Court Opinion

ID: 8295267
Source: CourtListenerOpinion
Date Created: 2022-10-17 11:01:30.240205+00
Date Added: 2024-06-11T16:44:01.522435
License: Public Domain

Justice PLEICONES.
I respectfully dissent and would reverse the order granting summary judgment in this contract interpretation case.
First American (Insurer) issued a borrower’s title insurance policy to Preservation Capital’s (Lender’s) predecessor in interest insuring Lender’s mortgage interest in three properties against title defects. The amount insured under the policy in Schedule A was $3,075,000. One of the three properties (St. Phillip parcel) was released from the mortgage in 2008. The borrower subsequently defaulted on its mortgage, at which time it was learned the mortgage was invalid to the extent it purported to cover the King Street parcel since borrower did not own that property. The King Street parcel had in fact been sold by its true owner in 2006, with Lender receiving nothing from that sale.
In 2010, Lender foreclosed on the third parcel, the Shopping Center, which was purchased by a credit bid for $3,250,000. At the time of this foreclosure, the borrower owed Lender $3,641,190 on the mortgage.
The differences between the amount due under the mortgage ($3,641,190) and the value of the credit bid ($3,250,000) is $391,190. Lender seeks to recover not this differential, but rather the loss it alleges it suffered at the time the King Street parcel was sold. Under Lender’s view, since that property sold for $590,000 subject to a priority lien of $244,665, had Lender had the title to the King Street parcel that Insurer’s policy insured it did, then Lender would have netted $345,335 from the King Street sale. In this suit, Lender seeks to recover this ‘lost’ $345,335 from Insured, offsetting that against its ‘loss’ in the foreclosure of $391,190.
The majority finds the circuit court properly granted Lender summary judgment under the policy, finding Insurer liable for Lender’s loss from the sale of the King Street property. I agree with Insurer that Lender suffered no loss under the policy, and that the circuit court and the majority misread sections 2 and 9 of the policy. I would therefore reverse the circuit court’s order.
Section 9 of the policy is captioned “Reduction of Insurance: Reduction or Termination of Liability,” and provides for sitúa*322tions where payments on the mortgage act to reduce coverage under the policy. Section 9(a), (b), and (c).
Section 9 also provides that after a reduction, certain events, e.g., the accrual of interest and other advances, can raise the amount of the insurance coverage “provided in no event shall the amount of insurance be greater than the amount of insurance stated in Schedule A,” i.e., $3,075,000. Section 9(b). Under Section 9(c), the foreclosure of the mortgaged property terminates the Lender’s policy.
Section 9 is implicated here because the Shopping Center property was foreclosed, and Lender’s mortgage satisfied. The foreclosure price was $3,250,000, an amount which exceeds the value of the mortgage interest insured under this policy ($3,075,00o).1 With this foreclosure, Lender received the full value of its insured interest, and thus suffered no loss as a result of the title defect in the King Street collateral.2 Section 7(a)(iii). The foreclosure and satisfaction of Lender’s mortgage terminated this Lender’s policy, except as provided in Section 2. Section 9(c).
Section 2 converts a lender’s title insurance policy to an owner’s insurance policy when the lender acquires title to the property described in the policy. Section 2 applies only to the property the lender has acquired title to in a “legal manner which discharges the lien of the insured mortgage .... ” Section 2(a).3 In other words, when Lender acquired an interest in the insured property through foreclosure, i.e. the Shopping Center, the policy was converted to an owner’s title insurance policy on that parcel. Section 2(a).
Section 2(c) then establishes the amount of coverage the now-owner has under the converted policy. This section *323provides in relevant part that the insured amount is the lesser of (i) the amount in Schedule A [here $3,075,000]; or (ii) the amount of principal, interest, expenses and certain advances4 made prior to the acquisition of the property ($3,641,190) less payments made, here the $3,250,000 credit bid. Under Section 2(c), Lender’s newly converted owner’s policy on the Shopping Center parcel protects it against loss by title defects in the amount of $391,190, the lesser figure. Hodas v. First Am. Title Ins. Co., 696 A.2d 1095 (Me.1997).
The majority misapprehends the effect of Section 2(c). This section simply establishes the formula for determining coverage under the newly-converted owner’s title policy on the Shopping Center, and is irrelevant to any purported loss under the Lender’s policy related to the King Street property. As Hodas demonstrates, if in the future Lender were to sell the Shopping Center, and were that sale to be affected by a title defect, then Insurer would be liable for up to $391,190. Section 2 applies only to insure title (not a mortgage interest) to the Shopping Center now owned by Lender.
I would reverse the grant of summary judgment to Lender. The policy insured Lender against loss of up to $3,075,000 due to a title defect on the mortgage secured by these three properties, and never against any greater amount. The mortgage was discharged through a foreclosure sale, which brought more than the insured value. Thus there was no loss under Lender’s title insurance policy. The policy was then converted to an owner’s policy, insuring Lender’s title to the Shopping Center.

. This is the maximum amount insured under the policy, which does not, as the majority holds, insure the total indebtedness under the mortgage. See Section 9(c) (accrued interest, etc. can never "be greater than the amount of insurance stated in Schedule A”).

. Had Lender received less than $3,075,000 in its foreclosure, then the title defect in the King Street property would be relevant to establish a claim under the policy.

. Both the circuit court and the majority err when they apply Section 2 to the BCing Street property, since as the facts make clear, Lender neither had nor acquired title to that parcel.

. This language tracks that of Section 9(b).