Customers may sometimes request that documents irrelevant to an insured transaction be recorded as an accommodation. It can be risky to record a document without the issuance of a policy; every document a title company records should be reviewed to ascertain that it is recordable in the intended county, and completed in a timely manner. Recording usually means the conclusion of a transaction, and payment may pass between parties dependent upon the documents being recorded by the title company.
It is important that title companies protect themselves, as well. Are you familiar with Rooz v. Kimmel, 55 Cal. App. 4th 573 (1997)? This case is vital to title and escrow companies in California asked to record documents as accommodations when no policies are issued. A title company –a defendant in the case—handled escrow on a property in Berkeley, and was asked to record a deed of trust in favor of Rooz as an accommodation. This was to be a second lien on a property in San Francisco, after Kimmel (another defendant), acquired it. The company’s escrow officer required the parties sign an indemnity and hold harmless agreement to protect the company with regards to the accommodation recording since Rooz did not obtain title insurance on the deed.
Rooz authorized the title company to record the deed of trust after Kimmel acquired the property, but Kimmel refused to authorize the recording. Almost four months passed without the deed being recorded. Kimmel further encumbered the property over $1 million during this time. By the time the Rooz deed was recorded, it was in fourth position instead of second and only partially secured. When the market collapsed in the 90’s, the Rooz deed of trust was wiped out by a prior lienholder.
Rooz sued Kimmel and the title company for defrauding him, regardless of the indemnity and hold harmless agreement that he had signed earlier. The trial court held (and the appellate court affirmed) that the indemnity agreement was fully enforceable and the title company protected.
With this case on the books, it’s no surprise that title companies may ask for indemnity and hold harmless agreements signed by parties who request documents to be recorded without insurance!
If you have any questions, please get in touch with me; I’m always happy to speak with you.