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Aries Investments, LLC v. First American Title Insurance Company

MON-L-711-10 (N.J. Super. Law. Div. 2011) (Unpublished)

TITLE INSURANCE — When a title policy is issued to a named insured, an affiliate of that named insured who may have actually been the lender is not covered and therefore there can be no claim against the coverage.

A lender, involved in a fraudulent subprime mortgage loan, sought coverage under its loan title insurance policy. The borrower and his attorney engaged in a fraudulent mortgage loan wherein the borrower mortgaged his grandmother-in-law’s property without her consent. The attorney ordered a title insurance commitment naming Aries Financial, LLC (Financial) as the proposed insured. However, Financial was not the lender, not was it a licensed mortgage broker in New Jersey. Financial established a relationship with Worldwide Financial Resources (Worldwide), where Financial supplied the principal, and Worldwide would act as broker and sell the loans to Financial. Financial secured the money to fund the loans by creating a new entity, Aries Investments, LLC (Investments) which borrowed the money from Wachovia Bank. After the closing occurred, Worldwide assigned its interest in the loans to Investments so that Investments could use the income derived from payments to repay its loan to Worldwide. When the fraudulent closing was discovered, Financial and Investments filed a title claim with the title company.

The title company claimed that it only agreed to issue title insurance to Financial, but it turned out that Financial was not the lender, Worldwide was the lender. However, neither Worldwide nor Investments were a proposed or named insured under the policy and therefore the title company had no obligation to them. The title company cited a New Jersey Supreme Court case that held title companies liable only to the specific named insured in the commitment. Therefore, the title company argued that it was only accountable to Financial. Unfortunately for Financial, according to the title company it was neither the lender nor the assignee of the lender and therefore had no insurable interest event though it was named in the commitment.

The Court granted the title company’s motion for summary judgment against Investments. It agreed that Investments was not listed as a proposed insured in the title insurance commitment and therefore it was not entitled to coverage. The Court rejected Investments’ argument that it had a reasonable expectation of coverage and was therefore entitled to coverage. It found no evidence or any agreement connecting the title company and Investments to conclude that Investments was an insured under the loan policy. The Court also denied Financial’s motion for summary judgment, finding that even though Financial did apply for title insurance and was named as an insured in the policy, it was unclear that Financial ever had an insurable interest which is required for title insurance.

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