Title insurers and agents not liable under fraud theories for collecting real estate transfer taxes that the plaintiff’s did not owe

The residential home sellers in Bushman v. Am. Title Co. of Washtenaw, No. 14-CV-10011, (E.D. Mich. Apr. 2, 2015) brought a class action against various title insurance companies and title agencies alleging the defendants defrauded them and violated the Michigan Consumer Protection Act (MCPA) when they charged and collected real estate transfer taxes reflected on HUD-1 settlement statements that were not due. The relevant law provides that where the sale of a primary residence whose state equalized value at the time of sale is less than or equal to its value at the time of its initial purchase by the seller, the seller is exempt from the tax. The court dismissed the fraudulent misrepresentation claim because plaintiffs could not demonstrate justifiable reliance. Observing that there can be no fraud where a person has the means to determine that a representation is not true, the real estate transfer tax law was available to plaintiffs and thus, they could not have been defrauded. Plaintiffs’ argument that defendants had superior knowledge of the law and thus, plaintiffs’ reliance on a statement on the HUD-1 forms was reasonable, was unpersuasive because, again, people are presumed to know the law. The court also rejected the argument that because of defendants’ superior knowledge it was reasonable that plaintiffs could be expected to rely on their statement about the taxes. The court observed that this argument applies to a negligent, as opposed to a fraudulent, misrepresentation claim where the plaintiff does not have to prove intent to defraud. Defendants owed no professional duty to the plaintiffs so it would not be reasonable for plaintiffs to rely on a one-line statement of transfer taxes itemized on the HUD-1 form as proof of their actual tax liability. Plaintiffs could also not show defendants made a false statement. The amounts listed on the HUD-1 were actually charged and the defendants did not make any representations as to the legality or accuracy of the amount charged and collected. The fact that a charge is listed on a HUD-1 settlement statement does not mean that the title insurer or title agency guaranteed to the seller, with whom it had no contractual relationship, the legal accuracy of the charge. Finally, the court tossed the MCPA claim on the basis that the MCPA specifically exempts claims made unlawful by the Insurance Code. Defendants are title insurance companies and title agencies regulated by the insurance commissioner and their alleged misconduct falls under the purview of the Insurance Code. The Insurance Code specifically provides that the commissioner can regulate any act or practice [that] is unfair or deceptive by an insurance company. Under this broad language, the defendants have met their burden of demonstrating that they are exempt from the MCPA.

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