By Mark J. Woodward, Esq., Florida Real Estate Attorney
A flawed title. This hidden hazard can ruin a real estate investment and jeopardize those who have an interest in the sale, including developers, real estate agents, home buyers and mortgage lenders.
Whether it is a seemingly insignificant error in the public records or more serious flaws – unpaid taxes, forgery, fraud, false affidavits, judgments, use restrictions, easements, and even the marital status of the former owners of the property – title insurance protects the transaction principals against threats that could lead to a real estate investment loss.
Title Insurance Underwriters
The title insurance underwriter assumes all legal costs in settling claims, and it protects the policy holder against any financial loss that could arise from a claim against the property’s title as insured in the policy, including errors in the public records.
For the homeowner obtaining a mortgage, the mortgage lender will normally require the buyer to purchase title insurance to protect the institution’s position as holder of a mortgage loan. This policy, called a mortgagee’s title insurance policy, does not cover the homeowner. To safeguard against claims against a title, a separate owner’s title insurance policy is designed to protect buyers.
Title Insurance Costs
Costs for title insurance are based upon promulgated rates set by the Florida Insurance Commissioner. Promulgated rates are calculated as a percentage of the transaction’s total purchase price.
Title insurance is paid in a single payment. There are no renewal premiums or expiration dates, and the protection lasts as long as the policyholders or their heirs retain an interest in the property.
Selecting A Title Insurance Agent
Buyers should do some shopping before choosing a title insurance agent and title underwriter. Consider four key areas to measure a title company’s stability: financial strength, longevity, location of business, and status as a full-service company. A title agent can be either a real estate attorney or a title insurance company.
Financial strength determines the title insurer’s underwriter’s ability to protect its policyholders from loss. An underwriter’s level of policyholders’ protection is based on its statutory premium reserves, its statutory claim reserves, and its policyholders’ surplus. When dealing with a title insurance company it is a good idea to request a Closing Protection Letter (“CPL”). A CPL obligates the title underwriter to ensure that the closing goes correctly and covers a buyer or seller for any loss of funds by the closing agent.
Why is longevity important? If a buyer needs copies of closing documents on property sold say, 10 years ago or so, a less established real estate attorney or title company may be out of business by then. Find out if the principals are local residents, if they own or lease their office equipment, if the title company works only seasonally, or if they have moved frequently.
What skill level is the title company selling? A real estate attorney can complete 1031 tax free exchanges, handle FIRPTA withholding for foreign sellers, work on commercial sales of real property and prepare seller’s closing documents for a closing. Legal issues are also a concern with real estate transactions. Selecting an attorney or a title company with an on-staff attorney, versus referring a problem to outside counsel, also offer an advantage.
Determine your exact closing costs. Buyers should specify if the quoted rate is the same as the bottom-line charge. Ask if the quote is based on promulgated rates alone, or if a premium has been added. Are there additional charges, including search, escrow, closing fees and copy charges? If so, determine them in advance.
Confidentiality should also be on the checklist. Inquire whether the transaction information is only available to the parties involved in the purchase. Customer service also counts. That means prompt return calls, on-time correspondence, and a staff with a good closing track record. In the case of a title company, ask if the employees are bonded against dishonesty to insure that deposits will be replaced, and check to see that the company carries sufficient errors and omissions insurance, an additional policy that protects the buyer at the closing.
Choosing an attorney that meets all such standards is a good way to help protect the real estate investment.
About the Author
Mark J. Woodward, Esq. is Board Certified in Real Estate Law as well as Board Certified in Condominium and Planned Development law by The Florida Bar. Mark has over 40 years of experience in practicing law in the State of Florida. He has extensive experience in all aspects of Condominium Development Law and has worked on hundreds of various HOAs and condominium projects (residential, commercial and mixed) throughout Collier and Lee Counties and in the panhandle of Florida. In addition, his real estate practice includes commercial and agricultural properties as well as business law including corporations, partnerships and limited liability companies. Mark is the Managing Partner of Woodward, Pires & Lombardo, P.A. in Naples and Marco Island, Florida. Contact Mark at firstname.lastname@example.org.