In a decision filed on April 11, 2017, a Superior Court of Pennsylvania case highlights issues that can arise when discrepancies occur between a metes and bounds description of realty versus a parcel number. It also illustrates the risks associated with forgoing a survey of realty being transferred or pledged as collateral. While this case was decided in Pennsylvania, the issues addressed therein are applicable in other jurisdictions.

In George E. Michael v. Judith Stock, 162 A.3d 465 (2017), Michael and Stock entered into a purchase agreement whereby Stock attempted to sell Michael certain realty in Bucks County, Pennsylvania consisting of two lots (A and B). The parties believed Stock owned both lots, but Stock only owned Lot A at the time the purchase agreement was executed. Ultimately, Michael withdrew from the transaction and sued Stock for recovery of his deposit and funds expended in reliance on the purchase agreement.

Stock filed a third-party complaint against Commonwealth Land Title Insurance Company (Commonwealth), which issued a title insurance policy and provided certain real estate-related services in connection with Stock’s attempted purchase of Lots A and B.

It was undisputed that Stock owned Lot A. However, the title of Lot B was clouded.

In 1994 the Borough of Bristol transferred Lot B to members of the Pezzola family (collectively, Pezzolas). Lot B was part of a larger parcel, Tax Map Parcel Number 4-18-29, owned by the Borough. The transfer from the Borough to the Pezzolas severed Lot B from Parcel 4-18-29. Several months later, the Bucks County Board of Assessment updated its records combining Lots A and B as new Parcel Number 4-18-28. However, the metes and bounds descriptions in the deeds for Lots A and B were not revised to reflect the combination.

In 1999, the Pezzolas entered into an agreement (the Pezzola Agreement) to sell Stock the business and associated realty located at a certain street address in Bucks County, Pennsylvania. No survey was performed on the property to be conveyed.

Stock entered into a contract with Commonwealth to provide title insurance and “real estate transactional services” for the Pezzola Agreement. Stock obtained a title commitment from Commonwealth, which stated Commonwealth insured against loss or damage sustained, among other things, by reason of title to the “estate or interest described on Schedule A being vested other than as stated therein.” Under a “Note for Information Only,” Schedule A provided the same street address contained in the Pezzola Agreement, along with a metes and bounds legal description. Schedule B of the commitment also excludes from coverage “discrepancies or conflicts in boundary lines…which an accurate and complete survey would disclose.”

The metes and bounds on Schedule A described Lot A only, but the commitment also contained references to Parcel 4-18-28 (which includes Lots A and B). The deed conveying the property from the Pezzolas to Stock contained the same metes and bounds description, along with a reference to Parcel 4-18-28. Stock claims Commonwealth drafted the deed, which Commonwealth denied.

Upon discovery of the title defect, Michael sued Stock, and Stock sued Commonwealth. Stock filed a motion for summary adjudication of some of her claims against Commonwealth, and Commonwealth filed a cross-motion for summary judgment of all of Stock’s claims against Commonwealth. The trial court denied Stock’s motion and granted Commonwealth’s motion for summary judgment, holding that Commonwealth did not have an obligation to indemnify or defend Stock’s title to Lot B because the commitment insured only Lot A, as evidenced by the metes and bounds description on Schedule A.

On appeal, Stock argued the title commitment’s description of the insured property (which included a metes and bounds description of Lot A and the Parcel Number for both Lot A and B) created ambiguity in the title insurance contract that should be resolved in favor of the insured. The Superior Court, citing precedent and public policy generally favoring insured parties receiving the benefit of their reasonable expectations under insurance contracts, vacated Commonwealth’s summary judgment and remanded the case to the trial court for the determination of unresolved factual issues. However, the trial court will also have to address whether the survey exception on Schedule B allows Commonwealth to escape liability as a result of Stock’s failure to obtain a survey which should have disclosed the issue.

While Stock may yet prevail as to some of her claims, she nevertheless suffered the loss of a multi-million dollar transaction with Michael and ultimately may not recover anything from Commonwealth. Had Stock obtained a survey of Lots A and B, in connection with the Pezzola Agreement, she could have identified the issue and addressed it prior to closing on Lot A.

Lenders, sellers and buyers can learn a valuable lesson from Stock. Lenders need the legal descriptions in their mortgages to be an accurate recitation of the land being taken as security in the event a foreclosure and/or claim under a title policy is necessary. Sellers and buyers need to confirm the land being transferred matches the intention of the parties. Certain diligence items may be waived in transactions where a relatively small amount of money is at stake. However, a survey of realty being conveyed or pledged as collateral should not be considered discretionary. Also very important: a team of knowledgeable attorneys and real estate professionals to help spot and address issues that may not be apparent until the damage is done.