Embezzled funds land title co. in court

Law of the Land

By Inman News Feed
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Law of the Land

Tara-Nicholle Nelson
Inman News

In January 2004, the Goodmans sold their home in New Jersey, with the representation of their real estate attorney, Richard Pizzi, at closing. The Goodmans asked Pizzi to disburse $50,000 of their $325,000 in proceeds from the sale, and instructed him to hold the remainder in trust for the upcoming closing of their new home.

Unbeknownst to the Goodmans, Pizzi embezzled the funds.

In May 2004, Pizzi ordered a policy of title insurance for the Goodmans' new home from Stuart Title Company, which sent Pizzi a commitment to provide title insurance on the home, expecting that he would forward it to the Goodmans, according to court records. The commitment contained a disclosure to the effect that the buyers' attorney was not an agent of the title company.

At the close of the sale of the Goodmans' new home, Pizzi issued checks to the sellers from his trust account, which were later dishonored, court records reveal. The Goodmans obtained a loan to close the sale of their new home and, after Stewart Title rejected their request for reimbursement, were eventually reimbursed $307,000 for their losses by the New Jersey Lawyers' Fund for Client Protection. The Goodmans then assigned their right to sue to the Lawyers' Fund.

The Lawyers' Fund recouped $20,000 from Stewart Title, which did not admit any liability, then sued both Stewart Title and Pizzi for the remainder of what it had paid the Goodmans. (Pizzi had already been voluntarily disbarred.)

At trial, a verdict was issued in favor of the title company, finding that there was an agency relationship between Pizzi and Stewart Title, but that this relationship was created after Pizzi had already embezzled the Goodmans' money, making it unfair to hold the title company accountable for something Pizzi did before the title company even became involved.

On the Lawyers' Fund's appeal of the trial court verdict, the appellate court overturned the trial court's finding, ruling that because Stewart Title did not send the disclaimer of an agency relationship with Pizzi directly to the Goodmans, the agency relationship between Pizzi and the title company continued, putting the title company in the best position to stop Pizzi's continued dishonesty up through closing on the new home.

Stewart Title appealed to the New Jersey Supreme Court, which reversed the appeals court ruling, finding that Stewart could not rightfully be held to account for Pizzi's embezzlement.

The New Jersey Supreme Court acknowledged, but found no need to substantively address the lengthy and complex arguments of both parties, and the briefs filed by other interested parties, including a bar association, title association and consumer advocates.

The court went straight to the matter of timing, citing the fact that Pizzi actually embezzled the money prior to the title company's involvement in the transaction. This single fact indicated to the court's satisfaction that the title company had no control over Pizzi at the time of the embezzlement, and was in no position to prevent him from committing the damaging act.

"Thus, it cannot be argued that the Goodmans relied on Pizzi as a representative of the title company," the court declared.

Additionally, unlike the attorney in the case relied upon by the lower appeals court, Pizzi had no apparent relationship with the title company, nor was he designated an "approved" attorney by Stewart Title. In no way did the "title company ... ever represent ... to the Goodmans that Pizzi had actual or apparent authority to act on its behalf."

The Supreme Court of New Jersey found that because "no agency relationship existed between Pizzi and the title company at the time the money was misappropriated," "the title company is not liable for the misappropriation by Pizzi." The lower appeals court ruling was reversed and the matter sent back to the trial court so the original judgment in favor of Stewart Title could be reinstated.

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 Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

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