Deposits lost in failed real estate project

Law of the Land

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jan. 5, 2011

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Law of the Land

Tara-Nicholle Nelson
Inman News™

Florida attorney Ira Hatch was the principal of Coastal Title Insurance Services Inc., a licensed title agency that provided title insurance policies on behalf of Lawyers Title Insurance Corp. In another role, Hatch was a manger for Lake Buena Vista Vacation Resort LC, the real estate development company that was to build the San Marco Resort Condominium Project.

In 2004 and 2005, three couples separately entered into reservation agreements for units in the project, and made reservation deposits of $15,000 each to Coastal as the escrow provider.

In 2006, each couple signed purchase agreements for their units and deposited additional monies with Coastal, which served as the escrow agent.

Construction, which was scheduled for completion in 2009, never began; the project was terminated and none of the would-be buyers received their deposit monies back.

(In a separate proceeding, Hatch was disbarred.)

The three couples attempted to recover their deposits from Lawyers Title, which in turn filed suit seeking a declaratory judgment stating that it was not liable for the return of the couples' escrow deposits.

The couples argued that Lawyers Title was liable under section 627.79 of the Florida Statutes, which provides that "a title insurer is liable for the defalcation, conversion, or misappropriation by a licensed title insurance agent or agency of funds held in trust by the agent or agency pursuant to (section) 626.8473." Section 626.8473 allows a title insurance agent to "engage in business as an escrow agent as to funds received from others to be subsequently disbursed by the title insurance agent in connection with real estate closing transactions."

The trial court ruled in favor of Lawyers Title, finding that the couples' escrow funds were not held in trust by Coastal as a title agent or closing agent in connection with a real estate transaction, which would involve the issuance of a title insurance policy. Rather, Lawyers Title argued -- and the trial court found -- Coastal received the couples' escrow funds in its limited role as escrow provider.

As a result, the lower court ruled, Lawyers Title could not be held liable for the return of the couples' monies under section 627.79. The couples appealed.

The Court of Appeals of Florida upheld the trial court's ruling. The court first cited Hechtman v. Nations Title Insurance of New York, 840 So. 2d 993, 996 (Florida 2003) for the proposition that section 627.79 was not intended to protect the public, but rather to limit title insurers' liability for deposit funds misappropriated by agents to only those funds received by the title insurance agent "in connection with real estate closing transactions involving the issuance of title insurance binders, commitments, policies of title insurance, or guarantees of title."

Then, the court turned to the evidence that had been construed by the trial court to support a finding that Coastal had been acting only as escrow agent, not as a title agent, in holding the couples' deposit funds. The escrow agreement between the couples and the developer specified that Coastal was acting as the escrow agent, and none of the documents involved specified any closing agent.

In fact, the purchase agreement expressly stated that the transactions were intended to be "all-cash" purchases, but that if the buyers later elected to use mortgage financing, they would have the right to select their own closing agent or to use the seller's/developer's closing agent.

Although the couples all testified that the developer had verbally designated Coastal as the closing agent, the appellate court pointed out that (a) the developer did not have the authority to unilaterally select the closing agent, under the purchase agreement, and (b) the agreement expressly stated that the parties could not rely on verbal representations.

As a result, the appeals court upheld the lower court's finding that the couples' escrow monies did not qualify as funds held in trust under section 627.79 and, accordingly, Lawyers Title Insurance was not liable for their misappropriation by Coastal.

Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Ask her a real estate question online or visit her website,

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