Title Policy Claim for Identity Theft
POP QUIZ: When an identity thief procures a mortgage by using false information on the mortgage application and using a bogus driver’s license at the closing, does the risk of loss fall on (A) “the settlement agent,” (B) “the lender,” (C) “the title insurer” or (D) “either (B) or (C) above?” In a recent pair of decisions, the Appellate Division says the correct answer is (D).
Both decisions spring from the same set of facts: Ahmed, pretending to be the true owner, Lohdi, procured a loan from Countrywide. Countrywide hired NREIS as its settlement agent and instructed NREIS to “have the borrower execute all required documents and to determine that ‘all necessary signatures and notary acknowledgments are contained therein.’” At the closing, Ahmed executed a mortgage on Lohdi’s property. When the deception was subsequently revealed, Countrywide “executed a satisfaction of mortgage releasing its lien” before notifying its insurer, United General Title Insurance. Following UGT’s denial of coverage, Countrywide then sued NREIS for negligence and breach of contract for “failing to verify the identity of the borrower” and also sued UGT for damages under the mortgage policy.
In the decision on the NREIS claims, the Court held that NREIS “complied with its contractual obligation ... inasmuch as the notary public verified the identity of the person signing the relevant paperwork by checking his identification and acknowledging his signatures thereon.” In addition, Countrywide’s instructions “did not require [NREIS] to insure the identity of the person signing the note and mortgage.” The complaint against NREIS was dismissed. Countrywide Home Loans, Inc. v. United General Title Ins. Co., 2013 NY Slip Op 05982 (App. Div., 2nd Dept., Sept. 25, 2013).
In the UGT decision, the Court brushed aside contentions that Countrywide’s execution of the satisfaction either terminated coverage or constituted a settlement (of the claim) without the insurer’s prior written consent. On the other hand, the Court found “a triable issue of fact as to whether [Countrywide] enabled or otherwise created the loss at issue” through its loan underwriting procedures. Countrywide Home Loans, Inc. v. United General Title Ins. Co., 2013 NY Slip Op 05981 ( App. Div., 2nd Dept., Sept. 25, 2013).
Comment:
Conspicuous by its absence is a claim against the closing agent by the insurer. There may be one lurking in the pleadings, but was not germane to these appeals. The opinions don’t say whether NREIS was also acting as a policy writing agent for UGT. Even if it were, such a claim may be premature before insurer liability is established.
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