On February 9, the U.S. District Court for the Western District of North Carolina granted in part and denied in part a title insurer’s motion to dismiss in a real estate fraud case, where a mortgage lender alleged it suffered losses exceeding $500,000 after issuing a loan based on purportedly forged documents and forged notary stamps across multiple states, and where the loan proceeds were transferred to a third-party account. The plaintiff brought a breach of contract claim against the title company, alleging that it was required to indemnify the plaintiff because of the title company’s failure to follow the lender’s closing instructions.
The court granted the title company’s motion to dismiss the breach of contract claim, finding that the parties’ agreement contained an exclusion of liability for fraudulent conduct by a third party. The court, however, denied the title company’s motion to dismiss with respect to the plaintiff’s claims for declaratory judgment, bad faith, and unfair or deceptive trade practices. With respect to the claim for declaratory judgment, the court held that, despite the fraud exclusions in the parties’ contract, the lender plausibly alleged that all requirements for a title policy had been met and, thus, the plaintiff stated a plausible claim for a declaration that the title company had an obligation to issue the title policy. The court also permitted claims of bad faith and unfair practices to survive, emphasizing the need for a full factual record to determine these claims.
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