November 10, 2009
Jeffrey Rosenstiel

A title abstracter in Kentucky owes a duty to exercise ordinary care to third party purchasers: “[w]here an abstracter knows, or should know, that his customer wants the abstract for the use of a prospective purchaser, and the prospect purchases the land relying on the abstract, the abstracter's duty of care
runs . . . not only to his customer but to the purchaser.” (Emphasis added). See Hamilton v. Trans Union Settlement Solutions, Inc., Nos. 2008-CA-001475-MR, 2008-CA-001510-MR (Court of Appeals of Kentucky August 14, 2009).

Danny and Susan Hamilton (the Hamiltons), purchased a parcel of real property from the City of Prestonsburg (the City) for the purpose of constructing a residence. The real property had been conveyed to the City by a general warranty deed from David and Della Clifton (the Cliftons). The deed contained a land use restriction providing “said property herein conveyed shall be used for recreational purposes only.” The deed from the City to the Hamiltons contained no reservation or indication that the property could only be used for recreational purposes.

Financing for Appellants' purchase of the property was obtained through First Commonwealth Bank (First Commonwealth). Prior to making the loan, First Commonwealth ordered a title search through the law firm of Fitzpatrick, Osborne, Heaberlin & Sturgill, PSC (Fitzpatrick), with attorney Martin Osborne rendering the title report. Mr. Osborne failed to note the land use restriction. The Hamiltons began construction of their residence and applied to Community Trust Bank (Community Trust) for a residential construction loan. Community Trust requested that Trans Union Settlement Solutions, Inc. (Trans Union), perform a title examination, and a non-attorney, Charles Huffman, examined the title for Trans Union. Mr. Huffman also failed to discover the restriction. The title abstract performed by Trans Union was paid for by the Hamiltons from loan closing costs which were included on the settlement statement signed by the Hamiltons at the loan closing. When the Cliftons became aware that the Hamiltons were constructing a residence on their former property, they notified their attorney, who in turn notified the various parties of the restriction. Community Trust thereafter froze any further draws on Appellants' construction account. The trial court determined that Trans Union owed a duty to exercise ordinary care in its examination of the title to the subject real property.

On appeal to the Kentucky Court of Appeals, Senior Judge Joseph E. Lambert (formerly Chief Justice of the Kentucky Supreme Court) determined that Trans Union owed a duty to the Hamiltons to exercise ordinary care in its examination of the title to the subject real property. Trans Union breached that duty by failing to discover the restriction contained in the chain of title whereby the Hamiltons’ use of their property was severely impaired. Moreover, Trans Union knew or should have known that its work product would be relied upon by the Hamiltons as their names were on the title abstract work order sent to Trans Union’s agent, Mr. Huffman, and Trans Union’s records showed that the Hamiltons had paid the fees associated with the title abstract. Moreover, Mr. Huffman admitted in his deposition that he knew the loan was for the construction of a residence, and even admitted that he breached his duty when he failed to include the restriction in his report. Therefore, the trial court's determination that Trans Union was liable to the Hamiltons was not clearly erroneous.