With the decline of the real estate market, there has been an epidemic of foreclosures. As a result, many investors have made it their business to purchase distressed real estate at bargain rates.
However, before making such purchases, it is critical for the investor to determine the priority of the loan that is being foreclosed. As a foreclosure purchaser you will be taking the property subject to any and all loans that are senior to the one being foreclosed. Oftentimes, obtaining this information needs to be done in a very short amount of time.
Ben Soifer was one of these investors. Mr. Soifer allegedly entered into an oral agreement with Chicago Title, whereby Mr. Soifer would e-mail one of Chicago’s agents, who would provide Mr. Soifer a “yes” or “no” answer as to whether the foreclosing loan was the senior loan. In return, Mr. Soifer agreed to place business with Chicago on the subsequent re-sale of any properties he purchased at the foreclosure sales.
Mr. Soifer requested information from Chicago on a home in Encino, California, and was told that the foreclosing loan was in senior position. Based on this, he purchased the property at the sale. He later learned that the foreclosing loan was not the senior loan, but was instead junior to another loan. As a result he allegedly sustained a loss of about $1,000,000. He sued Chicago Title.
Chicago challenged Soifer’s complaint, arguing that since Mr. Soifer did not purchase title insurance or an abstract of title, he could not rely on the title insurer to protect his interests. Both the superior court and the appellate court agreed with Chicago Title.
The appellate court relied on sections 12340.1, 12340.2, 12340.10, 12340.11 of the Insurance Code, and Southland Title Corp. v, Superior Court and Siegel v. Fidelity National Title Ins. Co. which require a party to either purchase a title insurance policy or an abstract of title before they can rely on representations by the title company.
The reason for this requirement is that title companies do not charge for the type of information obtained by Soifer, and thus they should not be held responsible. This is consistent with a basic contract principal that there must be consideration for an enforceable promise.
Mr. Soifer argued that the information he received was akin to an abstract of title. The Court did not buy this argument, asserting that the e-mails attached to the Complaint, providing a simple “yes/no” response, coupled with the fact that Mr. Soifer did not pay anything for the information, was not the equivalent of an abstract of title.
The lesson for investors to take from this case is that if you want to protect yourself, you must purchase an abstract of title or a policy of insurance. Although this may prove difficult when making an overnight decision to purchase a particular property, it is the only way to adequately protect oneself.
Simon Offord, Esq., is a California real estate attorney and associate with Brewer Offord & Pedersen LLP, in Palo Alto, California. The firm serves the legal needs of homeowners, real estate and mortgage brokers, agents, brokerages, title companies, developers, investors, and other real estate professionals and their clients.
Mr. Offord and his firm also represent clients in debt collection, creditor representation in bankruptcy proceedings, breach of contract matters, and other litigation and transactional work. The firm’s clients include homeowners, brokers and lenders, and other real estate professionals throughout Northern California. You can contact Brewer Offord & Pedersen LLP at 350 Cambridge Avenue, Suite 200, Palo Alto, California 94306, phone: (650) 327-2900, or at http://www.brewerfirm.com/