On October 7, 2011, the California Court of Appeal published its decision in Dollinger DeAnza Associates v. Chicago Title Insurance Co., after the CLTA requested publication. Publication was requested because of the decision’s importance in providing needed guidance on interpreting marketability of title and the impact of governmental regulations. The court of appeal discussed marketable title in depth, particularly relating to the Subdivision Map Act. The opinion provides guidance as to what purported restrictions affect and do not affect title to real property. The opinion reinforces the distinction between marketability of title and marketability of land. This is the first such decision in many years to address these issues.
Prior to the decision, the CLTA also filed a “friend of the court brief” in support of Chicago Title’s position, given the importance of these issues.
The insured property consisted of seven contiguous parcels. Six were improved with a building. The seventh was a parking lot. The ALTA owner’s policy (10-17-92) insured title to the seven parcels.
Years earlier, the city had recorded a notice of merger of under the Subdivision Map Act. The notice purported to merge the seven parcels. The notice had been recorded pursuant to an unrecorded conditional use permit that required the owner to merge all seven parcels, as condition for constructing the building.
The notice of merger was not excepted from the policy’s coverage. The insured sought to sell the parking lot. The buyer backed-out because of the recorded notice.
The insured sued Chicago Title, claiming that the notice of merger rendered title to the parking lot unmarketable. The insured thus alleged that the title policy covered the lost sale.
The trial court disagreed with the insured’s arguments and entered judgment for Chicago Title. The insured appealed.
The Subdivision Map Act Does Not Affect Title to Real Property
The court of appeal affirmed the judgment for Chicago Title, holding that the Subdivision Map Act, and notices recorded under the Act, do not affect title to real property. The Act might affect the saleability of the land, but does not affect title.
The title policy contained the usual definition of unmarketability of title: “[A]n alleged or apparent matter affecting the title to the land … which would entitle a purchaser of the estate or interest described in Schedule A to be released from the obligation to purchase by virtue of a contractual condition requiring the delivery of marketable title.” The court explained that under well-settled law, “the test for a marketable title is ‘whether a reasonable purchaser, knowing that a third party might claim an interest in the property, would nevertheless proceed with the transaction.’ ”
Importantly, the court explained that the SMA “ ‘regulate[s] the division of land into parcels only for purposes of sale, lease, or financing.’ ”
After surveying numerous cases decided by the California Supreme Court and the California Courts of Appeal over the last 60 years, the Dollinger court concluded: “[U]nder the Subdivision Map Act, where, as here, a city has recorded a notice of merger for the purpose of involuntary merger of a landowner’s contiguous parcels, the notice of merger serves the purpose of regulating local development and thereby impacts the landowner’s ability to sell, lease, or finance the land. The notice of merger may restrict a landowner’s ability to sell a portion of the merged land without compliance with the applicable provisions of the Subdivision Map Act, but the notice of merger does not affect the landowner’s title to the land.”
The insured argued that because its buyer believed that the notice of merger affected title to the land, the policy should cover the failed-sale as “an alleged or apparent matter affecting title to the land” under the policy’s definition of unmarketability. The court of appeal disagreed, explaining that “a notice of merger does not represent a third person’s claim to an interest in the property … or otherwise cast doubt on who owns the property.”
Dollinger’s Analysis Undermines 1119 Delaware v. Continental Land Title Co.
Dollinger’s analysis undermines the California Court of Appeal’s earlier decision in 1119 Delaware v. Continental Land Title Co. (1993) 16 Cal.App.4th 992, which held that a recorded conditional use permit encumbered title. The conditional use permit essentially limited the class of persons to whom the insured-owner could sell or lease the property, by requiring that at least one occupant be 62 years of age or older, or physically handicapped. Dollinger supports an argument that a conditional use permit like the one in 1119 Delaware does not affect title because it “does not represent a third person’s claim to an interest in the property … or otherwise cast doubt on who owns the property.” Dollinger, however, does not discuss or mention 1119 Delaware, despite the CLTA’s and Chicago Title’s requests.
Dollinger Does Not Discuss the Governmental Exclusions
In Dollinger, the court of appeal did not reach the issue of whether the notice of merger fell within the policy’s exclusions for governmental regulations. Because the notice of merger did not come within the scope of the insuring provisions, there was no need to examine the exclusions.
The Doctrines of Estoppel and Waiver Did Not Apply to Chicago Title
Dollinger is important for another reason. Chicago Title had initially accepted the claim, and later denied it. The insured argued that because Chicago Title had accepted the claim, the doctrines of “estoppel” and “waiver” prevented Chicago Title from denying the claim. The court of appeal disagreed, holding that under the particular facts of this case, those doctrines did not apply to title insurers.