Last Update: 3/6/18
When you buy a house or other residential real estate here in Florida, you are buying both the land as well as the improvements to the property (the building, the plumbing and sewage systems, the fence, the landscaping, etc.). If you are buying a condominium, then you are buying an undivided shared interest in the common areas as well as individual ownership of your particular unit.
Of course, it is important to make sure as a buyer that you get the property, including the improvements, free of any liens or encumbrances. In a residential real estate transaction, the buyer’s goal is to receive “clear title” to the property. One way of making sure this happens is by purchasing title insurance.
Real Estate Title in Florida
To protect real estate ownership and to promote the transfer of real estate between buyers and sellers, Florida law has evolved to establish a definition for clear title. Title to real estate in Florida is protected by longstanding laws and court case precedent. If there are conflicts between who is the proper owner of a piece of Florida real estate, or if there is a question of who has an interest in the property, then our courts will look to our case law and statutes for guidance on how to resolve these issues.
Tax liens, mechanics’ liens, construction liens, foreclosures, inheritance, eminent domain, and other claims can be made against Florida real estate which can impact an owner’s title to the property. Normally, a seller cannot sell the property when an issue is found during a title search that impacts the marketability of the title. Any issue that impacts the marketability of the title is known as a “cloud on the title” and that cloud must be removed before the closing can take place (most standard real estate contracts have language that allows a seller time to cure a defect and delay the closing while the seller is trying to do so).
What is Title Insurance And Is It Mandatory?
Title insurance is an insurance policy that protects the insured party against any financial loss from defects in the title to the property.
When a buyer purchases a home in South Florida using federally insured mortgage financing, the lender will require, without exception, that the buyer provide the bank with a mortgagee title insurance policy. This is a basic requirement of any institutional mortgage loan in Florida. Essentially, the mortgagee title insurance policy protects the bank if a problem arises at some later date with the chain of title. A mortgagee policy only protects the bank, and not the homeowner.
If a homeowner wants title insurance protection they can, and should, purchase an owner’s title insurance policy. Homeowner’s are not required to buy an owner’s policy. However, there are so many issues and reasons (see below) for an owner to purchase title insurance that we could write a lengthy book on the subject. The extra cost for an owner’s policy is a small price to pay for the peace of mind of avoiding being a victim of a mistake or a bad act. After all, South Florida is one of top States for scams, fraud and identity theft.
What Is The Cost For Title Insurance?
Title insurance policy premiums are part of the closing costs in a Florida home purchase. The policy premium is paid at the closing (if the property is located in Broward or Miami-Dade county, then the buyer pays the premium – in all other counties, the seller pays the premium) as well as the cost for the title search (seller’s normally pay for the title search – regardless of where the property is located).
How much do these policies cost? They are not unreasonable, and are tied to the price of the home. Title insurance rates are covered by Florida law and title insurance companies are overseen and regulated by the Florida Department of Financial Services.
There are all sorts of issues that are covered by title insurance, including missing or defective documents, outstanding tax bills, claims by creditors and government agencies, as well as construction related liens. In fact, some of these items can cause title to be outright void or invalid.
Simple examples of clouds on title include:
- If a home owner builds a swimming pool and fails to pay the pool builder, then that builder can cloud the title by filing a claim of lien against that home and demand his bill be paid before he will release his lien.
- If a home owner fails to pay his property taxes, then the taxing authority may file a tax lien in the real estate records for that property, clouding title until the taxes are paid.
- If a condo owner does not pay assessments, then the Condo Board may file a claim of lien against the condo and create a cloud on the title to the condo which helps the Condo Association get paid when the condo is sold or transferred.
A more comprehensive list of title defects include:
- Errors in Documents That Appear in The Chain of Title – A title search can uncover a multitude of errors in the chain of title that affect the ownership and the ability to transfer the real estate. Simple mistakes in the previously recorded documents like missing witness names and signatures on a deed, an incorrect notary jurat, a missing or incorrect legal description, restrictions and reservations in deeds and other agreements, missing marital status of a grantor, missing or defective words purporting to create a joint tenancy, improper official record book and page references within the documents can also cause future title issues and can materially affect the value of the property.
- Unsatisfied Liens – A wide variety of liens can be placed against residential real estate here in Florida to make sure that the debt is paid. These include federal tax liens, liens from the State of Florida like sales tax liens or liens related to unpaid alimony or child support. They can also include Code Enforcement Board liens for issues like uncut grass, trash removal, a broken fence or the poor upkeep of the property. Other common liens, including, corporate income tax liens, criminal fine or order of restitution, documentary stamps, environmental liens, equitable liens, estate tax liens, homeowner’s association liens, hospital claim of lien, intangible personal property tax lien and welfare liens.
- Corporations – Action by directors of closed corporation, conveyances of all assets of the company, attestation of instruments by different parties, corporate name omitted from signature, delinquent annual report, dissolved corporations, nonprofit requirements as to execution of documents, witnesses, deeds to prior to incorporation, directors of closed corporation, actions by trustees, conveyance to dissolved corporations which are later reinstated, foreign conveyances, federal liens, foreign corporations, conversions and mergers, name change and reinstatement after dissolution.
- Administration Of Estates – Sale of homestead property invalid without court order, agreements among distributees, caveat, claims by creditors, nonresident decedent, adopted children, expiration of claims limitation period, disclaimers, elective share, estate taxes, foreign administration, foreign representatives, proof of heirs, personal representative’s deed, intestacy, nonresident decedents, summary administration, antilapse statute, adopted children and pretermitted spouse and children.
- Missing Heirs – When the home or condo is being sold by an owner’s Personal Representative, the probate should include all those parties who have the right to inherit the property as part of the administration. However, there are occasions when missing heirs or beneficiaries exist that have a legal right to the property and their interests have not been resolved or otherwise terminated, leaving a cloud on the title.
- Foreclosure – In Florida, any residential property that is sold as the result of the bank filing a foreclosure lawsuit must have the proper documentation filed in the land records regarding either the proper dismissing of a foreclosure case or the satisfaction of a foreclosure judgment. Also, the underlying foreclosure lawsuit may need to be investigated to determine if the owners were properly served with the foreclosure lawsuit and that the party bringing the lawsuit had standing to do so.
- Homestead – Florida has special laws protecting residential real estate that is considered a “homestead.” Any transfer of the homestead may have any number of title issues, including the signature on the deed by the spouse, identity of the property as the marital home, interspousal conveyances, descent of property before and after probate, proof of homestead, joinder of spouse required, size of homestead, and occupancy issues.
- Easements – Many homes and condos in Florida are subject to easements. There may be a right of way easement, utility easement, abandonment of a street, statutory dedication of roads, and easements related to cemeteries and family places of burial. These are land rights that must be reflected in the title documents, both insofar as easements affecting the land or agreements that either affect or run with the land.
- Survey Issues – Surveys must be done to define the land and its improvements. Errors in surveys can cause title issues that include mistakes in defining encroachments, easements, ingress and egress, or other matters that would otherwise be discoverable by a proper property survey. A survey should be checked to see if it has been signed and dated, the legal description is included, it is certified to the correct people, boundary lines and easements are reflected and clear, and it points out any discrepancies in the description of the property and any markers on the ground.
- Forged Documents – Title policies not only identify things like forged deeds and fake liens in a title search, but the title policy will also protect the new home owner against any future discoveries of forgeries in the chain of title. One sign of a forged deed is a minimal amount of documentary stamps paid on the deed.
- Former Spouses & Married Couples – Divorces in other states or countries will be honored by the State of Florida. However, there may be occasions where spouses have not been properly removed as holders of a legal interest in the property. For example, there is no settlement agreement or the real estate was not deeded to one spouse or another. Additionally, there can be issues related to nuptial agreements and spousal waivers that remain unresolved.
- Prior Mortgages – Any mortgage that is not fully paid or resolved may be an unsatisfied mortgage that clouds title to the property. Sellers may have a primary mortgage on the residence as well as a second mortgage. Any mortgage must be properly recorded and a satisfaction recorded when the mortgage is paid in full. There are also issues related to missing or incomplete assignments of mortgage, wraparound mortgages, subordinated mortgages, modifications, lost instruments, future advances and MERS registered mortgages.
For more on Satisfaction of Mortgages in Florida, read Satisfaction of Mortgages in Florida.
- Open Equity Lines – Sometimes the seller or the bank fails to record in the public records a document showing that a HELOC has been closed or paid in full. This creates a cloud on the title for the buyer because the lender technically still has an interest in the property that must be cleared.
- Construction Liens – Contractors doing general construction on the home or condo, as well as those undertaking improvements like swimming pools or room additions, will file liens against the property in order to protect their interests in being paid for their work. If the seller has not paid the contractor for the construction, then this is an issue that clouds title. Likewise, a contractor who has been paid but fails to file the proper documents removing his lien can cause title problems for the new owner.
- Condominiums – When you buy a condo unit in a condominium, you are taking on the shared responsibility of all the condo owners in the common areas and their improvements or repairs (i.e., balconies, clubhouse, building restoration, building painting, pool repair). Those contractors undertaking this work will file liens in the real estate records to protect their payment, and these condominium liens may cause problems for a new condo buyer. Other issues related to condominiums include amendments to the declaration, assessment liens, conveyance of common elements, Recreational lease, appurtenances to condominium units, joinder of mortgagees, notices of commencement and the approval of sale by the association.
- Judgments – Common issues with judgments found in the chain of title include judgments against one spouse, against a person with same name, foreign judgments filed in Florida, satisfaction of judgments and statute of limitations as their impact on judgments in the public records.
Because of our recording system, when liens are recorded in the public records it is easy to investigate and determine what needs to be done to convey marketable to the buyer. Mortgages, for instance, are easy to locate so that a buyer can insist that the seller pay off the outstanding mortgage at closing.
However, there may be title issues that are not as easily discovered. Some claims may exist that are not filed in the real estate records at the county clerk’s office. For example, there may be an heir or beneficiary who appears years down the road with an inheritance claim to the property which is superior to the ownership interest of the seller or someone may appear with a claim to ownership of an easement right. Thus, some issues are hard to find even during a title search. Consequently, title insurance requires a deep understanding of real estate law and so many other areas of law, including probate and construction law, just to name a few.
Are There Requirements To Get Title Insurance And Is It A Complete Protection Against All Challenges?
Title insurance protects a buyer against a plethora of hidden dangers. However, before a buyer can get title insurance they must satisfy a litany of requirements (those requirements are listed under Schedule B-1 of a title commitment) which are set forth by their title insurance agent (either a real estate lawyer or title company). Also, even if you do get title insurance you are not guaranteed that problems won’t arise at some point in the future.
For example, someone purchasing property at a tax deed sale may need to file a quiet title lawsuit against a third party who has a lien against the former owner in order to get clear the title to the property. Also, if the title company who closed the transaction knew or should have known about a title defect before closing, and they failed to clear the defect, then a buyer may have a title insurance claim against their policy. Additionally, they may also have a lawsuit against that title company who issued the policy for breach of contract or even negligence.
What Should You Do?
If you or a loved one have a title question in a pending real estate transaction, or have a concern about some of the items listed on a title insurance commitment, then a good piece of advice is to talk with a Florida real estate lawyer. Getting someone to review all of the paperwork isn’t as costly as most of us think it is. And it’s always a lot cheaper than paying to fix a problem after a closing occurs.
Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.
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