Title Issues And Title Insurance
At the end of most Florida residential real estate closings, the goal of the seller is to walk away from the closing table with money from the sale of his or her home. Easy enough. However, a buyer usually has a few goals he or she wants to achieve at the closing table.
Sure, getting the keys and the garage door openers and taking possession of a home is satisfying and is pretty easy to do. However, sometimes achieving the buyer’s goal of receiving clear or “marketable title” to that property can be difficult, especially after the recent foreclosure fiasco.
Neither the buyer nor the seller has a goal of ending up in court in a battle over title issues.
Under Florida law, land records are recorded with the county clerk for the county where the property is located. Those records establish “title” to the property and that’s where legal title is confirmed and controlled. If you review the land records of your County here in Florida, you’ll be able to see old, handwritten land records that transfer title to some property going back hundreds of years, to the original land grants given by the King of Spain when Florida was held as a Spanish territory.
Like this one:
Above: page from 1817 Spanish land grant papers of John B. Gaudry, a Spanish nobleman who established a plantation near what is now DeLeon Springs, Florida, for a tract of land next to the St. Johns River.
Florida Real Estate Title and Title Insurance
If you are buying a new condo in a newly developed condominium or a home in a brand new community, then your risk of a title problem is likely less than someone buying an established single family home in Hollywood or Fort Lauderdale, or a waterfront condo in Hallandale Beach, Miami or Palm Beach.
With real estate that has a longer transaction history, making sure that the buyer leaves the closing table with marketable, clear title can be difficult at times. Not only does Florida have a complicated history of real estate ownership, given that lands here have been under the laws not only of Spain, but Great Britain, France, Mexico, and even the Confederacy as well as the federal and state governments, but there’s the reality that title is not a single issue, but in a reality a bundle of legal rights.
Title is a Bundle of Legal Rights
In Florida, real estate title can include not only rights to access and use the land, but also water rights, mineral rights, and more. And Florida real estate title can be shared not only between spouses and family members, but between creditors, heirs, business partners, and even the company that repaired the swimming pool.
Banks Want Protection
Title is such a complicated matter that no bank will agree to lend money for a home without a title search being done by a reputable title company or real estate lawyer. And, that bank will also insist upon having a title insurance policy with the lender named as an insured party, insuring that title as being clear and marketable before the loan will be disbursed to the borrower.
Title insurance works to protect the beneficiary listed on the insurance policy from problems discovered after the closing. The bank’s title insurance policy will cover its loan amount in the event that there’s a problem with the collateral. Some banks, although rare, may insist on title insurance of up to 125% of the loan amount, just to cover some of its expenses in the event a title issue arises or in the event of a foreclosure.
Note, the bank’s title insurance policy won’t help a buyer (or property owner), which is why most, if not all, buyers purchase their own separate owner’s title insurance policy as part of their closing costs (the premium paid for a title insurance policy is sometimes paid by the buyer, sometimes by the seller – see our discussion on negotiation of closing costs).
Title Commitments
What about researching the records? Before the closing takes place, a title company (through its title agent) will issue something called a “title commitment” which outlines all of the requirements (and exceptions to title) that must be met in order for marketable title to be transferred from the seller to the buyer at the closing table.
A “title commitment” lets the buyer know what requirements must be met before he or she is safe to hand over their cash to the seller. It lets the seller know what has to happen in order to deliver to the buyer marketable title, which is a requirement under most standard residential real estate contracts (see the “Title Evidence” section of your real estate contract which is usually the first paragraph under the part of the contract called the “Standards For Real Estate Transactions”).
Problems With Title To Florida Real Estate
Notwithstanding the fact that title insurance exists to protect the parties to a real estate transaction, buyers and sellers still need to understand the complexities of title because they still can be harmed by a title defect, or “cloud on the title” after the closing. Having an insurance policy doesn’t mean the property is bullet proof.
Title insurance is not a guarantee that there are no title issues – it just means that a due diligent review of the real estate records did not reveal a defect of record. A title problem can still appear after the closing. After all, mistakes are made; reviewers miss issues all of the time, including mistakes in the legal description.
What might those problems be?
An experienced Florida real estate lawyer will have all sorts of war stories to share on strange ways that real estate closings were impacted by a title problem. And unfortunately, some of these stories will include a lawsuit being filed by one of the parties.
Examples of Florida title issues:
- A lien filed in the real estate records on the eve of closing by a company who has not been paid for work done on the property (like the swimming pool company that has not been paid to repair the pool by the seller);
- A deed that is invalid because of the death of the grantor before closing;
- A deed that is presented as a single person owner but the owner is still legally married;
- An easement that gives someone else (a person, a company, a government entity) right to access or use the land which wasn’t recorded in the land records;
- An easement that gives someone else (a person, a company, a government entity) right to access or use the water rights, mineral rights, air rights, etc., which wasn’t recorded in the land records;
- Claims for unpaid taxes, including inheritance taxes or gift taxes, against the prior owners of the land;
- Claims for unpaid condo fees;
- Claims to the home or condo as part of a divorce settlement or final judgment in the divorce proceeding; and
- Fraud or other falsehood regarding true owner of the property by the seller or by another party in the chain of title.
Florida Foreclosure Fraud Issues
A huge problem for many Florida residential real estate closings today are the title problems caused by all of the foreclosure fraud that took place not to long ago. Any buyer that is interested in a home or condo is wise to be concerned if there was a foreclosure in its history.
The “robo-signing” frenzy of the foreclosure mills has made many real estate titles vulnerable to challenge or subject to a cloud on its title. For the buyer to have clear title to these properties, it may be necessary to review the underlying foreclosure case. Additionally, the buyer should have some confirmation that the person who was foreclosed upon doesn’t still have a legal claim to the house because of some “robo-signing” issue.
Another problem here is adverse possession claims. In some foreclosures, like those where the owners vacated the home years ago and left it to the bank, there may be squatters who might challenge or cloud title when a buyer is finally found for the place. If the squatters paid property taxes, for instance, they may argue they have legal rights to the land.
Are You Required To Have Title Insurance?
Title insurance policies are not required by Florida law. There’s no legal requirement that a title insurance policy be purchased in order for a Florida real estate transaction to close.
While the bank issuing the home loan will require one, that is a contract term between you and the bank — it’s not a Florida statute or federal regulation that is forcing the bank to require title insurance at the closing.
(Note: In instances where there is a cash transaction, some buyers, but very few, purchase Florida real estate without a title insurance policy (a practice that I believe is unwise). If later on they discover a title problem, in order to resolve the issue, their only recourse may be to bring a lawsuit against the seller, who may be long gone by then.)
Having a Florida Real Estate Lawyer for Your Residential Closing
The advice of an experienced Florida real estate lawyer can be of great help to you and your family in the purchase or sale of your family home or condo – particularly when the complex issue of real estate title is involved. Having an attorney review the situation before the deal is finalized at closing isn’t as expensive as some assume it to be, and in some situations having that expertise to help get the deal done can be invaluable. It may help the buyer and seller from being forced to sue each other in order to clear the title to the property.
A good piece of advice is to at least speak with an experienced Florida real estate lawyer to learn about your rights before closing on your new home. The good news is, that 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.
For more, read our post: 19 Reasons to Hire a Real Estate Lawyer When Buying or Selling Florida Real Estate.
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