Title Insurance Heavyweight Forks Over $300K, Drops NJ Malpractice Suit Against Buyer's Lawyer For Allegedly Failing To Unearth $2.7M Federal Tax Lien

The New Jersey Law Journal reports:

• A venerable title insurance company has done something unusual in New Jersey, and lawyers aren't likely to applaud. Chicago Title Insurance Co. filed a malpractice claim against a homebuyer's attorney, saying he acted without diligence and owes a piece of the $300,000 the company paid to save a policyholder's home. The Bergen County suit charged Albert Birchwale, of Basile, Birchwale & Pellino in Ridgefield, N.J., failed to investigate a previous sale in the chain of ownership to make sure there was no potential federal estate tax lien.

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• On Friday, Chicago Title said through its lawyer that the company had decided to voluntarily dismiss the case, Chicago Title Insurance Company v. Birchwale, Ber-L-483-09, but didn't backtrack from the position that the claim has merit.

• The case reminds lawyers that rubber-stamping title commitments can be dangerous, particularly in northern New Jersey, where buyers' attorneys often act as title companies' proxies. It also raises the question of whether title insurers should be added to the list of potential malpractice plaintiffs to be feared by attorneys and their legal malpractice carriers.

The problem started when the executor of a deceased prior owner of the property in question falsely certified that no estate taxes were due when it sold to a subsequent purchaser ("Danton"). The issue reared its head when the IRS filed suit seeking $2.7 million in back taxes against the estate and sought to enforce its lien against the subject property. At the time, it was valuing the property at more than $500,000, and the current owner ("Jhang") (who acquired his ownership from Danton) had only $310,000 of title insurance (presumably equal to the purchase price that Jhang paid Danton for the property). There was concern that the $310,000 title insurance policy wouldn't cover the lien. Ultimately, however, the IRS reportedly settled the lien for $300,000.

For the rest of the story, including what the title insurer and the buyer's attorney say what they should and shouldn't have done to avoid this near-miss of a horror story for the unwitting real estate purchaser, see Insurer Blames N.J. Lawyer for Blot on Title (Suit shows that rubber-stamping title commitments can be dangerous).

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