Often a developer will purchase multiple parcels of property that have been sold together in a single transaction in the past. The developer’s intent is usually to sell those parcels separately later. In such cases, the developer will obtain title insurance at the time of the purchase. However, as made clear again in the case of Dollinger DeAnza Associates v. Chicago Title (2011) 199 Cal.App.4th 1132, title insurance will not cover any loss if in fact the parcels cannot be separately developed or sold.
In Dollinger, the Plaintiff purchased multiple lots in Cupertino and obtained a ALTA Owner’s Policy from Chicago Title. The recorded information about the property showed that it was divided into seven parcels. Dollinger attempted to sell parcel seven separately from the other parcels. During the conduct of that sale the parties learned that a notice of merger had been recorded that merged all seven parcels into one. The notice of merger was not listed on the exceptions on the title policy because Chicago Title was not aware it existed since although it was recorded, it was not properly indexed.
After Chicago Title denied Dollinger’s claim under the Policy, Dollinger sued. The court granted Chicago Title’s summary judgment motion and the Court of Appeal affirmed. The Court of Appeal held that “while the notice of merger at issue in this case may impact Dollinger’s ability to market parcel seven, the notice of merger has no affect on Dollinger’s title to parcel seven.” The reasoning followed by the Court of Appeal came from a 1951 California Supreme Court case in which the Court held that “[t]he words ‘good title’ import that the owner has the title, legal and equitable, to all the land, and the words “defective title” mean that the party claiming to own has not the whole title, but some other person has title to a part or portion of the land.” Hocking v. Title Ins. & Trust Co. (1951) 37 Cal.2d 644. Thus, although Dollinger could not sell parcel seven separately it did obtain good title and thus, there was no liability on the part of Chicago Title.
This serves as a reminder to those who seek to purchase multiple parcels for development. Do your due diligence before you purchase and make sure that what you want to accomplish can be accomplished. Reliance on title insurance is not necessarily a good backstop.
If you are a developer and think you may need legal representation involving title matters, don’t hesitate to contact our firm at www.BrewerFirm.com or call us at (650) 327 – 2900.