THE NECESSITY OF TITLE INSURANCE, A REFRESHER:
By: Barry L. Miller, President of The Closing Agent, Inc.
Nearly every closing in the State of Florida results in the issuance of an Owner’s Policy of Title Insurance. However, what title insurance actually is, what it does and does not protect against is often an issue of confusion. § 624.608, Fla. Stat., defines title insurance as follows:
(1) Insurance of owners of real property or others having an interest in real property or contractual interest derived therefrom, or liens or encumbrances on real property, against loss by encumbrance, or defective titles, or invalidity, or adverse claim to title; or
(2) Insurance of owners and secured parties of the existence, attachment, perfection, and priority of security interests in personal property under the Uniform Commercial Code.
In plain English, title insurance protects the policy holder against unexpected claims of ownership to the property, unexpected or unknown liens or encumbrances, defective conveyances and so on. Title insurance has a practical effect. For example, say Person A buys the property located at 11 N. Summerlin Ave., Orlando, Florida, from Person B, but fails to procure a title search or an Owner’s Policy of Title Insurance. Person A pays the purchase price in cash. Lo and behold, after three years have passed from the date of Closing, Person A is served with papers for a foreclosure. Little did Person A know that there was actually a mortgage encumbering or otherwise attached to the property. Person A will lose in the foreclosure and as a title search of the public records would have revealed the mortgage, and because Person A’s deed was recorded after the mortgage, it is a junior, inferior interest to the bank. Person A will therefore suffer a loss for all sums paid to purchase the property. Person A’s only recourse against Person B is possibly for breach of any warranty contained in the deed, potentially fraud, and potentially breach of contract. If Person B cannot be located, then Person A is without remedy, and out of luck. Alternatively, if Person A had indeed purchased title insurance, the mortgage would have likely be discovered and the whole crisis averted. Alternatively, even if the mortgage wasn’t discovered, then Person A need only submit a claim to the title insurer who would likely pay off the balance of mortgage.
For reference, § 695.01, Fla. Stat. provides as follows:
No conveyance, transfer, or mortgage of real property, or of any interest therein, nor any lease for a term of 1 year or longer, shall be good and effectual in law or equity against creditors or subsequent purchasers for a valuable consideration and without notice, unless the same be recorded according to law; nor shall any such instrument made or executed by virtue of any power of attorney be good or effectual in law or in equity against creditors or subsequent purchasers for a valuable consideration and without notice unless the power of attorney be recorded before the accruing of the right of such creditor or subsequent purchaser
Accordingly, an interest in land is junior when it arises subsequent to a validly recorded interest. In this respect, Florida is a “Notice Jurisdiction,” meaning that a purchaser of property has an inferior right to another if he took the property with notice, either actual or constructive, of the other person’s claim to the title of the property. Recording a instrument provides constructive notice of the claim to the world at large.
Title insurance protects against a wide array of claims including, but not limited to: unnamed heirs in probate, unrecorded mortgages, unreleased liens, fraudulent conveyances, lack of competency or capacity of the other party, lack of access, undisclosed but recorded easements, and much more.
In addition to an Owner’s Policy of Title Insurance, The Closing Agent will also provide a Lender’s Policy of Title Insurance, which will protect the buyer’s lender in regards to same incidents as set forth above.
The Closing Agent is the largest independent title agency in Central Florida. The Closing Agent’s range of services encompasses closing, escrow services, title insurance processing, and §1031 Exchanges. If you have any questions about our services, rates, or questions about the closing and title process, please do not hesitate to contact our offices via telephone at 407-988-2295, via email at Orders@TheClosingAgent.com. For more information or to chat with a representative, visit our website at www.TheClosingAgent.com.