ALL ABOUT TITLE INSURANCE
What is title insurance?
Title insurance is your policy of protection against loss in the case that any problems could result in a claim against your ownership. Here is just a few samples:
Heirs with prior claims
Failure to discharge debt by prior owners
Witnesses and notarization on deeds
Incomplete or inconsistent corporate documents
And this is just to name a few...
Title Insurance protects owners and lenders against defects in the ownership of real property. “Title” is the collective ownership records of a piece of real estate; it consists of all transfers of real property rights, as well all loans that use the property as collateral. “Title” also means having the right to control and convey a piece of real property.
Florida Statute 624.608 defines title insurance, in part, as “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.”
If real estate has “clear title” (e.g. there are no known liens or encumbrances that will materially affect ownership and control of the property), it is free from ownership claims from outside parties and/or unpaid debts of previous owners. The purpose of a “title insurance policy” is to protect an owner, or mortgage lender, against losses arising from problems with title to the property that were unknown to you when you purchased or financed it (a title insurance policy is a prerequisite to obtaining a mortgage loan from an institutional lender to purchase real estate in Florida).
What is title insurance in Florida?
If a claim is made against your property in Florida, title insurance will, in accordance with the terms of your policy, assure you of a legal defense and pay all court costs and related fees. Also, if the claim proves valid, you’ll be reimbursed for your actual loss up to the face amount of the policy.
Why do you need Title Insurance?
When you buy real estate in Florida, you of course want to know that the person from whom you are purchasing the property actually owns it (e.g. holds marketable title to the property). You want to make sure that there aren’t other entities and/ or individuals, such as governmental bodies, contractors, lenders, judgment creditors or the Internal Revenue Service, with claims to the property/ improvements located on it. These “liens” are not extinguished when the property is transferred to you, even if you (or the Seller) are not aware of them. They remain with the land until they are satisfied and, as such, may restrict your use and enjoyment of the property and even cause you to lose ownership of your property.
A title insurance policy is an insurance policy that protects you from any of these adverse claims or conditions.
How does Title Insurance work?
Before issuing a title insurance policy, your title insurance agent will perform a title search of the public records to reveal any defects in the title and to identify all recorded encumbrances on the title to the property, such as unpaid property taxes, unsatisfied mortgages, judgments and tax liens against current or past owners, easements, encroachments, restrictions and court actions.
Any defects in title are reported to you and your lender prior to your purchase of the property in the title insurance commitment. If there is a problem, a buyer should immediately direct the Seller to correct the defects (see your real estate contract) and terminate the contract if he/she fails to do so, or, alternatively, accept the contract subject to whatever defects are listed in the title commitment (which is not advisable to do).
If you take the property subject to its defects, you assume full responsibility for the fulfillment of all such claims as are known to you if the Seller defaults on them; your title insurance policy will not indemnify any losses resulting from these known liens.
But, as to any recorded claims of ownership about which you and the Seller are unaware, and which exist but were not discovered by your title insurance agent prior to the issuance of your policy, you are protected. In this case, the title insurance underwriter will defend in court against such claims; if it loses, it will compensate you for loss or damage up to the amount for which you have policy coverage.
Title Insurance – The Basics
When you are refinancing, or after you negotiate a contract for the purchase of real property, one of your next steps is to find a closing/title agent who will issue title insurance for your property. The purpose of title insurance is to eliminate risks of claims against the title to your property or the property that is being transferred to you. Because a standard title insurance policy serves only to protect against some potential losses and damages caused by problems relating to the ownership of the property, you should have, and a lender will require you to secure additional coverage. Your title insurance agent will provide such coverage by issuing endorsements to your title insurance policy.
2 Types of Title Insurance
There are two types of title insurance in Florida: the Lender’s Policy and the Owner’s Policy. The Lender’s Policy protects the bank or mortgage company that lent you the money to purchase the home and the owners’ title insurance protects the homeowner from any of the issues mentioned above. Your closing agent will issue both policies once the transaction is closed.
An Owner’s Policy will cover up to the full amount you paid for the property and the mortgagee’s policy covers up to the full amount of the mortgage (sometimes more).
Title Insurance Endorsements
Which Endorsements to Policy Coverage Do Lenders Commonly Require?
A standard title insurance policy does not cover everything – many things are left unprotected. So, if you apply for a loan to finance your purchase of property, your lender/ mortgagee will want more protection so it will require that you obtain endorsements to your standard title insurance policy.
The endorsements that Florida lenders most commonly require property owners to purchase are listed below (Note: the language of most endorsements are sometimes, but rarely, revised, so some of the protections mentioned below may be altered, modified or deleted):
Restrictions, Easements, Minerals: Unimproved Land (Florida Endorsement Form 9.1): It protects unimproved land (i.e. land which has not been developed) against loss or damage sustained as a result of: (a) Present violations on the land of any enforceable covenants, conditions or restrictions; (b) notices of violation of covenants, conditions or restrictions on the land which, in addition, (i) establishes an easement on the land; (ii) provides for an option to purchase, a right of first refusal or the prior approval of a future purchaser or occupant; or (iii) provides a right of reentry, possibility of reverter or right of forfeiture because of violations on the land of any enforceable covenants, conditions or restrictions; (c) Any encroachment onto the land of existing improvements located on adjoining land; or (d) Any notices of violation of covenants, conditions and restrictions relating to environmental protection recorded or filed in the public records. Under this endorsement, there is also some protection for damage to buildings constructed on the land after the policy date for the use of the surface of the land.
Restrictions, Easements, Minerals: Improved Land (Florida Endorsement Form 9.2): It protects improved land as Form 9.1 protects unimproved land, but, also, it insures against loss resulting from damages to building on the land related to easements and other issues, including, but not limited to, a court order denying the right to maintain an existing building on the land because of any violation of a recorded restriction, covenant, or other related item, including those in a recorded plat for a subdivision or a court order requiring the removal from any land adjoining the land of any encroachment.
Environmental Protection Lien Endorsement (Florida Endorsement Form 8.1): When a loan is secured by a mortgage on property that is used primarily for residential purposes, this endorsement provides the insured lender with protection against loss or damage sustained by reason of loss of priority of the lien of the insured mortgage over environmental protection liens recorded in the public records or created pursuant to a state statute.
Variable Rate Mortgage Endorsement: It affords the insured lender protection against loss or damage sustained by reason of invalidity, loss of priority or unenforceability of the lien of the insured mortgage due to changes in the rate of interest (variable rate, convertible, renegotiable rate, adjustable rate or shared appreciation mortgages).
Condominium Endorsement (Florida Endorsement Form 4.1): It insures that the condominium estate has been created in accordance with local laws, and, further, that there are no charges or assessments which are due and unpaid as of the policy date. This endorsement also protects against loss sustained due to (a) present violations of enforceable covenants, conditions and restrictions; (b) an obligation to remove any improvements to the property which are in existence on the policy date, because of present – or certain, unintentional future – encroachments on other units; and (c) failure of title by reason of a right of first refusal to purchase the unit which was or could have been exercised on the policy date.
Planned Unit Development (PUD) Endorsement (Florida Endorsement Form 5.1): : It protects planned unit developments as the Condo Endorsement protects condominium units (see above).