Title Company Not Liable For Construction Liens Recorded Against Property
In a recent Court of Appeals case, Hosey v Fifth Third, et al (February 2013), the Court found a title company not liable for liens recorded against an owner’s property, even though the title company failed to obtain sworn statements and lien waivers as it had agreed to do. In this case, Mr. & Mrs. Hosey entered into a typical construction financing arrangement whereby they secured a construction loan from Fifth Third Bank to build a home. Fifth Third, in turn, secured title insurance from a title company who agreed to obtain sworn statements and lien waivers before making the construction loan disbursements. The Hoseys signed a document which indemnified the title company from all losses resulting from construction liens.
Unfortunately for the Hoseys, their contractor failed to pay its subs and suppliers, even after receiving money from the Hoseys’ construction loan. The subs and suppliers then recorded liens against the Hoseys’ property. The Hoseys fired their contractor and sued the title company claiming that the Hoseys were beneficiaries of the agreement between the bank and the title company and that the title company breached that agreement when the title company failed to obtain waivers and sworn statements. The trial court disagreed with the Hoseys and dismissed the title company finding that the title company’s agreement with the bank was an agency agreement and created no rights in favor of the Hoseys. The trial court also rejected the Hoseys’ argument that the title company owed the Hoseys a separate duty to protect them from liens. The trial court ruled that the title company’s duty was to the Bank, not the Hoseys. And, even if the Hoseys could state a claim against the title company for some common law duty separate from the title company’s agreement with the bank, that claim was barred by the Hoseys’ agreement releasing the title company from liability. The Court of Appeals affirmed the trial court’s ruling.