The Short Sale Transaction in Florida: Things That the Seller (and Buyer) Need to Know Before Closing the Short Sale of a Florida Home – Clouds on Title
Posted By Larry Tolchinsky on January 3, 2012
The former chief economist for the National Association of Realtors (1987-97) and the current chief economist for Florida Realtors | Orlando gave his take this week on the current Florida real estate climate in an article written by Orlando Sentinel staff writer Mary Shanklin. You can read the full article, entitled “Talking With … John Tuccillo: Realtor economist says lenders learning to handle distressed homes,” online if you’re interested.
The most important item in that article is Mr. Tuccillo’s belief that Florida banks will be more interested in approving short sales in 2012 than they have been in the past. That’s good news to lots of Florida homeowners. Especially those with underwater mortgages or those already opting for a strategic default.
The Short Sale Transaction and Clouds on the Title
When a home owner decides to short sell their home, their are several issues that need to be resolved. Things like a a deficiency (and a possible judgment) down the road. (Read more on that in our earlier discussion on deficiencies.)
Another big issue: sitting down at the closing table and having clear title pass from the seller to the buyer. Sounds like it should be easy enough to accomplish, and the paperwork is pretty standard.
The problem that occurs at some of these real estate closing is when there is a “cloud” on the title. A hitch. Something in the real estate records that interferes with the seller handing over clean ownership in the property along with the keys to the front door.
If the closing goes through and the issues isn’t cleared up or removed, then the buyer takes the home “under a cloud.” Meaning, not free and clear of liens or encumbrances.
For example, when there is foreclosure fraud the old home owner may still have an interest in the property. The buyers took that real estate under a cloud caused, for example, by robosigning. The bad paper work meant that the cloud was more like a tsunami — the buyer never bought the real estate at all, because the ownership of the property never properly left the original home owner. For more, read an example in our prior post, “Buyer of Foreclosure Held Not to Have Title to Land: According to Mass Supreme Court It Remains With the Homeowner Who Lost His Home to a Bank Mortgage Foreclosure .”
Types of Clouds on the Title in Florida Real Estate
Florida law defines what a cloud on real estate title can be. There are lots of them. “Clouds” can be things like:
Doomed Deed: The deed fails to properly convey the property to the buyer. See the foreclosure fraud example above.
Pesky Ex-spouse: The seller sits down at the closing table alone, but the real estate records show the house was bought when he/she was married and there’s nothing to show that the spouse has released his/her interest in the real estate.
Probate Problem: When someone dies, their property may become an “estate” asset and who gets that property will depend upon the terms of a Florida Will or Florida law. If there’s a Will, then it controls. If there’s not, then Florida intestacy statutes decide. If a parent dies and the kids sell the house, thinking it’s their property to sell, a cloud on title exists because the Will or the intestacy statutes say they don’t own it (or at least they don’t own it all) or they don’t have the authority to sell it without Court approval.
Liens: When work is performed on real estate and then no one pays for it, one way that Florida law helps get that contractor paid is to allow the contractor to file a lien against the property in the real property records; then, when the property is about to be sold, the transaction cannot close until that work is paid for and the lien is released. A similar scenario applies to tax liens.
What To Do About Clouds on Title?
Your Florida real estate attorney handling the closing or your short sale lawyer knows that conveying clearing title these days in South Florida is not a given. Generally what happens, is that a title examiner searches the chain of title to look for any liens or encumbrances that may be out there. If they find a problem, then it may be necessary for a Florida real estate lawyer to take steps to legally clear title, including “quieting title” under the Florida Civil Practice and Remedies Code.
Each case is different, and no two real estate title issues/closings will be exactly the same. However, it’s good news that short sales in Florida are on the upswing and with a bit of elbow grease, title issues can be resolved efficiently for both the seller and the buyer (and since it’s a short sale, for the lender, too).