Title Company Has No Liability for "Bad" Title Commitment

In the recent Centennial Development Group decision, 1 CA-CV 12-0080, a buyer sued a title company for issuing both a title commitment and a title insurance policy that failed to disclose an ingress and egress easement.  The buyer was unable to develop the property, and lost the property to foreclosure.

The title company defended the lawsuit on the grounds that, one, even if there was negligence in the preparation of the title commitment, there was no liability and two, the buyer had no claim against the title insurance policy itself as the buyer no longer owned the property.

The Court of Appeals first ruled that under A.R.S. § 20-1562 the buyer had no claim for a negligently prepared title commitment.  A.R.S. § 20-1562 states that a title commitment is only a promise to issue a title insurance policy.  The Court of Appeals then ruled that, even though the buyer no longer owned the property, the buyer still had a claim under the title insurance policy because the loss occurred during the time of ownership.

  Note: A title company should have liability for a negligent title commitment in a real estate transaction, similar to the liability of a real estate broker or real estate attorney who has been negligent in a real estate transaction.  In 1992, however, the Arizona Legislature specifically adopted A.R.S. § 20-1562 to eliminate any such liability of a title company.