Kalvans

I. FACTUAL BACKGROUND1

Plaintiffs purchased real property from Nicholas F. Mizera for $250,000 in July 2004. The property, located in Bradley, California, included several acres and a small single family residence which plaintiffs understood was a legally permitted structure built by Mizera. Plaintiffs financed the property in part with a loan from American General Financial Services, Inc. (American General)2 secured by a first deed of trust. Although plaintiffs and Mizera were not related, the grant deed transferring the property, signed by Mizera and recorded at the request of American General, showed a tax-free transfer from parent to child. American General obtained an appraisal of the property before financing the purchase. That appraisal showed the transaction as a refinance, with Mizera identified as both the property owner and the borrower. Fidelity National Title Insurance Company (Fidelity) prepared a preliminary title report for the Bradley property and faxed it to American General before the close of escrow. That report contained three recorded Monterey County code violation notices-a 1995 grading violation, a 1997 building permit violation, and a 1998 construction…