## Facts

- Vestin Mortgage, Inc. (and its predecessor) made two loans to The Ranches, L.C., each secured by deeds of trust on property in Eagle Mountain, Utah.
- First American Title Insurance Company issued two title insurance policies: one insuring the lender’s first trust deed (Policy 2701) and a second insuring Vestin’s second trust deed (Policy 3192); both included an ALTA Form 31 endorsement.
- Between the two loans, Eagle Mountain adopted municipal actions aimed at creating a Special Improvement District (SID) and recorded a “Notice of Intention” stating the municipality’s intent to assess property within the SID to pay for improvements.
- After the policies issued, Eagle Mountain adopted an assessment ordinance levying the assessment and adding an acceleration provision making the assessment immediately due in full upon sale of the property.
- The borrower later defaulted; Vestin acquired title through nonjudicial foreclosure and attempted to sell the property.
- A prospective buyer declined to proceed after learning the assessment would accelerate upon sale.
- Vestin filed a claim under the title policies, asserting the SID assessment and acceleration feature caused covered loss; First American denied coverage.

## Issues

1. Whether the recorded Notice of Intention to create an SID constituted a covered “defect, lien, or encumbrance” under the title insurance policies.
2. Whether the policies and ALTA Form 31 endorsement covered loss from a special assessment and acceleration provision adopted after policy issuance.

## Decision

- The Utah Supreme Court affirmed dismissal for failure to state a claim.
- The recorded Notice of Intention did not create a present lien, encumbrance, or other covered title defect as of the policy dates.
- The later assessment and its acceleration-on-sale provision were future governmental actions not insured against by the policies as issued.
- A buyer’s refusal to purchase due to the assessment terms did not convert the assessment risk into a covered defect in title.

## Legal Principles

- Title insurance generally covers defects, liens, and encumbrances affecting title as of the policy date, not later-arising governmental assessments or later-adopted assessment terms.
- A recorded notice expressing intent to create an improvement district and to consider future assessments does not, by itself, constitute an assessment lien or covered encumbrance.
- “Marketability of title” concerns legal defects affecting title; diminished economic attractiveness of the property does not itself establish a covered title defect absent policy-covered title impairment.
- Endorsements addressing assessments are construed by their terms and do not extend coverage to unlevied, merely contemplated assessments or later legislative changes beyond the policy date.

## Conclusion

The court held that neither the recorded SID notice nor the later-adopted assessment and acceleration provision fell within the title policies’ insured risks, so First American owed no indemnity and dismissal with prejudice was proper.


Vestin Mortg., Inc. v. First Am. Title Ins. Co., 2006 UT 34, 139 P.3d 1055 (Utah 2006)