The United States District Court for the Northern District of Georgia recently ruled that a title insurance company was not liable to an insured lender for a reverse mortgage fraud scheme perpetrated by the title agent. See James B. Nutter & Co. v. Old Republic Nat’l Title Ins. Co., 2016 WL 5792686 (N.D. Ga. Oct. 3, 2016). Between September 2008 and September 2009, the insured lender entered into 11 reverse mortgage loans (the “Loans”) with various borrowers, and obtained title insurance through the title insurance company’s agent, a non-party to this action. The title agent also served as the lender’s agent in closing the transactions. In 2011, Fannie Mae discovered that a number of loans it purchased from the lender and that had been closed by the title agent were tainted by fraud, however, there had been no accusations of fraud regarding the Loans. As a result, Fannie Mae required the lender to repurchase ten of the Loans. The lender then filed a claim with the insurer, which the insurer denied. The lender then brought this action against the insurer.
The insurer moved for summary judgment, which the court granted. In granting the motion, the court first determined that the lender had failed to demonstrate any actual cloud of title on the properties. Although other loans closed by the agent were fraudulent, the lender “failed to forecast anything more than the possibility that at some point far off in the future, there could, perhaps, be a cloud on title [on the Loans]. A mere possibility is not enough.” Therefore, the breach of contract claim failed. The court further rejected the lender’s claim that insurer committed various torts by and through its agent’s actions in closing the Loans, holding that “when an agent is working for two principals that are aware of the dual agency, neither principal can be held liable by the other for the agent’s actions unless they participated in the agent’s wrong.” As there was no evidence that the insurer had participated in the frauds, these claims failed as well.