| Copyright 2005-2007 All Rights Reserved Charles E. Marunde & FreeRealEstateLaw.com |
| Is Title Insurance Necessary? |
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Truth is stranger than fiction. Imagine purchasing a beautiful piece of real
estate intended to be your retirement property and getting stuck with a
judgment which was not on the record when you bought your property. It
happened to Helmuth and Beverley Prochaska in Whatcom County,
Washington.
This newsletter reviews the recent Washington Appellate case of Prochaska
v. Midwest Title Guaranty Co., 85 Wn. App. 256 (March, 1997).
The Prochaskas moved here from South Carolina. They went through the
normal and cautious procedures to purchase their dream property: they
included financing contingencies in the Purchase & Sale Agreement, and
they obtained and paid for a title insurance policy. The purpose of the
policy, of course, was to insure that they would get a clean title, free from
encumbrances of any kind. They did everything you would do in a normal
transaction.
Disaster strikes! Nine (9) minutes before the title company recorded the
Prochaska’s statutory warranty deed, an out-of-state judgment against the
seller of the property was recorded with the Whatcom County Superior
Court clerk. Two days later the Superior Court clerk entered the judgment
on the official court records (also known as the execution docket). So the
judgment was not actually discoverable by anyone who searched the public
records until two days after the Prochaska’s deed was recorded.
To be sure there is no misunderstanding, I want to state the dates and the
times. The out-of-state judgment (against the seller) was filed on
September 14, 1988, at exactly 10:05 a.m., and the Prochaska’s statutory
warranty deed was recorded on September 14, 1988, at exactly 10:14 a.m.
Recall that the judgment did not get recorded on the records by the clerk
until September 16, 1988.
Most of us would conclude that the Prochaskas own the property and are
ahead of the judgment, or to say it another way, the judgment did not attach
to the Prochaska’s property since the judgment against the seller came after
the closing and recording to the Prochaskas.
Not so, says the Washington Appellate Court. Listen up, because this
decision is a title company’s worst nightmare, and it could also create a
problem for a buyer. It deals with an age old problem for title companies,
but the court inks what one would only hope could not be.
The court bases its ruling on technical interpretations of the law. As many
of us know, judges can give us some incredible law this way. The court
hangs its hat on the fact that RCW 4.56.200 establishes that a judgment
becomes a lien on real property “upon filing with the county clerk.”
Apparently, it is “so what” if the clerk doesn’t get the judgment entered in the
public record for a couple of days later. The court goes on to say that the
Prochaskas had “constructive notice” when the judgment was filed, even
though there was no possibility they could have discovered it until
September 16th.
Concluding, the court says that the out-of-state judgment is a lien on the
property (a $100,000 lien), and the Prochaskas are stuck with it. The court
politely says that the Prochaska’s remedy is to go after the seller or the
insuring title company. Guess who is going to get stuck with the bill? Right!
The title company, because as in most cases, the seller is like the turnip
from which you can get no blood. By the way, the title company did a good
job closing this transaction, and there was nothing the title company could
have done to prevent this whole scenario.
Now, does anyone want to complain about the small premium you pay your
title company for taking huge risks? Not me. In my opinion, the title
companies do not charge enough to close and insure your title.
estate intended to be your retirement property and getting stuck with a
judgment which was not on the record when you bought your property. It
happened to Helmuth and Beverley Prochaska in Whatcom County,
Washington.
This newsletter reviews the recent Washington Appellate case of Prochaska
v. Midwest Title Guaranty Co., 85 Wn. App. 256 (March, 1997).
The Prochaskas moved here from South Carolina. They went through the
normal and cautious procedures to purchase their dream property: they
included financing contingencies in the Purchase & Sale Agreement, and
they obtained and paid for a title insurance policy. The purpose of the
policy, of course, was to insure that they would get a clean title, free from
encumbrances of any kind. They did everything you would do in a normal
transaction.
Disaster strikes! Nine (9) minutes before the title company recorded the
Prochaska’s statutory warranty deed, an out-of-state judgment against the
seller of the property was recorded with the Whatcom County Superior
Court clerk. Two days later the Superior Court clerk entered the judgment
on the official court records (also known as the execution docket). So the
judgment was not actually discoverable by anyone who searched the public
records until two days after the Prochaska’s deed was recorded.
To be sure there is no misunderstanding, I want to state the dates and the
times. The out-of-state judgment (against the seller) was filed on
September 14, 1988, at exactly 10:05 a.m., and the Prochaska’s statutory
warranty deed was recorded on September 14, 1988, at exactly 10:14 a.m.
Recall that the judgment did not get recorded on the records by the clerk
until September 16, 1988.
Most of us would conclude that the Prochaskas own the property and are
ahead of the judgment, or to say it another way, the judgment did not attach
to the Prochaska’s property since the judgment against the seller came after
the closing and recording to the Prochaskas.
Not so, says the Washington Appellate Court. Listen up, because this
decision is a title company’s worst nightmare, and it could also create a
problem for a buyer. It deals with an age old problem for title companies,
but the court inks what one would only hope could not be.
The court bases its ruling on technical interpretations of the law. As many
of us know, judges can give us some incredible law this way. The court
hangs its hat on the fact that RCW 4.56.200 establishes that a judgment
becomes a lien on real property “upon filing with the county clerk.”
Apparently, it is “so what” if the clerk doesn’t get the judgment entered in the
public record for a couple of days later. The court goes on to say that the
Prochaskas had “constructive notice” when the judgment was filed, even
though there was no possibility they could have discovered it until
September 16th.
Concluding, the court says that the out-of-state judgment is a lien on the
property (a $100,000 lien), and the Prochaskas are stuck with it. The court
politely says that the Prochaska’s remedy is to go after the seller or the
insuring title company. Guess who is going to get stuck with the bill? Right!
The title company, because as in most cases, the seller is like the turnip
from which you can get no blood. By the way, the title company did a good
job closing this transaction, and there was nothing the title company could
have done to prevent this whole scenario.
Now, does anyone want to complain about the small premium you pay your
title company for taking huge risks? Not me. In my opinion, the title
companies do not charge enough to close and insure your title.
| Chuck Marunde, who is an Real Estate Broker and Retired Real Estate Attorney, can be contacted at 360-775-5424 or by email. |