To secure its loan to the owners, Wells Fargo obtained what was labelled “First Deed of Trust,” and it obtained a title policy insuring its lien’s status as the senior lien on the property.  After the borrowers defaulted, Wells Fargo foreclosed, and the Hovannisians bought the property at the foreclosure sale.  They sued when they later discovered that there was a $38,000 deed of trust which was senior to Wells Fargo’s.  To settle, Wells Fargo assigned its rights against its title insurer to the Hovannisians, who promptly sued the title insurer on the assigned rights.  Held, the Hovannisians lose.  Under Condition 2 to the title policy, the insurer’s liability ceased at the foreclosure sale when Wells Fargo transferred the property to the Hovannisians without warranty, thus also relinquishing its own interest in the insured property.  As there was no potential for coverage of the Hovannisians’ claims against Wells Fargo under the title policy, the insurer owed no duty to defend Wells Fargo in the action, and could not be sued for breach of the covenant of good faith, either.

California Court of Appeal, Fifth District (Gomes, Acting P.J.); July 25, 2017 (published August 11, 2017); 2017 WL 3141099