Title Insurance: May Not Solve As Many Problems As You Might Expect

Amzak Capital Mgmt. v. Stewart Title of Louisiana (In re West Feliciana Acquisition, L.L.C.), 744 F.3d 352 (5th Cir 2014) –

In the context of the bankruptcy proceeding to determine the validity of a mortgage, the mortgagee filed a third-party complaint against its title agent, local counsel and underwriter asserting claims for breach of contracts and negligence. The bankruptcy court granted summary judgment for the mortgagee, the district court disagreed, and the mortgagee appealed to the 5th Circuit. The decision on appeal turned on whether title insurance gives a guarantee that a mortgage is enforceable or and indemnity for losses arising from title defects.

The debtor bought a paper mill for $16 million, which it funded by a $5 million economic development grant, $2 million state loan and $10 million seller note. The state loan and seller note were secured by mortgages.