Priority Dispute Caused Post-Policy, Nevertheless Covered by Title Insurance

As frequently happens, borrowers in this case had mortgage loan applications pending with two lenders. When both applications were approved, and the borrowers didn't bother to tell either lender about the other, the result was confusion over which lender was entitled to priority.

The borrowers began with a mortgage against their home for $184,000.

On October 11, 1988, the borrowers executed a mortgage in the amount of $279,000, a portion of which was used to pay off the existing mortgage of $184,000.

On October 25, 1988, the borrowers obtained a home equity loan from Citibank, secured by another mortgage. The Citibank mortgage was insured by a title policy also dated October 25, 1988. The title policy contained an exception for the original $184,000 mortgage, only.

The $279,000 mortgage was recorded on November 2, 1988, and the Citibank mortgage recorded November 16, 1988.

The Citibank mortgage went into default. When Citibank commenced foreclosure proceedings it learned for the first time of the $279,000 mortgage. Because the $279,000 mortgage was determined to have priority, proceeds from the Citibank foreclosure were insufficient to satisfy its mortgage. Citibank made a claim under its title insurance policy.

When the claim was rejected, Citibank filed suit and prevailed on a motion for summary judgment.

On appeal, attorneys for the title insurer argued that the claim was not covered since recording of the $279,000 mortgage was excluded from coverage as a post-policy event.

The court of appeal made short work of this argument. It held that the $279,000 mortgage "arose" when it was executed on October 11, prior to the policy date of October 25. Therefore, the exclusion did not apply. As a matter of contract law, it made no difference to the outcome that the offending mortgage could not have been located by a search of the public records on the policy date.

Although it was not an issue in the case, the court also noted that the same title company insured both the $279,000 mortgage and the Citibank mortgage.

The official citation is Citibank v. Commonwealth Land Title, 645 N.Y.S.2d 826 (1996).

Following the Letter of the Law, Tax Sale Purchaser Failed To Give Adequate Notice

After occupying this Maryland home for some years, the owners moved to Virginia in 1990 and rented the home to tenants.

The owners' address on local property tax rolls continued to be that of the Maryland home. In 1993, the owner refinanced the property and, later, the refinancing mortgage was assigned. When property taxes went unpaid, the property went to tax sale and was purchased by Mr. Howard. Howard filed a lawsuit to foreclose the owners' right of redemption, and mailed the required notices of suit to the owners at the address of the Maryland home, and to both the refinancing lender and assignee. No attempt was made to serve the owners personally, and after the notices were mailed Howard proceeded to give further notices solely by publication.

In time, Howard obtained a default judgment against the owners and sought to take possession of the home. The tenants then contacted the owners, who promptly filed a lawsuit seeking to set aside the default judgment and reinstate their right to redeem the property.

The trial court ruled in favor of Howard, finding that he had complied with Maryland's notice statute. This statute requires only that notice be given to an owner at a last known address as obtained from: (1) records examined as part of a title examination, (2) the tax rolls, and (3) any other address known by the party filing suit to foreclose the right of redemption.

The court of appeal reversed, citing prior decisions of Maryland's highest court to the effect that strict compliance with the state notice statute may not be sufficient to satisfy constitutional due process requirements. Mainly, the court referred to the decision in St. George Antiochian Orthodox Christian Church v. Aggarwal, 326 Md. 90, 603 A.2d 484 (1992), which in turn relies on Mennonite Board Admissions v. Adams, 462 U.S. 791, 103 S.Ct. 2706 (1983).

In this case, the court of appeal said that the notice mailed to the owners by Howard had been returned, unopened, marked "Return to Sender - Moved - Not Forwardable." But at the time, the property was occupied by tenants who knew the owner's current address, and regularly mailed rent payments there. Moreover, both the refinancing lender and its assignee knew the owners' current address. The court faulted Howard for not contacting any of these potential sources of information, and held that neither of the financial institutions involved would have been prevented from supplying the information by confidentiality provisions of Maryland's Mortgage Lender Law.

The court concluded that a tax sale purchaser, especially one on notice of a "bad address," is to be charged with knowledge of a correct address for an owner which is reasonably ascertainable by further efforts, based on information available from public records, from an occupant of subject property, or from a mortgagee whose interest is shown in the public records.

By this standard Howard was deemed to have "known" the owners' correct address. Since he did not mail to that address, his mailing did not comply with the state notice statute as interpreted in light of constitutional rights of due process. And, since the mailed notice was defective, the trial court lacked personal jurisdiction over the owners and the default judgment against them was reversed.

The official citation is Nichol v. Howard, 112 Md. App. 163, 684 A.2d 861 (1996).

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