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1st Circuit Addresses Statute of Limitations in Connection with Mistaken Property Description on Mortgage

The First Circuit recently held that a trustee’s action to recover damages against a closing agent and title insurer on behalf of the trust due to their alleged negligence in misidentifying a parcel of land secured by a mortgage was barred by Maine’s general statute of limitations, but the trustee’s claim against the title insurer under Maine’s Unfair Claims Settlement Practices Act (“USCPA”) was timely.

The case was brought by a national bank, in its role as trustee, against a closing agent and title insurer based on a mortgage loan where the security instrument had mistakenly identified the wrong property as being secured by the mortgage.  The loan was a refinancing of a previous mortgage loan whose security instrument had identified the correct, improved parcel.  During the refinancing, however, the description of the property was mistakenly changed from the improved parcel to a much less valuable, unimproved parcel of land owned by the same family.  The bank filed three insurance claims with the title insurer, asserting coverage with respect to the improved parcel based on the errant identification of the unimproved parcel, and was denied three times because of the misidentification.  The bank then proceeded to foreclose on the unimproved parcel and filed the instant action, alleging negligence and breach of “duty of care” against the closing agent, and negligence, unilateral mistake, and violation of the UCSPA against the title insurer.

The district court held that Maine’s general six-year statute of limitations for civil actions applied to all the claims brought against both the closing agent and the title insurer, despite the bank’s argument that Maine’s twenty-year limitations period for personal actions on certain types of contracts and financial instruments should control.  Alternatively, as to the insurer, the bank argued that even if the six-year period applied, the claim was still timely because a cognizable loss did not occur until it took title to the unimproved parcel following its foreclosure action on the unimproved parcel.  The lower court granted the motions to dismiss, rejecting both of the bank’s arguments.

The First Circuit agreed with the district court that the twenty-year statute of limitations did not apply as the bank’s claims arose from the obligations created by its relationships with the closing agent and title insurer, rather than “on” the mortgage documents.  The court of appeals further held that the common law tort claims were untimely under the six-year statute.  The court held, however, that the bank’s UCSPA claim was timely because it did not accrue until the bank incurred a covered loss or liability, triggering the insurer’s indemnity to the bank.  That did not occur until the foreclosure on the unimproved parcel proved inadequate (or possibly when the bank’s arguments had been rejected by the bankruptcy court in connection with the borrower’s bankruptcy).  Therefore, the UCSPA claim was timely even under the six-year statute of limitations.