Typically, attorney’s fees incurred in successfully defending title to property are awarded as part of an overall damages award if the fees are “necessary and reasonable.” However, the “warrantor” of the title (seller) must be notified of the court proceedings and be given the opportunity to defend the warranty.
Here, the sellers sold a commercially-zoned bare lot to the buyers that included a portion of a city street. The buyers’ attorney reviewed the updated abstract of the parcel and issued a written title opinion. However, the title opinion included standard language telling the buyers that the title opinion did not address any defects in the property that may be uncovered by a physical inspection of the property or a subsequent survey. The buyers never surveyed the property and assumed that they had a title that could be defended successfully against any future lawsuit.
Two years later, the city in which the property was located filed a quiet title action against the buyers, claiming that their property included half of an undeveloped city street and that the buyers obstructed public access to the Mississippi River with the construction of a retaining wall. The case proceeded to trial and the trial court quieted title to the city for the portion of undeveloped street and order the buyers to remove the retaining wall. The sellers were never notified of this lawsuit.
Unhappy with the outcome, the buyers sued the sellers for breach of the covenant of title to the parcel. The trial court found in favor of the buyers and ordered the sellers to pay damages for the removal of the retaining wall, the loss of property to the city, and the costs incurred in defending their title. The Iowa Court of Appeals agreed – [752 N.W.2d 32]. However, on review by the Iowa Supreme Court, they invalidated the damages award for attorney’s fees. The Court held that a buyer who must defend the title to property may not recover the expenses of that defense from the seller of the property unless the buyer has given the seller notice of the challenge to title and an opportunity to defend. Gaede v. Stansberry, 779 N.W. 2d 746 (Iowa. Sup. Ct. 2010).