In Oregon, most real estate transactions are closed in escrow with a title company acting as escrow agent. In a typical transaction, a purchase and sale agreement is executed by seller and buyer, then submitted to the title company to establish an escrow, and then (assuming all conditions to closing are satisfied or waived), closing documents are prepared and the parties close the transaction in escrow in accordance with instructions provided by the seller and buyer. Oregon courts have generally viewed the escrow agent in these transactions as a neutral third party, with no obligation to either seller or buyer other than to carry out the instructions provided. However, as a recent Oregon case confirms, an escrow agent can assume an obligation to the parties when it steps outside its “neutral” status and acts beyond the scope of its normal duties as an escrow.
In Peterson v. McCavic, the buyer and seller executed a purchase and sale agreement for “Lot Number 8 (eight) in the River’s Edge Subdivision Phase 1 in The Dalles, OR.” After the agreement was submitted to escrow, the title company changed this legal description to “Lot Number 8 (eight) in the River’s Edge subdivision 1st Addition, in The Dalles, OR.” This latter legal description was then used for the preliminary title report prepared for the buyer and for the closing documents. The only problem was that this latter description, “Lot Number 8…1st Addition,” was a different lot than “Lot Number 8…Phase 1,” and it was not the lot the buyer intended to purchase. When after closing the buyer starting building a house on Lot Number 8…Phase 1, the lot he thought he had purchased, the owner of that lot sued the buyer. The buyer then sued the title company for negligence for changing the legal description. The title company contended that it owed no duty to the buyer to make sure the documents were accurate, and argued that its only duty was to follow the escrow instructions to close the transaction. At trial, the jury returned a verdict for the buyer, finding the title company negligent and awarding the buyer damages. On appeal, the Oregon Court of Appeals affirmed the jury verdict, concluding that there was evidence from which the jury could conclude that when the title company changed the description in the purchase and sale agreement and prepared closing documents based on that change, it acted outside the normal duties of an escrow, and thereby undertook a duty to the buyer to exercise reasonable care.
Hindsight is always 20/20, but one wonders why the title company in this case didn’t simply ask the seller and buyer to agree to the change in the legal description. Had the title company done so, it seems this dispute would likely have been avoided.
We regularly update clients about changes in real estate law and on industry trends. This includes briefing clients on legislative proposals in the federal tax, housing and other legal areas affecting their businesses. Staying current enables you to anticipate and prevent legal problems as well as capitalize on new developments.