Negligent Recording of Legal Instruments
"Does a title company owe a duty of care to third parties in the recording of legal instruments?" The Supreme Court of Washington says “No.” Centurion Properties III, LLC v. Chicago Title Ins. Co., No. 91932-1 (WA Sup. Ct. en banc July 14, 2016).
The salient facts: 1) Chicago Title was the trustee on a deed of trust the terms of which prohibited the placement of any liens or encumbrances on the property without Lender's approval; 2) later, in connection with additional financing involving other lenders, Chicago Title recorded four unauthorized liens; 3) each of the unauthorized liens constituted an event of default under the original deed of trust; 4) the default triggered a chain of events resulting in Borrower’s bankruptcy. Borrower sued Chicago Title in federal court for negligent recording of the prohibited liens.
The District Court dismissed the claim, finding no duty of care under Washington state law. On appeal, the Ninth Circuit realized this was a case of first impression and certified the question.
The Supreme Court methodically considered “logic, common sense, justice, policy, and precedent” in determining whether Borrower was owed a duty. The opinion provides detailed analysis of each of these factors. Every factor indicated Chicago Title owed no duty to Borrower.
Although Chicago Title insured the deed by which Borrower took title, this claim was not asserted under the owner’s policy. It is also noteworthy that the Borrower initiated the additional financing and the unauthorized recordings secured that financing. The decision does not mention whom the deed of trust obligated to obtain authorization for recording junior liens.
The Court takes pains to point out this decision does not extend to actions based on slander of title, tortious interference with a contract, breach of a fiduciary duty, malice, bad faith or intentional torts. Borrower’s action alleged only a breach of duty under general negligence principles.