Whether a private plaintiff may sue a surety under Virginia’s CRESPA statute is a question that was certified today to the Supreme Court of Virginia by the 4th U.S. Circuit Court of Appeals.
Several Virginia state and federal courts that have considered the question have found no private right of action under Virginia’s Consumer Real Estate Settlement Protection Act, according to the 4th Circuit. But the nature of the CRESPA surety bond, and the possibility of a suit against the bond, are open questions, the appellate court said in its Aug. 2 unpublished order.
The lawsuit in First American Title Ins. Co. v. Western Surety Co. arose from “a real estate transaction gone awry,” according to the trial judge, Alexandria U.S. District Judge Liam O’Grady.
A homebuyer tried to refinance a mortgage through SunTrust Mortgage. First American Title Insurance Company provided title insurance for the refinancing to First American’s title agent, First Alliance Title Company. First Alliance also handled the closing. As required by CRESPA, Va. Code § 55-525.16, First Alliance obtained a $100,000 surety bond from Western Surety.
At closing, however, a First Alliance employee diverted the funds received from SunTrust that were designated to pay off the existing mortgages, which were not paid. As a result, SunTrust’s deed of trust securing the refi wound up at a lower priority than the existing deeds of trust. A later foreclosure wiped out SunTrust’s secured interest in the property, and it lost $734,296. First American Title paid SunTrust’s full loss under the title insurance, and then sued Western Surety when it wouldn’t satisfy First American’s demand for the $100,000 CRESPA bond.
The district court granted summary judgment to First American Title on its contract claim. The court said a party could not bring a direct statutory claim for violation of CRESPA. The statute carries no private right of action, as a number of Virginia trial courts have recognized. But First American tried to match its CRESPA claim to another claim that apparently had succeeded in a Virginia state court: a claim for common law breach of contract against the CRESPA bond.
No Virginia appellate decision has determined the proper characterization of a CRESPA surety bond, wrote Judge G. Steven Agee. Agee said the federal appellate court was “uncertain whether the Supreme Court of Virginia would conclude that CRESPA permits any private cause of action,” and even if it does not, “whether a common law claim for breach of contract,” as in First American, is nonetheless allowed.
The 4th Circuit’s three-judge panel certified to the Virginia high court three questions intended to help resolve First American’s claim.
By Deborah Elkins