Bank of America Na v. First American Title Insurance Company
499 Mich. 74
| Mich. | 2016Background
- Bank of America financed four mortgage closings in 2005–2006; title insurers/closing agents (First American, Westminster, Patriot) issued closing protection letters (CPLs) and followed closing instructions. Purchasers were straw buyers and appraisals were fraudulently inflated; all four loans soon defaulted.
- Bank of America foreclosed by advertisement, made full credit bids on two properties (Enid, Kirkway), purchased all four at sheriff sales, and later sold them at substantial losses (~$7M claimed).
- During foreclosures Bank of America discovered closing-related fraud and sued First American (under CPLs) and Westminster (for breach of written closing instructions); other defendants were defaulted or dismissed.
- Trial court granted summary disposition for First American and Westminster under MCR 2.116(C)(10); Court of Appeals affirmed in part and reversed in part, relying on New Freedom to hold the lender’s full credit bids barred some claims.
- Michigan Supreme Court granted leave, addressed (1) whether closing instructions create an independent contract, (2) whether genuine issues exist on breach, and (3) the scope of the full credit bid rule as applied to nonborrower third parties and CPLs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the full credit bid rule bar contract claims by a mortgagee against nonborrower third parties? | Full credit bids should not extinguish contractual remedies against third parties who committed fraud in closings. | Full credit bids extinguish the debt and bar subsequent claims tied to the foreclosure value (per New Freedom). | Full credit bid rule does NOT bar contract claims against nonborrower third parties; New Freedom overruled to that extent. |
| Do the written closing instructions between lender and closing agent constitute an enforceable contract? | Yes; instructions include mutual obligations, consideration (fees), required approvals, and liability language. | Defendants argued instructions were modified/limited by CPLs and thus not independently enforceable. | Closing instructions are valid contracts; CPLs did not modify Westminster’s duties because Westminster was not party to CPLs and no mutual modification occurred. Remanded to reassess summary disposition. |
| Is First American liable under the CPLs for "fraud or dishonesty" of issuing agents? (scope of CPL indemnity) | CPLs promise indemnity for actual losses arising from fraud or dishonesty of issuing agents in connection with closings; plaintiff need only show actual losses caused by such fraud/dishonesty. | Trial court/Ct App required additional proof (e.g., concealed disbursements, mishandling of lender’s funds/documents) and relied on New Freedom to narrow CPL coverage. | The CPL language is broader here—First American can be liable for actual losses arising from fraud or dishonesty of issuing agents in connection with closings (no extra requirements like concealed disbursements); remanded to determine genuine factual disputes. |
| Does the specific phrasing of CPLs here differ materially from New Freedom such that New Freedom's interpretation is inapplicable? | Yes; the omission of the word "in" broadens coverage and New Freedom’s narrower reading is inapplicable. | Defendants relied on New Freedom’s narrower interpretation to defeat CPL liability. | Court agrees CPL wording here is materially different; New Freedom’s CPL interpretation does not control. Remanded for factual review. |
Key Cases Cited
- New Freedom Mtg. Corp. v. Globe Mtg. Corp., 281 Mich. App. 63 (Mich. Ct. App. 2008) (Court of Appeals decision that extended the full credit bid rule to bar some claims against nonborrower third parties; overruled in part by this opinion)
- Alliance Mortgage Co. v. Rothwell, 10 Cal. 4th 1226 (Cal. 1995) (full credit bid does not as a matter of law bar fraud claims against nonborrower third parties where bids were caused by defendants’ fraud)
- Smith v. General Mortgage Corp., 402 Mich. 125 (Mich. 1978) (mortgagee who purchases at full-credit foreclosure cannot keep insurance proceeds when the loss occurred before sale—the full credit bid extinguishes the mortgage debt for that purpose)
- Pacific Inland Bank v. Ainsworth, 41 Cal. App. 4th 277 (Cal. Ct. App. 1995) (applied full credit bid to bar negligence claim against appraiser; court declines to follow its expansive view)
- Kolodge v. Boyd, 88 Cal. App. 4th 349 (Cal. Ct. App. 2001) (rejects broad application of full credit bid rule to bar tort/contract claims against nonborrower third parties; holds rule concerns only lender–borrower relationship)