Fed. Deposit Ins. Corp. v. Commonwealth Land Title Ins. Co.

• Decision Date: 30 September 2012
• Docket Number: Case No. 1:08CV2390.
• Citation: 902 F.Supp.2d 1048
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for AmTrust Bank, Plaintiff, v. COMMONWEALTH LAND TITLE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Ohio

902 F.Supp.2d 1048

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for AmTrust Bank, Plaintiff,

v.COMMONWEALTH LAND TITLE INSURANCE COMPANY, Defendant.

Case No. 1:08CV2390.

United States District Court,

N.D. Ohio,

Eastern Division.

Sept. 30, 2012.

Gary L. Walters, William W. Jacobs, Thompson Hine, Steven S. Kaufman, Cleveland, OH, for Plaintiff.

David A. Freeburg, Donald P. McFadden, McFadden & Freeburg, Cleveland, OH, for Defendant.

MEMORANDUM OF OPINION AND ORDER [Resolving ECF Nos. 38, 44, and 54 ]

BENITA Y. PEARSON, District Judge.

This action is before the Court upon Defendant Commonwealth Land Title Insurance Company's (“CLTIC”) Motion for Summary Judgment ( ECF No. 38 ) and Plaintiff The Federal Deposit Insurance Corporation (“FDIC”), as Receiver for AmTrust Bank (“AmTrust”)'s Motion for Summary Judgment ( ECF No. 44 ). This action is also before the Court upon the FDIC's Motion to Strike Exhibits to Defendant's Reply Memorandum ( ECF No. 54 ). The Court has been advised, having reviewed the record, the parties' briefs and the applicable law. For the reasons stated herein, the Motions for Summary Judgment are granted in part and the Motion to Strike is denied.

I. OVERVIEW

The instant case arises from two separate transactions when Defendant issued two loan policies of title insurance through its agent Legend Land Services (“Legend Land”) to AmTrust Bank (“AmTrust”), formerly known as Ohio Savings Bank (“OSB”). Manhattan Mortgage was a mortgage broker for OSB. AmTrust became the holder of the mortgages at issue. The FDIC insured the accounts at AmTrust and became the receiver for AmTrust in the instant action. ECF No. 1. AmTrust is a federally chartered bank with a principal place of business in Ohio. Id. Defendant is organized under the laws of Nebraska with a principal place of business in Virginia. Id. The real property that is the basis of the dispute is located in New York City. Id.

A. 562 West 171st Street

AmTrust loaned funds to a borrower in the amount of $620,500 for the purchase of 562 W. 171st Street, New York, New York. Id. Legend Land processed paperwork for a loan policy of title insurance and conducted the closing. Id. Manhattan Mortgage was a mortgage broker for the bank. Id. Gus Contos (“Contos”) was the settlement agent at the closing for the bank. ECF No. 44.

Legend Land received a title order for the property and assigned it an order number of LEG–1604. ECF 39–6. Legend Land issued a title commitment order on August 18, 2003. ECF No. 39–59. Legend Land prepared a policy in anticipation of issuing a title insurance policy. Id. The premium owed to Legend Land was $4,624 ($3,871. borrower's policy and $753 lender's policy). ECF 39–6. It was customary to pay the title insurance premium from the proceeds of closing at the time of the sale of the property. Id. Payment of the premium is required before the policy is issued. Id. Legend Land does not have a record of payment for the premium. Id. Legend Land states it did not issue a policy. Id.

The borrower, seller, and Contos signed the master closing instructions from the bank on August 21, 2003. ECF No. 39–59. On August 25, 2003, Contos issued a check to Legend Land for $1,551.25 marked for “Wallace.” ¹ECF No. 39–64. Other checks were issued the same day to Contos, Manhattan Mortgage, and Allstate. ECF Nos. 39–64 and 39–65. Contos also processed a bank wire for $592,342.65 on August 25, 2003. ECF No. 39–66.

Subsequently, the mortgage entered into default. Id. at 5. AmTrust initiated foreclosure proceedings. Id. During foreclosure research, AmTrust found problems with the title (one of which being that the property was still in the seller's name) and submitted a claim to Defendant. On August 27, 2004, Defendant's Vice President & Counsel sent a letter—the “happy foreclosure” letter—to the bank's attorney, which stated Defendant will insure the purchaser at the foreclosure sale.²ECF No. 44–12. The letter also indicated that the foreclosure may proceed without reference to the following: two prior mortgages and a lis pendens. Id. The lis pendens action was filed nine months prior to the closing.³Id.

During the foreclosure, AmTrust was not able to recover because other liens on the property existed, and AmTrust was not in first lien position. In addition, the borrower was not the title owner of record on the property. Initially, Defendant admitted coverage; however, later denied that a valid policy existed, premised on a disputed issue of fact, whether the policy premium was paid and whether a closing ever took place.

Moore, former Claims Counsel for Defendant, processed and denied the claim. ECF No. 34–1. Moore sent a fax to Ira Waltuch, who worked for Legend Land, on September 1, 2004, that stated the closing occurred on August 21, 2003, and Defendant received notice that there were problems with the title report. ECF No. 44–11. On October 14, 2008, an internal inquiry at Defendant could not find a “remit” for LEG1604 or Policy No. G32–1474616 that closed on August 21, 2003. ECF No. 39–50. “Remit” means transmission of payment from Legend Land to Defendant. ECF No. 39–67 at 41:15. On November 18, 2004, Moore sent a letter stating the claim was denied because her investigation revealed a closing never took place, and the premium was not paid. ECF No. 44–13. Moore stated the title report and policy are void. Defendant disputes the authenticity of the copies of the policy. ECF No. 48 at 6. A party testified that Defendant stopped using Legend Land as their agent because of sloppy work. ECF No. 39–67.

B. 197 Edgecombe Avenue

Defendant issued a title commitment to provide a mortgage title policy on 197 Edgecombe Avenue, New York, New York. Id. at 7; ECF No. 48 at 12. On April 20, 2003, AmTrust became the holder of the mortgage. Id. Defendant issued a loan policy of title insurance (policy # G32–1138175) in the value of $620,500. Id. at 7, Attach. 4, Ex. B. AmTrust, however, loaned more than the value of the policy to the borrower. ECF No. 44–1. The borrower defaulted on the mortgage, and AmTrust initiated foreclosure proceedings. Id. at 8. AmTrust submitted a claim (“Claim No. 1”) because a title search revealed an existing New York City In Rem Foreclosure Proceeding wherein a lis pendens was filed. ECF No. 44–7.

Mortgage Electronic Registration Systems, Inc. (“MERS”) obtained the Judgment of Foreclosure. ECF No. 38 at 11. MERS was the Nominee for the OSB. ECF No. 44–9. On July 23, 2004, a Judgment of Foreclosure and Sale was entered allowing AmTrust to sell the property. Id. at 8. During October of 2004, AmTrust obtained an appraisal on the property for $600,000. ECF No. 44–1. On October 29, 2004, a third party initially agreed to purchase the property for $558,000, but later withdrew from the purchase because the property had a Housing Preservation and Development Section 7–A Administrator assigned to it.⁴Id. at 9. A title search revealed that the Department of Housing Preservation and Development of the City of New York filed two lis pendens prior to Defendant issuance of the title insurance policy. ECF No. 39–3. In addition, there were judgments against the prior owners that were still on the record. Id. Subsequently, AmTrust filed a claim (“Claim No. 2”) with Defendant on February 22, 2005. Id. Moore testified that the claim had not been denied, and in her opinion should not be. ECF No. 34–1 at 172.

On the face of the policy, it states the policy insures against loss or damage sustained or incurred by reasons of:

1. Title to the estate or interest described in Schedule A being vested other than as stated therein;

2. Any defect in or lien or encumbrance on the title;

3. Unmarketability of the title;

4. Lack of a right of access to and from the land;

5. The invalidity or unenforceability of the lien of the insured mortgage upon the title;

6. The priority of any lien or encumbrance over the lien of the insured mortgage;

7. Lack of priority of the lien of the insured mortgage over any statutory lien for services, labor or materials: (a) arising from an improvement or work related to the land which is contracted for or commenced prior to Date of Policy; or (b) arising from an improvement or work related to the land which is contracted for or commenced subsequent to the Date of Policy and which is financed in whole or in part by proceeds of the indebtness secured by the insured mortgage which at Date of Policy the insured had advanced or is obligated to advance;

8. The invalidity or unenforceability of any assignment of the insured mortgage, provided the assignment is shown in Schedule A, or the failure of assignment showing in Schedule A to vest title to the insured mortgage in the named insured assignee free and clear of all liens.

ECF No. 1–4.

In an attachment to the policy, the parties made changes to the boilerplate language of the policy. The parties agreed to delete number seven, as listed above, and the following was submitted: “7. Any statutory lien for services, labor or materials furnished prior to the date hereof, and which has now gained or which may hereafter gain priority over the estate or interest of the insured as shown in Schedule A of this policy.” ECF No. 1–4. The parties also agreed to delete paragraph number six under “Exclusions From Coverage.” Paragraph number six stated:

Any statutory lien for services, labor or materials (or the claim of priority of any statutory lien for services, labor or materials over the lien of the insured mortgage) arising from an improvement or work related to the land which is contracted for and commenced subsequent to Date of Policy and is not financed in whole or in part by proceeds of the indebtedness secured by the insured mortgage which at Date of Policy the insured has advanced or is obligated to advance.

ECF No. 1–4. The following was added to paragraph seven of the Conditions and Stipulations of the policy: “If the recording date of the instruments creating the insured...