It's Not Nice to Sell a Property You Don't Own

Title Insurer Subrogated to Rights of Defrauded Buyer

In Lewis v.  Fidelity National Title Insurance Company, No. A23A0030, Court of Appeals of Georgia, Fifth Division (April 26, 2023) Torriel Deyon Lewis appealed the grant of summary judgment to Fidelity National Title Insurance Company in Fidelity's fraud action against him.

FACTUAL BACKGROUND

When a party moves for summary judgment and supports his or her motion by submitting affidavits, depositions, or answers to interrogatories, the nonmoving party may not rest upon the mere allegations and must set forth specific facts showing that there is a genuine issue for trial.

In 2007 an entity called House Rescue 911 L.L.C. ("old House Rescue 911 L.L.C.") acquired a parcel of real property. In 2010, old House Rescue 911 L.L.C. was administratively dissolved by the secretary of state. The records of the Georgia Secretary of State show that on February 3, 2017, an entity named House Rescue 911 LLC ("new House Rescue 911 LLC") was formed. New House Rescue 911 LLC's name was identical to old House Rescue 911 L.L.C.'s name except for the absence of periods between the letters LLC. Lewis was listed as the registered agent of new House Rescue 911 LLC. New House Rescue 911 LLC and Lewis were not affiliated in any way with old House Rescue 911 L.L.C.

Three weeks after it was formed, new House Rescue 911 LLC purported to sell and to convey by limited warranty deed the parcel of real property that old House Rescue 911 L.L.C. had acquired in 2007.

Lewis and new House Rescue 911 LLC had no basis for claiming ownership of the property and had no right to convey any rights to the property.

In 2019, the purchaser of the property, Fidelity's insured, was named as a defendant in a petition to quiet title brought by the members of the administratively dissolved old House Rescue 911 L.L.C. The superior court quieted title in the petitioners' favor, and Fidelity paid its insured $66,000 under the title policy.

Fidelity then sued new House Rescue 911 LLC and Lewis. The trial court entered a default judgment against new House Rescue 911 LLC and granted Fidelity's motion for summary judgment against Lewis. Lewis filed this pro se appeal.

FRAUD

The tort of fraud has five elements: a false representation by a defendant, scienter, intention to induce the plaintiff to act or refrain from acting, justifiable reliance by plaintiff, and damage to plaintiff.

False Representation

Fidelity presented evidence that new House Rescue 911 LLC never owned the property; that Lewis and new House Rescue 911 LLC had no basis for claiming ownership of the property and had no right to convey any rights to the property; but that Lewis nonetheless attested that new House Rescue 911 LLC owned the property.

Inducement

In the owner's affidavit, Lewis attested that he was making the affidavit "to induce [the purchaser] to purchase said real property, and to induce FIDELITY NATIONAL TITLE INSURANCE COMPANY to issue a . . . title insurance policy." And, of course, Fidelity did issue a title insurance policy.

Justifiable Reliance

Lewis argued that any reliance on his false representation was not justified because Fidelity did not exercise due diligence. Fidelity presented undisputed evidence that the chain of title showed that title to the property was vested in "House Rescue 911 L.L.C." A title search would not have shown that new House Rescue 911 LLC was a different entity and was not formed until after old House Rescue 911 L.L.C. had acquired the property.

A purchaser of land is charged with constructive notice of the contents of a recorded instrument within its chain of title. Conversely, a purchaser is not charged with constructive notice of interests or encumbrances which have been recorded outside the chain of title. The Court of Appeal concluded that Lewis pointed to no evidence creating a question of fact on the justifiable reliance element of Fidelity's fraud claim.

Personal Liability

An LLC member may be held individually liable if he or she personally participates or cooperates in a tort committed by the LLC or directs it to be done. The undisputed evidence is that Lewis was a member of new House Rescue 911 LLC, that he falsely represented that new House Rescue 911 LLC owned the property, and that he signed the limited warranty deed and the owner's affidavit on behalf of new House Rescue 911 LLC. The trial court did not err in finding that he is personally liable.

The judgment was affirmed.

ZALMA OPINION

Fraud perpetrators are not honest or reliable. They lie. Clearly new House Rescue 911 LLC, and its manager, lied to the buyer of a piece of real property it did not own and also intentionally deceived the title insurer. Mr. Lewis was personally responsible to reimburse the title insurer for the money it was required to pay to its insured and was entitled to subrogate against the fraud perpetrator.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com

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