defendant, Stewart Title Guaranty Company (“Insurer”), is a provider of title insurance. Lender loaned $480,000 (the “Loan”) to 3010 Ocean Avenue Brigantine, LLC, (the “LLC”), and it was guaranteed by William D. Bucci (defined collectively with the LLC as “Borrowers”). The Loan secured by a mortgage (the “Mortgage”) on real estate located at 3010 Ocean Avenue (the “Property”).1
Insurer issued Lender a title insurance policy (the “Policy”) insuring the Mortgage as a first mortgage on the Property. The Policy provides defense and indemnification for, inter alia, lack of priority of the Mortgage over any other liens on the property. At the time the Property was conveyed to the LLC, there was a previous mortgage for the amount of $1,200,000 (the “Prior Mortgage”) on the property securing a loan made by Bancorp Bank (“Prior Lender”) to the owners of the property prior to the transfer to the LLC. That the Mortgage is subordinate to the Prior
Mortgage is the alleged defect (the “Defect”) in this case.
The Policy included an exclusion which, inter alia, excluded coverage for any defects which Lender had “agreed” to. Thus, the question driving this litigation is whether Lender accepted the Mortgage subordinate to the Prior Mortgage, and thus agreed to the Defect. If Lender did agree to the Defect, coverage under the Policy is excluded. If Lender did not agree, it is entitled to defense and indemnification.
For the reasons set forth below, the Court will grant Insurer's Motion for Summary Judgment and deny Lender's Motion for Summary Judgment.
II. BACKGROUND
Lender is a chartered bank organized under the laws of Pennsylvania and with its principal place of business in Pennsylvania. Insurer is an insurance company organized under the laws of Texas and with its principal place of business in Texas.
On November 12, 2009, Lender loaned Borrower $480,000.00 in the form of a commercial mortgage loan. Pl.'s Mot. Summ. J., Pl.'s Statement Undisputed Facts ¶ 2. To secure the Loan, the LLC granted Lender a Mortgage which was duly recorded. Pl.'s Statement Undisputed Facts ¶ 3–4 (citing the Open–End Mortgage and Security Agreement (“Mortgage Agreement”)). Mr. Bucci guaranteed the Loan personally. At the time the Loan was made, and the Mortgage given, the Prior Mortgage for $1,200,000, held by Prior Lender, remained unsatisfied.2
According to the Loan Information Summary, the purpose of the Loan was “to refinance an existing second mortgage on Borrower[s]' investment property located at 3010 Ocean Avenue.” Loan Information Summary 1. The Loan Information Summary lists the proposed collateral for the Loan as a title insured second mortgage and the assignment of rents, leases, and contracts from the Property. Loan Information Summary 2. The Property was appraised, at the time that the summary was prepared, at a value of $2,400,000, and thus, after accounting for the first and second mortgages, the equity remaining in the property was approximately $720,000. Loan Information Summary 5.
About a month prior to closing, Lender received a copy of a marked-up title commitment prepared by Insurer's title agent, Brendan Abstract (“Abstract Company”). The title commitment lists several outstanding mortgages on the Property. Each outstanding lien contained in the commitment was accompanied by a hand written notation, some barely legible, which Lender claims indicates that each mortgage would be removed prior to closing.3 One of these listed mortgages was “Mortgage made by [prior owners] to [Prior Lender] dated February 17, 2005 and recorded February 24, 2005.” Commitment Schedule A.
The Mortgage Agreement executed at the closing of the Loan states that, inter alia, “[e]xcept for a certain first Mortgage disclosed by Mortgagor to Mortgagee, Mortgagor warrants that it presently possesses an unencumbered fee simple title to
the Mortgaged Premises, ... that this Mortgage is a valid and enforceable first lien on the Mortgaged Premises subject only to the aforesaid title objections.” Mortgage Agreement 3. The Promissory Note, executed at the time of the Loan, states that “[p]ayment of this Note is secured by (a) a second Open–End Mortgage and Security Agreement ... and (b) the Environmental Indemnity Agreement ... from Obligor.” Promissory Note. The Environmental Indemnity Agreement lists, among the collateral securing the Loan, “[a] second Open-end Mortgage and Security Agreement in favor of Bank.” Environmental Indemnity Agreement 1.
Most notably, the Loan Agreement, executed simultaneously with the other documents, states that the Loan was secured by
[a] valid second lien on good and marketable fee simple title to the Property and improvements located thereon free and clear of all prior liens, restrictions easements and other encumbrances and title objections except such as may have been approved in writing by Bank, to be evidenced by the assignment...
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