Insuring Title to Subdivided Land

Does a standard title insurance policy provide assurance that real property can be sold as subdivided parcels, as shown on a recorded parcel map? A recent court decision reaffirms that the answer is no. It may be possible, however, to purchase an endorsement that will provide coverage.

In Dollinger Deanza Associates v. Chicago Title Insurance Company (2011) 199 Cal.App.4th 1132, the plaintiff, Dollinger, purchased certain real property in the City of Cupertino with the intention of selling a portion of the property that was used as an overflow parking lot. A parcel map recorded in 1979 showed that the property was divided into seven separate legal parcels-one of them being the overflow parking lot. In 1984, however, the city had issued a conditional use permit requiring that the property owner merge the seven parcels into one. The city thereafter recorded a notice of merger, but the notice was improperly indexed under the name of a different city.

After attempting unsuccessfully to sell the parking lot parcel to a third party, Dollinger made a claim against its title insurer under the California Land Title Association ("CLTA") policy, which the title insurer rejected. Dollinger then filed suit.

Dollinger argued in its lawsuit that the undiscovered merger of the seven parcels had rendered the parcels unmarketable and directly caused the loss of the $3 million sale. Such a loss, argued Dollinger, was precisely the type of loss the policy was intended to protect against.

The Court of Appeal, however, disagreed. Citing longstanding precedent, the court explained that the notice of merger did not affect Dollinger's title to the land, but merely impaired the property's market value. ( Id. at 1148.) In the words of the court, "a notice of merger does not represent a third person's claim to an interest in the property . . . or otherwise cast doubt on who owns the property." ( Id. at 1152.) Accordingly, the title insurance policy provided no coverage.

The lesson of Dollinger is that a purchaser of subdivided acreage should undertake its own due diligence and not rely exclusively upon matters disclosed in a title report or policy. Another possible solution would be to purchase a Subdivision Map Act Compliance endorsement-CLTA Form 116.7-which any major title insurer will provide for an additional fee.