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Barstad v. Stewart Title Guaranty Co.2/14/2002
Oral Argument Date: 10/23/2001
Concurring: Gerry L. Alexander, Charles Z. Smith, Charles W. Johnson, Barbara A. Madsen, Richard B. Sanders, Tom Chambers, Susan J. Owens
EN BANC
Presented here is a class of insured individuals who claim that title insurance companies should have made certain disclosures to them in preliminary commitments for title insurance. Specifically, these insureds claim that the companies should have disclosed that the parcels of land securing the loans had not been divided from larger tracts, that a senior lien existed on two of the lots, and that loan proceeds were being used to satisfy the senior lien. The title insurance companies contend that they had no such disclosure obligations. We agree with the title companies and hold that title insurance companies have no general duty to disclose potential or known title defects in preliminary title commitments.
FACTS
Properties Four, Inc., a real estate investment company, owned two undeveloped tracts of land in Washington, one in Maytown and the other in Lacey. The Maytown tract consisted of one contiguous 68-acre plot of land while the Lacey property was comprised of four 40-acre lots. To finance development of the lots, Properties Four arranged for Sentinel Properties, Inc., d/b/a Evergreen Services (Evergreen) to serve as a loan broker and to bundle investment loans. Evergreen or its predecessor, Consumer Loan Services of Lynnwood a/k/a Commercial Loan of Lynnwood (CLS), recruited loan participants through networks of friends and families and 'free meal deals' where a potential investor would receive a free buffet dinner if he or she attended a loan presentation. Between August 1994 and January 1996 Evergreen facilitated loans from approximately 400 individuals.
Evergreen and its principles would then package a series of loans with 8 to 20 participatory interests each. Investors were assigned a percentage of the loan, with an average loan ranging from $5,000 to $25,000. When Evergreen achieved $200,000 by combining the individual loans, it would make a new loan to Properties Four. Approximately 8 such loans were secured for the Maytown property ($1.6 million) and 23 for the Lacey property ($4.6 million) for a total of 31 loans.
Properties Four and its president, Thomas Hazelrigg, subsequently issued a promissory note to each loan participant. Properties Four also secured the loans by granting a deed of trust on a smaller parcel of land within each larger tract. The larger tracts had not been subdivided into smaller parcels when the loans were secured. When the investors' loans were secured, the Maytown property was unencumbered. However, lots 2 and 3 of the Lacey property already possessed liens on behalf of Pacific Coast Investment Company, a prior lender.
To insure the loans, a Properties Four broker, Larry Landin, requested title insurance commitments for the loans. Stewart Title Guaranty Company, Inc. (STG) ultimately issued 29 of the 31 insurance policies to the investors and Pacific Northwest Title Insurance Company, Inc. (PNTIC) issued the remaining two policies. Mike Gilbertson, STG's regional underwriter, arranged and supervised both the preliminary commitments for the insurance and the final insurance policies.
Because the real estate was situated in Thurston County, Gilbertson contacted STG's licensed agent in Thurston County, petitioner Thurston County Title Company, Inc. (TCT). TCT agreed to examine the title records and prepare a list of exceptions for inclusion in the preliminary commitment for the insurance policies and to prepare the commitment and the final title policy with the underwriter's approval. B
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