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Posting for
Wednesday, June 22, 2005
By: Bert Rush
ESCROW AND CLOSING/HANDLING PAYOFFS/CREDIT LINES/RELEASE “TO
COME”
Could it happen to you?
Sam Sabbagh was the owner of his
home in
In September 1996, Sam got a $45,000 line of credit from Sky
Bank, secured by a mortgage against his home that was duly recorded.
By February 1999, Sam had drawn against the line of credit
and he decided to refinance. The refi was handled by Master’s Title, Inc. A payoff demand was received from Sky Bank
and the amount was paid. However,
Master’s Title did not get a release of the Sky Bank mortgage.
At about this same time, Sam contracted to sell his home to
Harold Pearson. Harold arranged
financing through a lender who once again chose Master’s Title to handle the
closing. A title search disclosed the
Sky Bank mortgage, still open of record.
An employee of Master’s Title called Sky Bank and requested a payoff
demand. On March 25, 1999, a Sky Bank
employee, Kathy Patterson, faxed a letter to Master’s Title saying: “To whom it may concern Sam Sabbagh loan was paid off on Feb. 25 99 Kathy Patterson
CSR.” Master’s Title interpreted this
letter to mean the Sky Bank mortgage was satisfied and subject to being
released. They accordingly closed the
sale transaction on March 31, 1999, without further contact with Sky Bank.
But the Sky Bank line of credit remained open, and in time
Sam took additional advances from this account.
When Sam stopped making payments, Sky Bank commenced judicial
foreclosure against his former home, seeking to recover $45,000 plus interest.
New owner Harold opposed the foreclosure, and on
cross-motions for summary judgment the trial court ruled in favor of Harold. Sky Bank appealed.
On appeal, Harold argued that Sky Bank should be equitably estopped from enforcing the mortgage because its employee
had provided misleading information, causing Master’s Title and, by extension,
Harold, to believe the Sky Bank mortgage was satisfied and subject to being
released.
The Court of Appeals began its analysis questioning whether
Harold could invoke estoppel, since he was not in “privity” with Sky Bank.
In fact, the Court said, Harold was not even in privity
with Master’s Title since they were engaged by Harold’s lender. The Court explained that a mere “stranger” to
a transaction cannot rely on the defense of estoppel
in an action by a party to the transaction.
The Court passed on this question, without making a finding, since (it
said) the dispositive question was whether Master’s
Title or Harold had reasonably relied on Kathy Patterson’s bad advice.
In this case, the Court held, reliance on Patterson’s advice
was not reasonable. The Court reasoned
that a party acquiring an interest in real property is charged with
constructive notice of matters of record.
The Sky Bank mortgage was recorded, and titled “Open-End Mortgage, Home
Equity Line.” It follows that Master’s
Title and Harold were on notice that the Sky Bank mortgage continued to affect
the property and secured repayment of advances that might be made in the
future, until it is released of record.
Patterson’s advice that the mortgage was “paid off” could not be relied
upon to conclude it was subject to being released and, absent reasonable reliance, Harold could not invoke an estoppel
defense to bar the mortgage foreclosure.
Summary judgment in favor of Harold was reversed, and the
case was remanded for further proceedings.
The case is Sky Bank-Ohio Bank Region v. Sabbagh,
2005
Could it happen to you??
************
