Lance R. Pomerantz
Attorney at Law

Land     Title     Law

“Constructive Notice”  The  Newsletter

Excerpted from the April 1, 2015 mailing of "Constructive Notice":

No Indemnification for Notary Misconduct

At a loan closing, the notary engaged by Bank’s settlement agent allegedly fraudulently acknowledged the signature of an imposter posing as the named borrower. When foreclosure proceedings began, the Bank found out the named borrower had died a month before the closing. Faced with an invalid lien, the Bank tendered a claim under its title insurance policy. Following denial of the claim, Bank filed a breach of contract action in federal court.

Title Insurer then filed a third-party complaint (TPC) against the notary and the law firm by whom he was engaged, seeking indemnity for damages under NY Executive Law §135. The TPC defendants moved for dismissal and the court granted the motion. US Bank National Association v. Commonwealth Land Title Insurance Company, No 13-Civ-7626 (S.D.N.Y. March 23, 2015).

The Court found itself bound by New York case law denying indemnification “where the underlying action is one for breach of contract, … because the defendant, if found liable to the plaintiff in the underlying action, will have necessarily participated in the wrongdoing by breaching the contract.”


In addition to the faulty notarization, Commonwealth alleged that U.S. Bank's mortgage broker and several of its employees submitted false credit reports, false employment verifications, and a false property appraisal in order to induce U.S. Bank to make the loan and that some of the TPC defendants submitted a false HUD-1 after the closing, knowingly omitting the payment of proceeds to a third party who is believed to have laundered the funds. The Court acknowledged the dismissal could “result in injustice to Commonwealth should Commonwealth be found liable to U.S. Bank purely as a result of third parties' fraud or misconduct and through no fault of its own.” Indeed, in a lengthy footnote, the Court suggested arguments by which Commonwealth might prevail over a statute-of-limitations defense to “pursuing direct claims against the third-party defendants, either for violation of Exec. Law § 135 or more generally for fraud.”