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Thursday, June 13, 2024 | Back issues
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Homebuyer Can Hold Freddie’s Feet to the Fire

(CN) - Freddie Mac may be liable for refusing to pay for a homebuyer's title insurance policy, telling her "that is how it is" after she complained that the offer was promised in her contract, a federal judge ruled.

Rebecca Urban bought a foreclosed property located in Lancaster, Mass., in 2010 from the Federal Home Loan Mortgage Corporation (Freddie Mac) in a public sale.

An addendum to the contract of the sale stated that, "if purchaser agrees to use the title insurance company utilized by the seller's attorney or agent, then seller agrees to pay for purchaser's owner's title policy." Title insurance protects an owner from financial loss caused by title defects or liens upon the property.

Urban claimed that Freddie Mac made the attractive offer to induce her purchase.

After she signed, however, Freddie Mac allegedly refused to honor the provision. An attorney for the government-controlled company responded with "words to the substantial effect of: 'We get this question all the time. Freddie Mac does not honor that provision in Massachusetts. We told them this is a problem, but that is how it is,'" according to the complaint.

The attorney also allegedly explained the refusal by citing an "a conflict of interest."

When Freddie Mac again refused Urban's request that it follow the contract in January 2011, the attorney said that "state ethics rules prohibit parties from engaging in conflicts of interest, such as representing both the seller and the buyer in a real estate transaction," according to the complaint.

Urban then purchased her own title insurance policy for $680 and filed a lawsuit against Freddie Mac for breach of contract and breach of the implied covenant.

U.S. District Judge Dennis Saylor refused to dismiss the claims last week, finding that Freddie Mac's promise to pay for title insurance is a valid "exception to the merger doctrine for promises which are additional or collateral to the main promise to convey the land and are not inconsistent with the deed as given."

"Plaintiff alleges that defendant promised to pay for her title insurance if she met certain conditions. While this promise is technically part of the agreement to convey the property, it was to be performed in addition to the delivery of the deed," Saylor wrote (emphasis in original).

Summing up Urban's predicament, Saylor asked: "What happens when plaintiff agrees to use that title insurance company, but cannot use that company to buy title insurance through no fault of her own?"

"The difficulty arises from the fact that the contractual language assumes the existence of a title insurance company used by defendant's agent," he continued. "However, in this case, there is no such title insurance company, and, thus it is impossible for plaintiff to fulfill the condition."

"Although defendant did not breach the letter of the contract, the complaint alleges that defendant prevented the occurrence of the condition precedent that would have obligated it to pay for the title insurance policy," Saylor added. "Under the circumstances, that is sufficient."

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