Client Alert: District Court of the District of Columbia Denies Traditional Legal Defenses Raised by Title Companies

On May 22, 2020, the United States District Court for the District of Columbia issued an important decision denying an early motion to dismiss against a title company for its actions preceding a troubled transaction. The decision is significant in that the District Court denied each of the traditional legal defenses typically raised by title companies at such an early stage and effectively caused an apparently routine claim to survive until, at least, the costly summary judgment stage.

In Alex Yudzon v. Sage Title Group, LLC, Mr. Yudzon contracted to purchase a tenant-occupied property in the District of Columbia. Mr. Yudzon and the sellers hired Sage title to “serve as a settlement and escrow agent and title insurance issuing agency on the closing” and Sage Title provided the parties with its Scope of Work. The closing was completed notwithstanding that the proper forms pursuant to the Tenant Opportunity to Purchase Act (“TOPA”) were not filed with the District of Columbia beforehand. The failure to review the administrative record and ensure compliance with TOPA resulted in Mr. Yudzon being unable to collect rents or market the property for a period of three years. Mr. Yudzon filed suit against Sage Title alleging, inter alia, negligence and breach of contract.

Specifically, the District Court determined that Mr. Yudzon alleged Sage Title “had a duty to deliver clear, marketable, and insurable title, which included taking necessary steps to ensure the title was marketable, such as investigating whether the Sellers complied with the TOPA requirements” and, further, that Sage Title “should have known, through reasonable investigation, that the TOPA requirements were not satisfied.” The District Court held that, notwithstanding that the existence of a legal duty is a question of law, the question is more appropriately answered at the summary judgment stage and the allegations were sufficient to survive a motion to dismiss.

Similarly, the District Court held that the exchange of money for services and the provision of a Scope of Work by Sage Title could result in the creation of an implied contract to ensure that the TOPA requirements had been satisfied. Sage Title’s motion to dismiss was denied and it must now proceed through costly discovery to obtain those facts which support its contention that there was neither any contractual agreement or common law duty to ensure TOPA compliance.

Jackson & Campbell, P.C. represents title insurers and insureds in Maryland, Virginia, and Washington, D.C. and we strive to keep our clients and other title professionals up to date on various developments in the law. Additionally, we present no cost in-house updates of the nation’s most noteworthy cases and national trends following the spring and fall American Land Title Association’s Title Counsel meetings.

If you have any questions about this case or laws impacting real estate in and around the Washington, D.C. region, feel free to contact us. Our Real Estate Litigation and Transactions Practice Group is ready to assist.