PennyMac Holdings, LLC, (PennyMac) as the holder of a lender’s title insurance policy on a condominium unit in Ocean City, filed a claim against First American Title Insurance Company (First American), because the deed of trust securing the loan was never recorded. Unfortunately for PennyMac, the Maryland Court of Special Appeals (CSA) found the claim to be untimely. Pennymac Holdings, LLC v. First Am. Title Ins. Co., No. 2758, Sept. Term 2018, 2020 WL 7024845 (Md. Ct. Spec. App. Nov. 30, 2020).
CitiMortgage, which had made the loan on November 6, 2006, before selling it to PennyMac, filed a claim with First American on December 4, 2012. First American denied the claim. After PennyMac bought the loan, it too filed a claim on April 16, 2013, but again First American denied it. PennyMac filed again on June 14, 2014, but this time, it claimed under the closing protection letter that First American issued in connection with the loan. Again, denial.
PennyMac filed suit in the Circuit Court for Worcester County on July 20, 2016, but was unsuccessful and appealed to the CSA. The CSA found that PennyMac’s claims accrued on the date that First American first denied the claim, December 14, 2012. Therefore, PennyMac waited too long to bring its lawsuit because the general statute of limitations for breach of a contract is three years. PennyMac argued that each time it filed a claim with First American or incurred additional expenses, the statute of limitations was reset under the continuing harm doctrine, but the CSA rejected that argument.
PennyMac also argued that the title insurance policy was a specialty because it included the seal of First American and the statute of limitations for specialties is 12 years. Unfortunately for the claimant, the CSA held that a corporate seal may be included solely for the purpose of showing that the corporation had duly authorized the agreement; the inclusion of a corporate seal on a contract is not, in and of itself, sufficient to convert an ordinary contract into a specialty. There must be an intention on the part of the parties to have a specialty, and the CSA did not find any indication that the parties wanted the title insurance policy to be a specialty. Therefore, the extended statute of limitations of 12 years was not available. We discussed some of the issues relating to specialties and the statute of limitations in the April 2018 issue of Relating to Real Estate.
PennyMac also argued that it had rights under the closing protection letter. The CSA found that a closing protection letter is an indemnity agreement and not an insurance policy because it indemnifies a lender for problems arising from the closing agent’s failure to apply funds and follow the closing instructions. The CSA held that the circuit court should have considered PennyMac’s claim under the closing protection letter separately. The CSA directed that on remand, the circuit court should consider whether PennyMac or a predecessor suffered a loss under the closing protection letter, and it suggested that the statute of limitations began to run at the time of the occurrence of an actual loss.
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