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For legal advice, please call your own attorney. Law's vary from state to state and each case is different. This is general information only.
How Title Insurance Protects Your Ownership:
You probably have several forms of insurance already. And you undoubtedly are familiar with insurance coverage on cars, your life and medical bills. But title insurance?
When you buy a condominium, a home, any other type of building or even vacant land, you must have a complete investigation made on every aspect of the property. Or, you may discover that the property you bought and paid for is not actually yours at all!
And even after the investigation, you will need protection in the event that some point has been missed in the public records or someone makes a claim on the title to your property. That protection is a title insurance policy.
What does it mean to insure your title to real estate? And what are the risks that make title insurance so necessary? This article will help answer some of those questions for you.
What Are The Risks That Call For Such Protection?
Real estate has such great value and is so basic a form of wealth that many special laws have been enacted for its protection - so strict and far-reaching that real estate is more strongly safe-guarded than any other form of property.
As a result, the owner of land has exceedingly strong rights... and so do the family and heirs of the owner.
But others may have "rights" in the property, as well. There are mortgages and leaseholder rights...liens due to unpaid taxes...lien claims to those whom the owner owes money...mining, oil or air rights...and many others. Anyone who has such a claim is, in a limited way, a part-owner. He or she cannot ordinarily be deprived of their interest except by having the claim settled or released. The property may be sold - even without their knowledge - but the claim is still good until satisfied. As a new owner you may know nothing about these risks, but you are still vulnerable to such claims on your property. That's why you need an insurance policy.
Doesn't Your Deed Take Care Of Giving You Clear Title?
Not at all. A "deed" is merely an instrument whereby a seller transfers his or her right of ownership, whatever it may be, to you. It is not proof that the person described as the seller is actually the owner. It does not do away with claims or rights others may have in the property. From the deed, you cannot determine what rights, liens or claims may be outstanding against your title.
What Is An Abstract? Doesn't It Tell About The Property?
An abstract, which is used in some parts of the country, is a history of the title to property as revealed by the public records. Deeds, mortgages, other instruments and legal proceedings which have affected property through the years are all included in the abstract.
If something is revealed in the abstract which might stand in the way of a clear title, it is up to the owner and the owner's attorney to clear it away. If they cannot do this, it must be accepted as a limitation on your right of ownership. Also, it is not infrequent for matters which seriously affect the title to be omitted in an abstract, because they are not shown in the public records.
Doesn't A Title Examination Or Abstract Reveal All Defects In The Title?
It may not....simply because the public records, from which an abstract is made, may not show everything which affects the title. For example: Statements in the record may be incorrect or may fail to give important facts. There may be fraudulent or improperly executed documents on the record. And, there may even be ordinary clerical mistakes which could seriously endanger the title.
In fact, a title would appear to be clear, after the examination of the abstract, only:
· If the search made in preparing the abstract has been thorough;
· If the facts revealed in the abstract have been correctly interpreted;
· If no clerical errors have been made in public records;
· If claims or rights of others have been disposed of.
Even after all these possible hazards are eliminated, there still remain some of the most serious sources of risk...hazards which by their very nature simply cannot be uncovered
Residential Seller's Disclosures
The following represents a list of some disclosures to be made by residential sellers under Florida and/or federal law:
1. General Disclosures. A seller must disclose all known defects which affect the value of the residential property to be sold, including all improvements thereon. This disclosure is typically made in a Seller's Property Disclosure Statement to be completed by the seller prior to listing the property with a broker, or if no broker is used, prior to the time that the seller places the property up for sale.
2. Septic Tank Disclosures. Escambia County Ordinance No. 99-24 and Santa Rosa County Ordinance No. 2000-22 require inspections on existing septic tanks on certain residential property. It is the seller's responsibility to request a septic tank inspection by the County Health Department and to ensure the appropriate disclosures are made to the buyer prior to closing. For more information regarding particular requirements call you’re your own attorney & County Health Department
3. Condominium Disclosures. The Florida Condominium Act requires that certain disclosures be made each time a condominium unit is sold. The disclosures are usually set forth in a form rider to the purchase and sale agreement. If you are selling a condominium unit, ask your realtor for a form condominium disclosure rider.
4. Planned Unit Development Disclosures. Florida law requires that a disclosure be made any time property encumbered by covenants and restrictions of a planned unit development is sold. Like the condominium disclosure, the planned unit development disclosure is typically made in a rider to the purchase and sale agreement.
5. Lead Based Paint Disclosures. Florida law requires that a lead based paint disclosure be provided in connection with the sale of any pre-1978 buildings. The appropriate language for this disclosure can be found in most form purchase and sale contracts, including the standard form used by most realtors (FAR/BAR).
6. Energy Efficiency Disclosures. A seller of residential property must give any prospective buyer an opportunity to conduct a test on the home's energy efficiency ratings prior to the prospective buyer's execution of the purchase and sale agreement. Prior to the execution of the contract, the seller must provide the prospective buyer with a copy of an information brochure setting forth various information on energy efficiency ratings prepared by the Florida Department of Community Affairs.
7. Radon Gas Disclosures. A radon gas disclosure should be provided in any purchase and sale agreement including language which is substantially similar to the following:
"Radon Gas: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit."
8. FIRPTA (Florida Investment in Real Property Tax Act) Disclosures. Prior to the execution of the purchase and sale agreement, a decision should be made as to whether withholding will be required under FIRPTA. With respect to residential real estate, there are several exceptions to any withholding requirements:
1. If the seller is a United States citizen, no withholding is required.
2. If there is a Notice of Non-Recognition of Gain or Loss from the transferor, no withholding is required.
3. In the event the sale is of a residence for a purchase price of $300,000.00 or less, which buyer intends to use at least 50% of the time during the next two years, no withholding is required.
4. If the amount realized by the transferor is zero.
** The list above does not necessarily include all the required disclosures to be made in connection with the sale of residential property. Please contact your own attorney.
1. Why is title insurance important?
In real estate transactions, buyers generally seek evidence that the title they propose to acquire is marketable. Lenders seek evidence of the priority of their mortgage. In both cases, this evidence has historically taken many forms, such as a title certificate from a government office, or an abstract of title and attorney's title opinion. In almost all real estate transactions today, title insurance is the most commonly used evidence of title, because it is faster, cheaper, and provides broader protection (insuring over such things as fraud and lack of capacity) than other forms of title evidence.
2. What is a title insurance policy and what does it do?
A title insurance policy insures the status of the state of title to a specific parcel of real property. The policy is a statement by a title insurance company that, in exchange for a premium paid, it is willing to assume the risk that title to a parcel of real estate is as it is stated to be in the policy. A title insurance policy indemnifies the insured party (the buyer or lender) against losses suffered if title to the property is not as the policy states it to be. A policy of title insurance may be purchased from a title insurance company, which typically must have been licensed by the state body having jurisdiction over insurance companies, to underwrite this form of insurance. The purchase price for the policy is called the "premium." In Florida, the "premium" for title insurance is regulated by the State.
3. What is a title insurance commitment?
A title insurance "commitment" is a document in which a title insurance company promises to issue its title insurance policy in the form and as of the date set forth in the commitment upon payment of its premium. This promise is given in response to an order from a customer and is good for ninety days, after which it expires. The transaction for which a title insurance commitment has been requested should be consummated within that period so the title company will be obligated to issue its policy.
A title insurance commitment is not considered a "policy of insurance." A title company has no obligation under a commitment except to issue a policy when the premium is paid on a timely basis. Although a few reported decisions create a concept called "abstractor's liability" when justifiable reliance exists, as a general rule, if a commitment turns out to have been incorrect because, for example, it failed to reflect a prior mortgage or other defect in title, the holder of a commitment will have no recourse against the title company unless a policy of title insurance has been issued. A policy should be purchased at or following the closing.
4. What will a title insurance commitment disclose?
A title insurance commitment contains a description of the property to be insured, the name of the proposed insured, the name of the proposed insured, and the coverage limits of the policy to be issued. It identifies the current owner of the property and the specific policy form that the company will use to insure title. A commitment also contains a list of requirements that are conditions to the issuance of a title policy and a statement of any standard and non-standard exceptions to title that exist and for which no insurance coverage will be provided.
5. What is "gap" coverage?
The title company's obligation to insure exists only as of the date the commitment was issued. Significant changes in title to the property could occur between the date the commitment is issued and the date the transaction in question actually closes. For example, during this period, the property could be sold or mortgaged or a tax, mechanic's, or construction lien could be asserted. It is, therefore, extremely critical that a title insurance commitment be updated to the exact time of the closing in order that the title policy issued will neither be obsolete nor contain any unanticipated problems for the parties involved. This is called covering the "gap."
6. What is a title search?
A title search is a description of matters affecting title to a parcel of real estate that have occurred within a stated time frame. A title search is sometimes ordered by those having an interest in the history of title to a parcel of property (such as environmental engineers), but it is of limited value because it provides no contractual guarantee of accuracy or statement or assurance concerning the condition of title.
7. Who generally pays the title insurance premium - the seller or the buyer?
Although the matter is subject to negotiation between the parties, in Florida, the seller generally pays the title insurance premium due for the buyer's owner's policy, while the buyer pays the premium applicable to any lender's policy required by his or her mortgagee.
8. Why do mortgage lenders need title insurance?
A lender's policy of title insurance provides the lender with assurance that, at the time of the loan closing, the borrower held clear title to the real property collateral used to secure the loan and that the mortgage taken by the lender has the priority required by the Lender. Title insurance for a lender is often required by applicable federal regulations. In addition, a lender's title policy must be in the lender's loan file when the originator of a mortgage sells the mortgage on the secondary market.
9. If a borrower secures a policy of title insurance at the closing, why should a lender secure its own policy? Alternatively, if a lender secures a policy of title insurance at the closing, why should a buyer purchase a policy?
Like other forms of insurance, title insurance insures only the party named as the insured party in the policy. A lender's policy insures only the mortgagee and, in fact, the amount of coverage given decreases over time as the mortgage is paid down. An owner's policy protects the owner. The title insurance industry customarily issues separate policies to both the owner and the lender. If both are issued at the same time, the premium charged is often a "simultaneous issue" rate, which results in some cost savings to the buyer and lender.
10. Is a title insurance policy a guarantee that title is perfect?
No, a title insurance company will often include in its policy exceptions to coverage dealing with matters affecting title that its search of public records has disclosed. Also, as discussed below, there are a number of standard exclusions and exceptions to coverage. In addition, although title insurance companies generally review title carefully and genuinely believe it to be in the state described in their policy, they also sometimes insure over risks that they consider to be insignificant or unlikely to cause a problem.
11. Against what risks does a standard owner's title insurance policy generally insure? What additional risks are covered by a lender's policy?
A standard owner's policy covers:
· Failure of title to the property;
· Defects in or liens or encumbrances against title to the property;
· Lack of a right of access to and from the property; and
· Unmarketability of title to the property.
A standard lender's policy may add coverage pertaining to the invalidity or unenforceability of the lien of the insured mortgage; the priority of any lien or encumbrance over the lien of the insured mortgage; and certain mechanics' or construction liens.
12. What are the standard exclusions and exceptions from coverage referred to above?
In general, governmental matters, such as laws, ordinances, regulations (including those pertaining to environmental protection and giving the state a priority claim to real property), and rights of eminent domain are excluded. A title policy does not insure over claims arising out of creditors' rights laws. Matters known by the insured, not known to the title insurer, and not disclosed by the public records are excluded, as are those resulting in no loss to the insured. Anything arising after the date of the policy, or resulting in a loss that would not have been sustained if value had been paid for the property, are also excluded from coverage. This means that title insurance will not cover property received by gift or donation, absent a special endorsement. In addition, claims of parties in possession of the property, unrecorded easements, mineral claims, mechanics' or construction liens not of record, homestead rights, boundary disputes, survey matters, and building and use restrictions not appearing in the chain of title are excepted from coverage in a standard title insurance policy.
13. Should a purchaser review the non-standard exceptions set forth in a title insurance commitment before closing on the property?
Yes, because these exceptions could affect not only the purchaser's or lender's ownership or lien rights, but also the extent to which the insured property can be used and enjoyed.
14. How can non-standard exceptions set forth in a title commitment affect the uninsured party?
Such exceptions might relate to prior mortgages, competing claims to ownership, or the existence of easements, use restrictions, or reservations, such as mineral reservations. Thus, the value of the property to the purchaser or the priority of a lender's mortgage and the extent to which the mortgaged property has value in the hands of a third party if the lender must foreclose on and resell it could be affected by the existence of such exceptions. Therefore, a prudent purchaser or lender will have the documentation pertaining to non-standard exceptions carefully examined before the closing. Efforts may have to be undertaken to cure one or more of these exceptions. Purchasers and lenders should keep in mind that an appraiser often does not consider title exceptions when evaluating a parcel of property for mortgage purposes.
15. Are there any special or unusual features in a title insurance policy?
Like any form of insurance, title insurance is offered and subject to the terms and conditions of the policy, which are contained in the "fine print." That fine print describes when and how claims must be made, sets forth the insurance company's duty to defend, and describes the limits of coverage. Any purchaser of title insurance should be aware of two particularly important terms. First is the standard arbitration provision, which requires any dispute arising under the policy to be submitted to binding arbitration unless the amount of the original policy is in excess of $1 million. Second is a "co-insurance" provision stating that if the insured property is improved, the owner of the property must apply for and receive increased coverage under the title policy or, in the case of a loss, be faced with coverage that is reduced from the original face amount of the policy in a proportion roughly equal to the ratio the value of the property as improved bears to the acquisition cost of the property.
16. Must title insurance be renewed periodically?
Ordinarily, no, a title insurance policy need only be purchased once. After that, it continues in force in accordance with its terms, and no further premium must be paid. An owner's title insurance policy even covers the owner, so long as he or she continues to hold the policy, if a claim is made against the owner based on a warranty she or he gives in a deed conveying out the property covered by the title policy. However, some owners' policies contain the co-insurance provision described above under which the owner must purchase additional coverage if significant improvements are made to the insured property or be subject to a proportionate reduction in coverage if a claim is made. A lender's policy of title insurance even covers the lender, so long as it holds the policy, if it succeeds to ownership of the property because of foreclosure or conveyance in lieu of foreclosure. Thus, in an ordinary mortgage loan, a title insurance policy once purchased protects the lender until the loan is paid in full. Coverage does decrease, however, as payments are made on the loan. The use of more sophisticated lending practices, such as revolving credit loans, variable interest loans, can, however, result in an unanticipated reduction in, or even elimination of, a lender's title insurance coverage if special steps are not taken.
17. Is any protection available against laws, ordinances, or regulations relating to environmental protection?
Limited protection is in most jurisdictions including Florida available in the form of an endorsement. Such Protection is not currently available to commercial lenders.
For legal advice, please call your own attorney. Law's vary from state to state and each case is different. This is general information only.