First Am. Title Ins. Co. v. Johnson Bank

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First American Title Insurance Company issued title insurance policies to Johnson Bank for properties that secured the Bank’s loans. The policies failed to list covenants, conditions, and restrictions (CC&Rs) that prohibited commercial development on the properties. When the property owners defaulted on their loan obligations to the Bank, they sued First American, alleging that they had intended to develop the properties and were prevented from doing so by the CC&Rs. Judgment was entered in favor of the owners, and the properties were sold at a trustee’s sale. Johnson purchased the parcels and notified First American of claims under its lender’s title insurance policies. The superior court ruled that the parcels should be valued as of the foreclosure date. The court of appeals reversed, concluding that the policy was breached when the loans were made. The Supreme Court vacated the court of appeals’ opinion and reversed the superior court's judgment, holding (1) when an undisclosed title defect prevents the intended use of the property and causes the borrower to default on the loan, the lender’s diminution-in-value loss should be calculated as of the date the title policy was issued; and (2) the record here did not establish that the title defect caused the borrowers’ default and resulting foreclosure. Remanded. View "First Am. Title Ins. Co. v. Johnson Bank" on Justia Law