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Title Insurer Negligent But Restores Priority of Mortgage Company by Equity Rule
Description An appeals court held that a title insurance company was negligent for failing to discover a lien placed against property for which a new mortgage was issued. The doctrine of equitable subrogation allows the new mortgage maker to take the priority of the original mortgage maker and stop the forced sale of the property to the other lien holder.
Topic Insurance
Key Words Title Insurance; Priority; Equitable Subrogation
C A S E   S U M M A R Y
Facts The Lees owned a home financed with a mortgage. Kim obtained a judgment lien against the Lees. The Lees then obtained refinancing for their home. The property was subject to a deed of trust for which Yakima Title issued title insurance when the new mortgage was issued. Yakima failed to discover Kim's lien when it issued the policy. Kim then obtained a default judgment and began to move against the Lees' property. Yakima defended its insured's lien position by moving to quash the execution sale of the property. The trial court denied the motion to quash. Yakima appealed.
Decision Reversed. Kim's judgment lien was effective because it complied with statutory requirements. However, Yakima Title's insured (the mortgage company) holds the first lien position under the doctrine of equitable subrogation. This doctrine applies, when appropriate, to restore the first lien position to the mortgage lender over that of the intervening judgment creditor. The failure of the title insurer to provide an excuse for missing the judgment lien is negligence. But granting priority to the new mortgage maker leaves Kim no worse off than he was before the new lender issued the new mortgage to pay off the senior lien holder, the original mortgage company, which had priority over Kim. The equitable subrogation does not render title insurance irrelevant, as the title insurer defended the lender's lien position at its expense, as required by the policy, and would have been liable had its legal arguments not carried the day in court.
Citation Kim v. Lee, 2000 WL 1337054 (Ct. App., Wash., 2000)

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