What Happens When a Title Company Misses a Lien?

Recently we had several different clients come to us with a common problem: a title company had missed a lien when they refinanced their property.

It is fairly rare for a title company to miss a lien, but once it occurs, the error is typically repeated on subsequent title searches because the title company will use the previous title search as a starting point.  The question then is can the title company can be held liable to pay to clear the missed lien off their property.  As with so many legal issues, the answer is “it depends”.

Here is the analysis that must be gone through:

1.    Is the Debt Yours?  If the lien on your property is security for a debt that you owe, you will not likely avoid paying the debt.  Even if you were able to get the title company to pay off the lien to get it removed, they would have a “subrogation claim” against you for whatever they pay.  If however, this is not your debt and the lien has wrongfully been placed on your property, then you should first seek to get the creditor/lender to voluntarily release the lien.  If they refuse, you could then file a lawsuit to get the lien removed and possibly obtain damages for slander of title.

2.    When can you make the Title Company pay for missing the Lien? To hold the Title Company liable for removing the lien, you must have a contractual relationship with them through which they owe a duty to protect you.  Title information generally is issued in two forms: first, a Preliminary Title Report; and second, a Title Insurance Policy.

    a.  Preliminary Title Report- California case law is clear that a preliminary title report cannot be relied upon as a true and reliable condition of title to real property. Rather it is merely a statement of the terms and conditions upon which the issuer is willing to issue a policy of title insurance. No duties or liabilities arise with a preliminary title report. Therefore, there is no liability to a title company if any recorded document is missed.

b. Title Policy (or Abstract of Title) – unlike a preliminary title report, a Title Policy is a contract through which the Title company insures the Policy’s beneficiary against any defects, ie: missing liens, in the actual title.  Thus, if you are the beneficiary of a title insurance policy such as when you are buying a home, then the policy will likely pay to remove any missed lien that pre-existed your ownership of the property.  However, for this to occur, you must be the beneficiary of the policy.  In contrast, if you are a borrower for a loan, generally only a “lender’s policy” is obtained. Under this, the beneficiary is the lender, not the property owner.  So if the title policy has missed a lien which is then discovered when reviewing the lender’s policy, the title company owes no duty to the property owner to pay to remove that lien because the owner is not the beneficiary.

3.    Can you make a claim against the Title Company for negligence in missing a lien?
The Answer to this is again appears to be a solid No. Before 2010, there were no published cases in California that addressed whether a title company can face negligence or other tort liability for gratuitously providing erroneous title information to a party who relies on that information in deciding whether or not to purchase a particular property. However, in Soifer v. Chicago Title Company, (2010), the California Court of Appeal declined to impose such a duty of care on the title company:, “A party that seeks to hold an insurer liable for negligently providing title information upon which the party relied must obtain an abstract of title… or a policy of title insurance,”. Absent this contractual relationship, no duty of care arises.

So what does this mean to property owners:

1)    Liens do not go away just because a title company misses them;

2)    Title companies only have liability for missed liens if you are the beneficiary of an Abstract of Title or Title Policy; and

3)    If the debt was yours, you’re going to have to pay it (absent other circumstances).

The attorneys of BPE Law Group, P.C. advise and represent property owners and real estate brokerages and agents in dealing with their legal concerns and maximizing their opportunities. If you would like a consultation with us, please call our office at (916) 966-2260 or e-mail me at sjbeede@bpelaw.com.

This article is not intended to be legal advice, and should not be taken as legal advice.  Every case requires review of specific facts and history, and a formal agreement for service.  Please feel free to contact us if you need legal advice and are interested in seeing if we can help you