In a case of first impression in Minnesota, District Court Judge Ann Montgomery ruled on an important question in title insurance circles: When is a lender’s loss under a title insurance policy measured? This decision, in Associated Bank v. Stewart Title, is important (and worth watching for appeals) not only because it is the first Minnesota case to address the question, but also because other jurisdictions have answered the same question differently.
Judge Montgomery’s decision illustrates why this question of timing is important to lenders and title insurers alike. The title insurance policy required Stewart Title to pay “loss or damage…sustained or incurred” by Associated Bank because of the “invalidity or unenforceability” of the insured mortgage. Associated Bank had loaned $450,000, only to later learn that its mortgage was attained by fraud. Associated argued that its loss should be measured at the time it made the loan, and that Stewart Title should owe it the entire amount of its loan, less money actually received. Associated reasoned that, if not for its reliance on the mortgage, it never would have made the loan. Stewart Title argued that Associated’s loss should be measured by the actual value of the property at the time that Associated would have foreclosed the mortgage. At that time, the property was worth $126,000. As you can see, the difference in timing leads to a substantial difference in dollars.
Until now, no Minnesota court had addressed the question of when a loss should be measured. Judge Montgomery sided with the majority of other jurisdictions and held that Associated Bank’s loss is measured at the time Associated would have foreclosed on its mortgage. At that time, the property was worth only $126,000. Judge Montgomery saw no reason to award Associated Bank more than it would have received had it foreclosed on and sold the property. Judge Montgomery granted Stewart Title summary judgment on Associated Bank’s claim for indemnity. Associated had received $175,000 in settlement proceeds. Because that amount exceeded the $126,00o property value, Judge Montgomery reasoned that Associated had suffered no loss under the title insurance policy.
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