Title Insurer Can Sue on CRESPA Bond

Virginia’s CRESPA statute does not create a private cause of action that may be asserted against a surety, and the surety bond issued pursuant to Va. Code § 6.1-2.21(D)(3), by a party other than the State Corporation Commission, the Virginia Supreme Court says in answer to a question certified by the 4^th U.S. Circuit Court of Appeals; but the state high court says “yes” to the next two certified questions, holding that a title insurance company may, as a subrogee, bring a common law action against the CRESPA surety on the statutory bond.

When an Alexandria owner refinanced his property, First American Title Insurance Company provided title insurance to lender SunTrust through FATIC’s title agent, First Alliance Title. First Alliance conducted the closing on the refi. As required under Virginia’s Consumer Real Estate Settlement Protection Act, First Alliance obtained a $100,000 CRESPA surety bond from Western Surety. The CRESPA bond included language stating that “any aggrieved person may maintain an action in its own name against this bond.”

At settlement, a First Alliance employee diverted the funds received from SunTrust that were designated to pay off the original mortgage. The original mortgage was not paid and the deeds of trust securing that debt were not released, so SunTrust’s deeds of trust securing the refi debt were behind the original deeds of trust in order of priority.

The property owner defaulted and the mortgagor foreclosed, resulting in the owner’s bankruptcy. The foreclosure led to a SunTrust loss of $734,296. FATIC paid the full amount of this loss to SunTrust pursuant to the title insurance policy it had underwritten for the refi. FATIC then made a formal demand on Western for the $100,000 CRESPA bond. Western refused, claiming no private cause of action can be brought against a statutory CRESPA bond. FATIC sued in  state court and the case was removed to federal court. The district court granted Western’s motion to dismiss FATIC’s claim as a subrogee of First Alliance, but also held that CRESPA did not preclude common law claims against the surety bond and granted summary judgment for FATIC. On appeal to the 4^th Circuit, that court certified three questions to this court.

Turning to the first question, CRESPA expressly provides a remedy for violations of the statute, but that remedy exclusively provides licensing authorities the ability to fine and/or otherwise penalize settlement agents who violate the statute. The General Assembly could have provided for a private cause of action in CRESPA but it did not do so. We hold that CRESPA does not provide for or recognize a private cause of action against a surety and the surety bond issued pursuant to former Code § 6.1-2.21(D)(3). Further, because CRESPA contains no abrogation clause, the district court properly concluded that common law claims against the CRESPA bond may proceed. A common law cause of action may be maintained against statutory bonds under certain circumstances, This is one of those situations. Virginia law permits a cause of action against a CRESPA surety and surety bond by assertion of a common law claim, such as for breach of contract.

Further, because a title insurance company is not one of the parties the CRESPA bond is meant to protect, we hold that a title insurance company does not have standing in its own right to maintain a cause of action against a CRESPA surety and surety bond. However, FATIC has a right of subrogation against non-insured obligors under the title insurance policies and, as a subrogee of SunTrust, FATIC steps into the shoes of SunTrust and may assert all rights belonging to SunTrust. We hold that a title insurance company such as FATIC in this case may have standing as a subrogee of its insured to maintain a cause of action against a CRESPA surety and surety bond.

First American Title Ins. Co. v. Western Surety Co. (Lemons) No. 111394, March 2, 2012; Upon Certified Questions; Richard T. Pledger, Archibald Wallace III, Thomas J. Moran for appellant; David H. Cos, Paul D. Smolinsky for appellee; Kevin T. Pogoda for appellee amicus curiae; Carrie L. Sutherland, Alan F. Curley for appellant amicus curiae. VLW 012-6-023, 15 pp.