Bankers are people, and people make mistakes. In this case, the Banker made a very costly mistake. Husband and wife wanted to borrow some money. They apparently did not have any collateral, so they offered to pledge Mom's house to secure the loan.
Mistake # 1 -- To make things easier, Banker agreed to make the loan to Mom instead of to Husband and Wife. He could have made the loan to all three without any problem, but I digress.
Mistake #2 -- Banker received an "attorney's title letter" but apparently fails to review it. I say apparently, because if the Banker had reviewed the letter he would have realized that Mom only had a life estate in her house. He needed to obtain the signature of husband and wife to the deed of trust to make sure that the lien survived Mom's death.
Mistake #3 -- Banker made the loan to Mom secured by a deed of trust on her house. This was a mistake because Mom then died leaving the Bank without any collateral.
The Bank sues Husband and Wife. Predictably, Husband and Wife said it is not our problem. The Chancellor agreed. Clearly, the Bank intended to make a loan to Mom secured by her interest in the property, and the Bank received the benefit of its bargain. The court of appeals remanded the case because the Chancellor failed to rule on the Bank's claim of "promissory estoppel." It is hard to imagine how the Bank will be able to assert that it "justifiably relied" upon any misstatements of fact when the Bank just failed to read the title report it ordered.
The Moral of this Story:
Don't bother getting a title opinion if you are not going to read it. Or, if you make a loan to one person secured by someone else's property, make sure that the real borrower signs the note or even better a personal guaranty.
See The Farmers Bank v. Clint B. Holland, et al.
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