Last Update: 02/22/16
In South Florida, when a seller is told by a buyer’s title examiner that there is a “title issue,” that usually means that there is some sort of lien, defect or encumbrance in the public records which clouds the title to the property. In most instances, buyers won’t take ownership of property until a title issue is resolved (unless, the buyer is paying cash and is willing to take the property subject to the title defect). The reason for this is because the buyer will likely be unable to obtain title insurance under the terms that most banks will require before they will lend any money to a home buyer/borrower.
Discovering Title Defects
Usually, a seller learns of a title problem after a buyer has been found, a contract is signed, and the due diligence period is underway. As part of the “closing process,” a buyer will have a title insurance company or title agent conduct a search of the property records to make sure the title is clear. A Title search is required before any title insurance commitment or policy can be issued. (Almost all lenders will require a mortgagee title insurance commitment and policy as a condition to granting a loan and accepting a mortgage; buyers will also want a title policy of their own, which is known as an owner’s title insurance policy.)
3 Common Title Defects
While there are all sorts of ways that title can be defective, there are some defects that require the help of a Florida real estate lawyer to clear up before a closing can take place. These include:
1. Intentional Bad Acts
There are title issues which can be very difficult to solve because they are based upon intentional bad acts, like fraud or forgery. Forged deeds are void under Florida law. Even if a buyer innocently takes ownership of a home in Florida only to discover later that the deed has been forged, they’re not safe. A “bone fide purchaser” of real estate holding a forged deed has no legal title to the property under Florida law.
2. Third Party Rights
Often, buyers are surprised to learn that they aren’t the only party with an interest in the property. There may be creditors who have a claim to the property too. Liens often appear in the title search for debts that have not been paid by the seller (e.g., unpaid bill to the contractor who put in the swimming pool or added on the extra bedroom, liens by municipalities and estate creditors).
Additionally, there can be unsatisfied mortgages or easements that impact the property which have been recorded in the public records. These encumbrances create title issues, as do claims for violations of subdivision zoning laws, and restrictive covenants.
While filing a lien in the real property records doesn’t mean that the creditor owns an interest in the property, that lien can be enough to “cloud” the title. A lien attaches to property in Florida when (1) it meets the legal requirements for a lien; (2) the debt is within the statute of limitations for collecting on the debt; and (3) it’s a legal debt (for instance, debts based upon illegal activities like gambling, selling drugs, etc., cannot be the basis of a valid lien).
Government entities can also file liens in real estate records that create title defects. Here, local, state, or federal government liens are filed to collect unpaid taxes like ad valorem property taxes and income taxes. Civil forfeiture actions can also be filed by government agencies against pieces of property; here the government is seeking to take ownership of the asset. Property under forfeiture to the U.S. Government will usually have a document filed in the public records that announces that the property is subject to seizure.
3. Deed Problems
Sometimes, the deed looks okay on its face but there are problems when it’s looked at more closely. If someone signs a deed while of “unsound mind,” then they don’t have the ability to sign a legal document, including a deed. If a deed is signed by someone with a power of attorney, a title issue can arise if the power of attorney is invalid or defective (lack of witnesses, improper notarization, etc.).
If a deed involves homestead property which is owned by a husband and wife, then there can be a title defect if both spouses’ signatures aren’t on the deed. In the same vein, if the deed is transferring property that is inherited, then a title issue can arise if there is a failure to have all of the heirs sign the deed (or the absence of a court order from a probate judge). Undisclosed or missing heirs on a deed often causes a title defect.
Other deed problems can include mistakes that were made during the preparation and recording of the legal document in the real estate records (for example, an error or mistake in the legal description).
Florida Real Estate Lawyer Can Help With Title Problems
Usually, defective titles can be resolved without a lot of emotional stress even though they sometimes threaten to kill a residential real estate transaction. No one wants to learn that there is a title defect with their property while they are in the process of buying or selling their home, but having an experienced Florida real estate lawyer by their side, especially one who knows how to resolve most title problems quickly and efficiently, can be the best decision a seller, or buyer, will make as part of a real estate transaction.
A good piece of advice when you and your family are purchasing or selling your family home in one of the biggest transactions of your life is to at least 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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