Problem.Value

     [To borrow from Dave Barry:  We are not making this up, except for the name of course.]

     Although very cautious and professional, Lawyer Robin Debanc made a mistake in her representation of a debtor who filed a Chapter 7 bankruptcy to seek discharge of debt.  Shortly before Debanc filed the bankruptcy petition on her client's behalf, one of the client's creditors had obtained a judgment and then a judgment lien on the debtor's residence through the filing of an Abstract of Judgment   Debanc neither undertook nor advised her client to undertake a title search on the client's property to determine if any liens had been placed on the property. Accordingly, Debanc did not consider the possibility of seeking an order from the bankruptcy court that would have avoided (i.e. eliminated) the judgment lien on grounds permitted by the Bankruptcy Code.

     No one discovered this oversight until three years later when Debanc's former client put her home on the market. During an escrow established for sale of the home, the prospective buyer received a preliminary title report proposing to insure the title except as to the judgment lien. The buyer properly notified the seller, Lebanc's former client, that the buyer would be unwilling to proceed with the transaction unless the judgment lien were cleared from the property. The seller could, of course, have proposed that a portion of the sale price be used to pay off the lien through escrow but, wondering why the lien was on the property notwithstanding the bankruptcy, the seller contacted Debanc.

     Upon review of the client's file, Debanc recognized her oversight, but also speculated that the creditor had abandoned its attempt to enforce the judgment against Lebanc's former client in the erroneous belief that the lien was ineffective because the judgment had been discharged in the bankruptcy. Accordingly, instead of contacting her malpractice insurance carrier with a request to pay off the judgment lien, Debanc contacted the title company that had prepared the preliminary title report and requested that it insure over the title defect upon receiving DeBanc's written promise to indemnify the title insurance company in the event that it ever had to pay for the title defect under the insurance policy.

     You are counsel to the title company. Would you be willing to accept DeBanc's proposal? If Debanc offered a deed of trust on Debanc's residence to secure the indemnity agreement? Would there be an underlying obligation to support the deed of trust?

     Suppose the title company agrees to an indemnity agreement secured by a deed of trust on Debanc's residence. Four years pass. Debanc wants to finance the remodeling of her residence but the lender, who wants to be secured by a deed of trust, is unwilling to take a position subordinate to the title company. Debanc contacts the title company and, pointing out that the creditor with the judgment lien still has taken no action to enforce the lien, asks that the title company reconvey the deed of trust which secures the indemnity agreement? As counsel to the title company, would you agree? Is there some point at which you would agree?