Lupu v. Loan City, LLC
244 F. Supp. 3d 455
E.D. Pa.2017Background
- In 2003 Lupu purchased a Coatesville, PA home and gave two mortgages; he refinanced in 2006 with a loan evidenced by a note and a refinance mortgage that named MERS as nominee. Ocwen later held the note and mortgage interests via assignments.
- Lupu (initially pro se) sued in state court (removed to federal court) challenging the mortgage and recording chain, alleging forgery and that the mortgage was void; litigation produced multiple amended complaints.
- After discovery, Lupu alleged the mortgage file at closing (handled by Stewart Title) differed from the recorded mortgage and that Loan City recorded forged documents; he sought quiet title and related relief.
- Ocwen sought defense and coverage from Stewart Title under a title insurance policy; Stewart Title initially refused and Ocwen filed a third-party complaint for declaratory relief, breach, and bad-faith denial of coverage.
- The court found no admissible evidence of forgery (Lupu’s deposition was equivocal, no corroborating witnesses or expert proof, and delay undermined forgery claim) and granted summary judgment dismissing Lupu’s Fourth Amended Complaint with prejudice.
- The court held Stewart Title’s duty to defend arose on filing of the Fourth Amended Complaint and, applying Pennsylvania law, that a title insurer’s duty to defend extends to all claims in the underlying pleading once any claim is potentially covered; it also rejected Ocwen’s bad-faith claim against Stewart Title.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of recorded mortgage / forgery | Lupu: recorded mortgage documents are forged/not the ones he signed; chain of title broken | Ocwen: loan transaction occurred; note and mortgage were valid and assigned properly through MERS/assignments | Court: No admissible evidence of forgery; summary judgment for Ocwen; Lupu’s claims dismissed |
| Effect of default against Loan City on assignees | Lupu: default against Loan City should bind assignees/successors | Ocwen: mortgage was assigned before default; default does not affect assignees | Court: Assignment preceded default; default against Loan City cannot support quiet-title relief; dismissal of claims vs. Loan City |
| Use of MERS as mortgagee | Lupu: MERS cannot validly assign mortgage / breaks chain of title | Ocwen: MERS was disclosed and consented to; MERS assignments are valid under PA law | Court: Plaintiff consented to MERS; no claim as to MERS succeeds |
| Duty to defend under title policy | Ocwen: Stewart Title must defend Ocwen; broad defense required | Stewart Title: duty to defend only as to causes alleging defects covered by policy (policy-limited) | Court: Duty to defend arose with Fourth Amended Complaint; under PA law insurer must defend all claims in that complaint because one claim is potentially covered; Stewart Title owed full defense |
| Scope/limitation of title-insurer defense rule | Stewart Title: title insurance differs from general liability; policy language limits duty to covered claims only | Ocwen: general PA rule applies—if any claim potentially covered, insurer must defend all claims until narrowed | Court: Declined to adopt Massachusetts limiting rule; applied general PA duty-to-defend rule; defense extends to all claims in the pleading once coverage is potentially triggered |
| Bad-faith denial of coverage | Ocwen: Stewart Title acted in bad faith by delaying/limiting defense | Stewart Title: reasonable interpretation of pleadings and policy; alternative authority supports its view | Court: No bad faith as a matter of law; Stewart Title’s positions were reasonable and supported by some authority |
Key Cases Cited
- Anderson v. Liberty Lobby, 477 U.S. 242 (summary-judgment standard for genuine dispute)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary-judgment burden-shifting principles)
- Mortgage Elec. Registration Sys., Inc. v. Ralich, 982 A.2d 77 (Pa. Super. Ct.) (MERS use and recording issues)
- Kvaerner Metals Div. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa.) (insurance policy construction principles)
- Ramara, Inc. v. Westfield Ins. Co., 814 F.3d 660 (3d Cir.) (duty-to-defend analysis)
- GMAC Mortgage v. First American Title Ins. Co., 985 N.E.2d 823 (Mass.) (holding title-insurer defense may be limited by policy language; discussed but not adopted)
- Nationwide Mut. Ins. Co. v. CPB Int'l, Inc., 562 F.3d 591 (3d Cir.) (insurer duty-to-defend principles)