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Wells Fargo Bank, N.A. v. First American Title Insurance Co.

United States District Court, D. Maryland

September 5, 2017

WELLS FARGO BANK, N.A., as trustee for SOUNDVIEW HOME LOAN TRUST 2007-OPT1, ASSET-BACKED CERTIFICATES, SERIES 2007-OPT1
v.
FIRST AMERICAN TITLE INSURANCE CO.

          MEMORANDUM

          William M. Nickerson Senior United States District Judge.

         Before the Court are cross motions for summary judgment filed by Defendant First American Title Insurance Company (First American or Defendant), ECF No. 39, and by Plaintiff Wells Fargo Bank, N.A., as trustee for Soundview Home Loan Trust 2007-OPT1, Asset-Backed Certificates, Series 2007-OPT1 (Wells Fargo or Plaintiff). ECF No. 40. The motions are fully briefed. Upon review of the motions and the applicable case law, the Court determines that no hearing is necessary, Local Rule 105.6, and that the motion of First American will be granted and the motion of Wells Fargo denied.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         Wells Fargo brought this action alleging that First American improperly denied Wells Fargo's claim under a title insurance policy issued by First American. Briefly stated, Wells Fargo brought a claim under the policy after its lien was extinguished in a foreclosure proceeding. First American denied the claim on the ground that Wells Fargo failed to provide it with notice of the foreclosure proceeding in a timely manner, as Wells Fargo was required to do under the terms of the title insurance policy, and that the late notice caused it actual prejudice. The facts relevant to this dispute are largely undisputed and are as follows.

         On or about September 29, 1994, Thomas and Derry Hardnett purchased real property known as 7405 Kathydale Road in Baltimore, Maryland, (the Property) for $111, 000.00. The Hardnetts financed the purchase with a loan from United Mortgage & Financial Services for $110, 941.00 (the Purchase Money Loan). This loan was secured by the Property under a deed of trust dated September 29, 1994, which was recorded in the Land Records of Baltimore County (Purchase Money Deed of Trust).

         On or about September 4, 1998, Little Dimples Enterprises, Inc. (Little Dimples), a Maryland corporation owned by the Hardnetts, obtained a loan of $130, 000 from the Bank of America, FSB (Bank of America), under a program of the United States Small Business Administration (the Little Dimples Loan). A deed of trust was executed which purported to secure the Little Dimples Loan with the Property and that deed of trust (the Little Dimples Deed of Trust) was recorded in the Land Records of Baltimore County, and then re-recorded to correct a typographical error as to the amount of the loan. The Little Dimples Deed of Trust, however, listed Little Dimples as the “grantor” of the interest in the Property, despite the fact that it is undisputed that Little Dimples had no ownership interest in the Property. The deed was signed by Thomas and Derry Hardnett.

         On or about October 23, 2006, the Hardnetts refinanced the Purchase Money Loan with a new loan from Cooper & Shein, LLC d/b/a Great Oak Lending Partners in the principal amount of $185, 250.00 (the Great Oak Loan). This loan was secured by the Property under a deed of trust dated October 23, 2006, which was also recorded among the Land Records of Baltimore County. (the Great Oak Deed of Trust). The Hardnetts used $89, 015.39 of the Great Oak Loan to satisfy and retire the Purchase Money Loan and to obtain a release of the Purchase Money Deed of Trust.

         Five months later, on or about March 19, 2007, the Hardnetts refinanced again, this time with loan of $240, 000.00 from Option One Mortgage Company (Option One). This loan (the Plaintiff's Loan) was secured by the Property under a deed of trust executed on that same date and subsequently recorded in the Land Records of Baltimore County (Plaintiff's Deed of Trust). The Hardnetts used $192, 618.04 of the Plaintiff's Loan to satisfy and retire the Great Oak Loan and obtain a release of the Great Oak Deed of Trust. This loan was subsequently assigned to and transferred to Plaintiff.

         The closing of the Plaintiff's Loan was performed by Huntington Title & Escrow Company (Huntington Title). In conjunction with the closing, Huntington Title issued a First American title insurance policy (the Title Policy). ECF No. 40-8. The Title Policy provided that Option One, its successors and assigns, as their interests may appear, was insured against loss or damage, sustained or incurred by the insured by reason of, inter alia,

2. Any defect in or lien or encumbrances to the title; 3. Unmarketability of the title; . . .
5. The invalidity or unenforceability of the lien of the insured mortgage;
6. The priority of any lien or encumbrance over the lien of the insured mortgage.
. . .
The company will also pay the costs, attorneys' fees and expenses incurred in defense of the title or the lien of the insured mortgage, as insured, but only to the extent ...

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