A bad wire transfer left a title insurer paying a claim - and Tennessee's appeals court ruled a state housing agency was shielded by immunity.
That was the takeaway from a Tennessee Court of Appeals decision filed June 18, 2026 - and it is a cautionary tale for any title insurer or claims professional working a wire-transfer loss.
The story started with a home sale. A property on Barretts Ridge Drive in Murfreesboro changed hands in April 2023. It carried two deeds of trust: a first in favor of First Community Mortgage, Inc., and a subordinate one in favor of the Tennessee Housing Development Agency, the state body that helps low- and moderate-income families buy homes. THDA services its loans under the trade name Volunteer Mortgage Loan Servicing, or VMLS.
The payoff had to be wired. Watauga Title & Escrow, an agent for Old Republic National Title Insurance, requested wiring instructions from THDA and forwarded them to Closed Nashville, LLC, the agent handling the closing for Chicago Title Insurance Company. Closed wired the funds as instructed. The instructions turned out to be inaccurate, and the money went to an improper bank account number.
When THDA and VMLS did not receive the payoff, they threatened to foreclose. To prevent that, Chicago Title, which had issued the owner's title insurance policy, paid the claim.
Then came the fight over who covers it. Chicago Title sued Closed for reimbursement. Closed responded with a third-party complaint against THDA, VMLS, Watauga, and Old Republic, alleging the third-party defendants "were negligent in failing to have proper cyber security measures in place to prevent a security breach with their electronic fund wiring system which caused Closed to send the electronic wiring funds to an inaccurate bank account as directed by the Third-Party Defendants."
THDA and VMLS moved to dismiss. They argued they were a state agency protected by sovereign immunity and that no statute stripped that protection. The trial court denied the motion, finding THDA was engaged in commercial activities, which removed its immunity.
The Court of Appeals reversed and granted the motion to dismiss. Letting an agency "sue and be sued," it held, does not by itself waive Tennessee's sovereign immunity. A state statute protects the agency's appropriated funds from court judgments, the court said, and THDA performs a government function - aiding low-income home buyers - rather than running an ordinary mortgage business. Its funds were out of reach.
The court left one door open. Its ruling "does not prevent THDA from being sued in the Tennessee
Claims Commission under any of the categories listed therein."
The decision settled only whether THDA and VMLS could be sued in this case - not who ultimately pays for the bad wire, a question the underlying lawsuit will sort out.
For insurers, the lesson is sharp. A single bad wire can leave a title carrier out of pocket, and when the trail leads to a government mortgage servicer, sovereign immunity can block recovery in court. Here, the appeals court pointed to the Tennessee Claims Commission as a possible route - a reminder that the forum and the defendant both matters.
