Getting an F in Flipping

Posted by: Chris Palmeri on December 24, 2007

I got a call recently from a woman with a wild tale about a real estate investment she’d made as part of her studies at business school. Jill Bigelow said she was studying for an MBA at the University of Southern California and decided to flip a house as sort of a senior thesis.

jilllandGabe.jpg

Bigelow, that’s her with her husband Gabe above, bought a house in Los Angeles’ Hollywood Hills for $950,000 in March of 2005 and spent another $335,000 fixing it up. She listed the home in July of 2006 but on day of the open house a strange odor started wafting across the property. Raw sewage began leaking over the side of the garden walls. It turned out a 50 year old underground pipe that Bigelow didn’t even know existed had ruptured. The pipe didn’t actually serve her house. It served her neighbor who had an easement and who promptly sued Bigelow to get it fixed.

Bigelow ultimately sold the house for $1.5 million, $200,000 less than she planned and just in time because the market turned. After commissions she figures she just broke even, but that’s not the end of the story. She’s now embroiled in litigation with her title insurance company which she says was legally bound to defend her against claims on the land. Lawyers costing $500 an hour have eaten up much of her remaining savings.

Bigelow says the story illustrates how worthless title insurance is because insurers would rather fight than pay claims. We don’t disagree. It certainly is one expensive lesson.

Reader Comments

Steve Chan

December 26, 2007 2:55 AM

I agree totally that title insurance is worthless. It is one of those mandatory items that an industry group dreams up to lined their pockets without any significant risks. My title insurance is fighting tooth and nail also to not defend me against a claim to my land. But the title company's contract has a two clauses one of which says that it is not obligated to defend me and another says that it is obligated. It is using the first clause to disassociate itself from having to defend me. What a great American scam!

tom

December 26, 2007 9:04 AM

Hmmm....You missed the critical point- was the easemaaent discosed on her Commitment for Title Insurance? If it was, it would be an EXCEPTION from coverage as a preexisting interest. If so, it is her fault , not the title company's as they disclosed the preexisting condition and she took subject to the interest. Before impugning the title company, do some basic fact checking.

Robert

December 26, 2007 1:08 PM

Why would Bigelow go to her title ins. co.for defense? That is not the right place for defense against a property damage claim by a third party. I would first go to my liability ins. co. for defense and indemnity against the neighbor's suit and suggest a counter claim for her own damage.

Carlos

December 26, 2007 4:28 PM

Chris does a poor job of describing the story. Real Estate rookies would be quick to condemn the title insurer but we don't know the whole story. Tom and Robert are both right in what could be a more reasonable plan of action. Even if the easement were an exception, Bigelow wouldn't be responsible for repairing the sewer line unless her actions caused its damage.

ATL Guy

December 26, 2007 7:43 PM

Well, did she do well on the senior thesis or not?

Diane Cipa

December 27, 2007 9:21 AM

Tom is correct. Easements are exceptions to title insurance and would be disclosed in the title insurance commitment. Every homebuyer should carefully review the commitment prior to closing. IF Bigelow checks the commitment and finds that the easement was not disclosed, that's another matter entirely.

Jill Bigelow

March 7, 2008 1:36 PM

Chris, thank you for posting my story. I wish I had seen it sooner. My friend just sent it to me.

The facts of my case against the title insurance are that I was sued by my neighbor for a 'prescriptive' easement which is a covered risk in my Lawyers Title Insurance policy. There are 2 recorded easements in my policy but neither address what the neighbor sued me for. On the advice of several real estate lawyersI tendered to my title insurance when she sued me in September 2006. Allstate was also tendered to later on and did cover me for property damage and some legal fees.

Today, 18 months after tendering my claim to Lawyers Title I am still fighting them to recover my damages. Thus far, my legal fees are more than my MBA cost and my damages are astronomical. In their December 2006 denial letter they denied my 7+ covered risks with excuses such as relying on the neighbor's claims vs. actual facts, even though my lawyer and I provided them with facts and documents they selected to ignore. Lawyers Title also denied my claim by calling the sewer line in question a "public utility" which any real estate novice would even know is incorrect. (By the way, a sewer pipe is private until it joins the main line (public) at the lateral in the street. See Los Angeles building Code at ladbs.org)

At this point we are deep in a bad faith suit and are not giving up becuase I paid for a policy and I demand coverage.

I would love to hear from anyone who has or is having similar troubles. I am also looking for expert witnesses in claims/coverage, real estate/damages, title insurance. We have some good ones but the more the better.

Walking Tall

April 19, 2009 3:51 PM

I too have been refused coverage by Lawyers Title on a claim by a neighbor that says that all the lot lines in my subdivision are wrong and she wants 50 ft of my property.

Title Insurance is a SCAM for Lawyers Title, owned by LAWYERS to pocket money and do nothing - the whole industry should be hung up to dry.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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