FYI: 9th Cir Holds "Public Records" Exclusion in Title Policy Did Not Apply to Official County Maps

The U.S. Court of Appeals for the Ninth Circuit recently affirmed in part and reversed in part a trial court's judgment in an action brought by two landowners against their title insurance companies for indemnification and breach of contract. 

 

In so ruling, the Ninth Circuit held that the definition of "public records" in the title insurance policies at issue (the same definition as in the standard 2006 ALTA owner's and loan policies) included official county maps.

 

The title defects at issue here were apparent in the official county maps.  Therefore, the Ninth Circuit held that the title insurer defendants could not rely on the policy exclusion for title defects that were not apparent in the public records.

 

Of note, the standard ALTA owner's and loan policies effective July 1, 2021 now have a different definition of "public records".

 

A copy of the opinion is available at:  Link to Opinion

 

The plaintiffs in this case were husband and wife owners of real estate in Idaho (Landowners).  The Landowners initially sued the county in which their land was located to prevent enforcement of an ordinance restricting their use of a road passing through their land. 

 

The county asserted that the road at issue had been listed as a county road on the Idaho Department of Transportation Maps showing public roads since at least 1958, that under Idaho Code § 40-202 the road has been a public highway since 1963, and that the Landowners purchased the property expressly subject to the easements and rights of way apparent of record.

 

The Landowners also submitted title claims to their title insurers, but both title insurers refused to defend and indemnify the Landowners in the state court action. 

 

The Landowners then sued the title insurers under the title insurance policies at issue in federal court for indemnification and breach of contract, asserting that both insurers failed to honor their promise to defend the Landowners' title.

 

The federal trial court granted the insurance companies' motions for summary judgment.  In so ruling, the trial court found that the Landowners failed to show the existence of a "public  record,"  as  defined  by  the  policies,  showing  any  indication of the county ordinance restricting the Landowners' use of the road passing through their land.  Because both policies excluded coverage for title defects not shown in the public records, the trial court held that the Landowners' claims were not covered. 

 

This appeal followed.

 

The Ninth Circuit summarized Idaho's procedure for interpreting insurance policies as follows:

 

(1) First, give any expressly defined terms their defined meaning.

(2) Give any clear provisions their plain, ordinary meaning.

(3) If an uncommon, technical term is undefined in the policy but has a settled legal meaning in Idaho, give the term that settled legal meaning.

(4) Give each undefined common, nontechnical term a meaning in daily usage by laymen.

(5) All remaining terms are ambiguous; choose a reasonable meaning for each such term.

For steps 4 and 5, the meanings selected should produce the interpretation most favorable to the insured but still reasonable in light of the policy as a whole -- that is the interpretation to be adopted.

 

The parties primarily disputed the meaning of "public records" in the title insurance policies.  Each policy expressly defined that term as "[r]ecords established under state statutes at Date of Policy for the purpose of imparting constructive notice of matters relating to real property to purchasers for value and without Knowledge."

 

Using Idaho's procedure for interpreting insurance policies, the Ninth Circuit held that a plain language meaning of the term "public records" is:

 

Official documents that were:

 

• brought into existence in accordance with Idaho state statutes, and

• brought into existence on or before the Date of Policy, and

• intended, at least in part, to provide constructive notice of some fact or circumstance relevant to the insured property to purchasers for value who did not have actual knowledge of that fact or circumstance.

 

The Ninth Circuit noted that "[a][n Idaho county that takes a real-property interest in a highway must update its official map to include the highway and regularly publish maps showing its highways.""  Idaho Code § 40-202(2), (3), (6). The county also "must either record with the county recorder an instrument establishing that interest or else '[c]ause the official map of the county or highway-district system to be amended as affected by the acceptance of the highway or public right-of-way.'" Idaho Code § 40-202(2).

 

The Court noted that the relevant county map was established in accordance with Idaho law, and well before the title insurance policies here were issued.  Therefore, the Ninth Circuit held that the county road map was a "public record" within the meaning of both title insurance policies.

 

One of the title insurer defendants relied on the exclusion of coverage for title defects not shown in the public records.  Accordingly, the trial court's judgment in favor of that title insurer was reversed.

 

The second title insurer defendant also asserted a specific policy exclusion not present in the other title insurer's policy.  This specific exclusion disclaimed coverage for damages, costs, expenses, and the like "aris[ing] by reason of . . . [r]ight, title and interest of the public in and to those portions of the above described premises falling within the bounds of roads or highways."

 

The Ninth Circuit held that this specific policy exclusion in the second title insurer defendant's title policy applied here.  Therefore, the trial court's judgment in favor of the second title insurer was affirmed.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 2nd Cir Holds De-Acceleration of Mortgage Loan Does Not Require a Voluntary Discontinuance of Foreclosure Action

The U.S. Court of Appeals for the Second Circuit recently vacated a trial court's grant of summary judgment to the plaintiff in an action to quiet title for a property subject to a mortgage. While the appeal was pending for this matter, an intervening ruling in the New York Court of Appeals undermined the reasoning of the trial court. Therefore, the Second Circuit vacated the trial court's judgment and remanded the case for further proceedings.

 

In so ruling, the Second Circuit held that:

 

1-  Under Freedom Mortgage Corp. v. Engel, 37 N.Y.3d 1 (N.Y. Feb. 18, 2021), after a mortgage is accelerated, the mortgagee can de-accelerate it by making an "affirmative act" of revocation within six years of the election to accelerate, stopping the 6-year New York statute of limitations clock, provided that the borrower has not "changed his position in reliance" on the acceleration; and

 

2-  A voluntary discontinuance of a foreclosure action is not the only way to de-accelerate a previously accelerated mortgage.

 

A copy of the opinion is available at:  Link to Opinion

 

After purchasing real estate at a foreclosure auction, the plaintiff brought suit under Article 15 of the New York Real Property Actions and Proceedings Law ("N.Y. RPAPL") to discharge a mortgage on the plaintiff's property. Relying on a statement in Milone v. U.S. Bank, N.A., 164 A.D.3d 145 (2d Dep't 2018), the trial court ruled that, because the mortgagee's purported de-acceleration of the mortgage loan was motivated only by intent to avoid the expiration of the statute of limitations on foreclosure, the mortgagee did not succeed in de-accelerating the mortgage.

 

Accordingly, the trial court ruled that the six-year limitations period had expired and discharged the mortgage. The bank timely appealed.

 

After the entry of the trial court's judgment, the New York Court of Appeals, in Freedom Mortgage Corp. v. Engel, 37 N.Y.3d 1 (N.Y. Feb. 18, 2021), abrogated the reasoning of Milone, on which the trial court relied.

 

In this appeal, the mortgagee argued that the trial court's judgment here should be vacated because of the subsequent decision of the New York Court of Appeals in Engel.  The Second Circuit agreed.

 

The Second Circuit noted that, to discharge a mortgage pursuant to N.Y. RPAPL § 1501(4), a plaintiff must demonstrate: "1) that it has an estate or interest in the real property; 2) that all necessary parties to the action were joined; and 3) that the applicable statute of limitations for commencing a foreclosure action has expired without the commencement of a foreclosure action." Gustavia Home LLC v. Envtl. Control Bd., 2019 WL 4359549, at *5 (E.D.N.Y. Aug. 21, 2019).

 

The parties did not dispute that the plaintiff satisfied the first two prongs of the test, so the only issue on appeal was whether the statute of limitations on foreclosure had expired.

 

In New York, an action to foreclose on a mortgage is subject to a six-year statute of limitations. N.Y. CPLR § 213(4); see Retemiah v. Bank of N.Y. Mellon, 195 A.D.3d 649, 650 (2d Dep't 2021). Furthermore, "once a mortgage debt is accelerated, the entire amount is due and the Statute of Limitations begins to run on the entire debt." Ditmid Holdings, LLC v. JPMorgan Chase Bank, N.A., 180 A.D.3d 1002, 1003 (2d Dep't 2020) (internal quotation marks omitted).

 

Where the acceleration of a mortgage debt upon default is made optional with the holder of the note and mortgage, the debt may be accelerated by the mortgagee's taking of "some affirmative action . . . evidencing the holder's election to take advantage of the accelerating provision." Wells Fargo Bank, N.A. v. Burke, 94 A.D.3d 980, 982-83 (2d Dep't 2012). "Commencement of a foreclosure action may be sufficient to put the borrower on notice that the option to accelerate the debt has been exercised." Id. at 983; see also Engel, 37 N.Y.3d at 22. Accordingly, the parties agreed that the foreclosure action over the property here accelerated the mortgage, triggering the start of a six-year limitations period.

 

After a mortgage is accelerated, the mortgagee can de-accelerate it by making an "affirmative act [of revocation] within six years of the election to accelerate," stopping the statute of limitations clock, provided that the borrower has not "changed his position in reliance" on the acceleration. Engel, 37 N.Y.3d at 28-29.

 

In Milone, the court found the law of New York to be that, if a purported de-acceleration was motivated by a desire to avoid expiration of the limitations period, it would fail to take effect. 164 A.D.3d. at 154.

 

However, the New York Court of Appeals in Engel expressly "reject[ed] the theory . . . that a lender should be barred from revoking acceleration if the motive of the revocation was to avoid the expiration of the statute of limitations on the accelerated debt." 37 N.Y.3d at 36 (citations omitted).

 

The plaintiff here did not dispute that the New York Court of Appeals repudiated Milone's proposition that a lender's intent to avoid the expiration of the statute of limitations could invalidate an attempted de-acceleration.  Instead, the plaintiff here argued that Engel requires that a voluntary discontinuance of a foreclosure action is the only way to de-accelerate a previously accelerated mortgage.

 

The Second Circuit found the plaintiff's argument to be meritless because Engel expressly contemplated other "affirmative acts" that would suffice, in addition to voluntary discontinuance. See id. at 29 ("For example, an express statement in a forbearance agreement that the noteholder is revoking its prior acceleration and reinstating the borrower's right to pay in monthly installments has been deemed an 'affirmative act' of de-acceleration.").

 

Furthermore, the Second Circuit reasoned that if the plaintiff's interpretation of Engel were accurate, a mortgagee whose foreclosure action was discontinued in any manner other than by voluntary withdrawal of its complaint would have to refile its foreclosure action for the sole purpose of immediately withdrawing it. The Court saw nothing in Engel that would require such wasteful formalism.

 

Thus, because the trial court's grant of summary judgment to the plaintiff was based primarily on a now abrogated statement in Milone, the Second Circuit vacated the judgment and remanded for further consideration in light of Engel.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

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