It’s no coincidence that the definitions of responsibility and liability are so similar. In fact, Meriam Webster includes responsibility in the definition of liability, which is: the state of being responsible for something, especially by law.
In the world of title insurance and real estate, they are both equally important and necessary for the success of a transaction. But from a legal standpoint – and more specifically – from a compliance stand point, what exactly are you required to be responsible and liable for? What policies, rules and procedures are you required to follow and which ones are optional? How does it all relate to TRID? Let’s find out.
This excerpt, taken from beginning of Dean T. Lumley’s journal review titled “Title Insurance Aspects of Tort Liability”, highlights the quizzical nature of title insurance as it relates to other types of insurance. It reads
“In title insurance, a yet unknown claim (a hidden risk) existing on the effective date of the policy, is the risk insured. In other lines of insurance, a happening in the future which may develop into a claim is the risk insured. In other words, other types of insurance begin where title insurance ends.”
He goes on to describe other nuances of title insurance including the no established expectancy of losses or statutory restrictions limiting the amount of insurance, both of which are meant to act as buffers between the insured and the insurer. Title agents are expected to conduct thorough due diligence in efforts to uncover any hidden secrets within a title. In the event that a defect is later found that was not initially made obvious to the insured, it is reasonable to assume that the fault lies on title insurance agency. The remaining question however, is if this is considered a breach of contract or a tort – both punishable by law?
The answer is: it depends but better safe than sorry.
Normally, tort is damages that happen as a result of negligence committed outside of a contract. But in the case of Title Insurance, the contract technically begins at the start of the policy. The due diligence and excavation process through the title history is a function of preparing the policy. So, if failure to do so thoroughly results in the insured incurring property damage or even property loss, that becomes a breach and may result in a tort as well. This all depends on the amount of breach, malice (if any) and any special circumstances surrounding the title implementation.
In the wake of RESPA-TILA-TRID, here’s what it means for you;
After compiling several hundred pieces of data, the CFPB concluded that the entire property buying experience needed revamping. The main priority of these new regulations is educating consumers and holding the financial institutions and entities dealing with their paper trails more accountable. So, to avoid facing your day in court surrounding tort liability, defective titles and malicious intent, here’s what you need to focus on in 2015.
Thoroughness: Whether it’s an entire title search or a simple fax, be thorough. It will only help you in the long run. Ask questions. Participate in conversations about TRID so that you can have something to draw upon should you find yourself in am undesirable predicament.
“Client First” Mantra: If it isn’t already your mantra, definitely make it so. These new regulations are meant to protect, secure and assist home / property buyers. The process up until now has been overly complicated and full of jargon. Take every opportunity you can to explain what’s going on to your client.
READ: It goes without saying that the title insurance industry is a meticulous game of hide and seek. Between the contracts, the permissions, the terms and conditions and of course, the actual title, there is plenty to be read. Be sure to give yourself enough time to do so carefully so that you know what you’re walking into. If your terms and conditions don’t explicitly list special circumstances or tort clauses, find out what it does say explicitly and know it like the back of your hand. KNOW YOUR POLICY.
Below is a list, also compiled in the Title Insurance Aspects of Tort Liability, titled Damages – Action on Contract.
“Breach of the policy as to title:
An insured is entitled to recover the actual loss or damage sustained from a defect, lien or encumbrance affecting his title which was not excepted from the policy's coverage.
For complete failure of title an insured owner may recover the value of the property up to the face amount of the policy.
For a deficiency in urban land, the insured may recover not only the value of the land lost, but also indemnity for loss of its use and consequential damages.
A mortgagee's recovery for a partial loss occasioned by an undisclosed prior lien is the amount of the lien.
A mortgagee's recovery for loss or damage predicated upon a defect in title cannot exceed the face amount of the policy.
Loss predicated upon insurer's negligence:
Damages for breach of the insurer's covenant to defend are not affected by the face amount of the policy.
Limitation of the policy does not apply where the loss is caused by the insurer's own negligence.
Interestingly enough, this original content was published in 1967 – before the CFPB was even a thought. While it’s an amazing resource for the present, I should note that the article concluded with “actions in tort liability will not be needed” in the title insurance industry due to the “safeguards of ethics and efficient methods of title examinations, underwriting practices, and sophisticated systems of document storage and retrieval” in the title industry.