Appeals Court ruling on real estate sale gone awry

Oregon Court of Appeals affirms judgment against title company in real estate sale gone wrong
by Lori Bauman
Ater Wynne LLP,
Oregon Law Firm

A title company is liable for negligence in a real estate transaction in which plaintiff thought he had purchased a lot that — it was later discovered — had already been sold to another party. Last week the Oregon Court of Appeals in Peterson v. McCavic affirmed a jury verdict for negligence against Amerititle, Inc., which had served as escrow agent and title insurer in the transaction.

Plaintiff undertook to purchase an empty lot in The Dalles, Oregon, but the property description in the earnest money agreement was changed after he signed it — leading to his purchase of a lot about 50 feet from the one he thought he was buying. Plantiff learned of the mistake from the actual owners of the land he thought he had purchased, but only after spending several months building a house on the wrong lot.

Amertitle argued that, pursuant to the economic loss doctrine, it could be liable for negligence only if it had a special relationship with plaintiff. An escrow holder generally is a neutral party with no obligation to either party to the transaction. However, an escrow holder can assume a duty when it volunteers advice or otherwise acts outside the scope of its normal duties. Viewed in the light most favorable to plaintiff, the evidence showed that the escrow agent changed the property description in the earnest money agreement, and prepared closing documents based on that change, without direction from or knowledge of the parties to the transaction. By doing so, it acted outside the duties of a neutral party and incurred an obligation to exercise due care. On that basis, the court affirmed the jury verdict.

See our earlier discussion of the economic loss doctrine here.

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