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33. If the buyer sues the title insurance company to recover the amount he paid to the donee, is he likely to prevail?
Following this discovery, the donee successfully sued the buyer to recover the amount of the outstanding mortgage.
Last year, the donee discovered an outstanding mortgage on the land that predated all of these conveyances. As a result of a title examiner's negligence, this mortgage was not disclosed in the title insurance policy issued to the buyer and the bank.
Six years ago, the investor gave the land to a donee by a quitclaim deed.
Seven years ago, the buyer sold the land to an investor by a full covenant and warranty deed without exceptions.
Ten years ago, a seller sold land to a buyer, who financed the purchase price with a loan from a bank that was secured by a mortgage on the land. The buyer purchased a title insurance policy running to both the buyer and the bank, showing no liens on the property other than the buyer's mortgage to the bank. Eight years ago, the buyer paid the mortgage in full.
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A is incorrect. It does not matter that the buyer conveyed the land to the investor. The donee successfully sued the buyer on the title covenant in the buyer's full warranty deed which was given without exception to the investor. The buyer can now recover on the owner's policy of title insurance.
B is incorrect. Although the lender's policy of title insurance ended when the loan was repaid, an owner's policy of title insurance continues to protect the owner if the owner (here, the buyer) is ever successfully sued on a title covenant in a future conveyance. Therefore, the buyer can now recover on the owner's policy of title insurance.
D is incorrect. Although this response correctly concludes that the buyer will prevail against the title insurance company, it misstates the rationale. It does not matter whether the buyer was sued by a donee or a bona fide purchaser for value.