The New Jersey Supreme Court’s decision in New Jersey Lawyers’ Fund for Client Protection v. Stewart Title Guaranty Co., 203 N.J. 208 (2010), is extremely important to all involved with the New Jersey real estate industry, including attorneys, mortgage lenders, title insurance companies and homeowners, not only because it offers clarification of the circumstances under which a title insurance company may be held liable for the negligent or fraudulent acts of individuals in connection with the closing of a real estate transaction, but because it suggests a deviation from the previous understanding under which some real estate professionals were operating.
In order to fully appreciate the import of Stewart , it is helpful to briefly review the New Jersey Supreme Court’s earlier holding in Sears Mortgage Corp. v. Rose , 134 N.J. 326 (1993). In that case, the Court held that a title insurer was liable to repay the New Jersey Lawyers’ Fund for Client Protection for losses sustained as the result of a closing attorney’s embezzlement of funds that were to be used to pay off a lien. This was a significant decision because the Sears court determined that an agency relationship existed between the closing attorney and the title insurer.
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