Seventh Circuit Finds that Title Company Complied with Escrow Instructions

real estate developmentFrom the Seventh Circuit we have Edelman vs. Belco Title & Escrow, finding that a title company complied with its escrow instructions and had no liability to an investor in the real estate project.  

Plaintiffs invested $3 million in a multi‐use real‐estate project in Caseyville, Illinois called Forest Lakes. Their agreement with the developers promised a first‐priority mortgage, but they received only a junior mortgage. Meridian Bank had previously acquired a $20M mortgage on Forest Lakes in 2005. The plaintiffs lost their entire investment when the bank foreclosed in 2009. They sued Belco – the title company – which had done the title work for the Forest Lakes transactions, including the Meridian mortgage. None of the plaintiffs’ $3 million were ever escrowed with Belco, but went directly to the developer. Belco had no contact with the plaintiffs, before, during, or after the closing.

The development failed. Plaintiffs alleged Illinois state‐law claims of breach of fiduciary duty against Belco, claiming that as the “closing agent” for the transaction, Belco owed a duty to disclose that they were not receiving the first‐priority mortgage. The trial court granted summary judgment for Belco, finding that Belco was the plaintiffs’ agent for the purposes of the escrow and closing. Under Illinois law the title company owed only the very limited duty “to act only according to the terms of the escrow instructions.” Belco complied with the terms of the escrow agreement in that the funds were disbursed according to the agreement. The Seventh Circuit affirmed.

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