Why should I close my transaction with a real estate attorney rather than my realtor’s in-house title company? Which is more cost-effective?
The costs and expenses associated with real estate transactions are substantially similar for law firms and title companies. Both law firms and title companies provide title insurance policies. Title companies, however, are limited to providing core title services and the issuance of title insurance, and cannot give legal advice. A real estate attorney will provide additional service beyond the shuffle of papers and production of a title insurance policy. A real estate attorney will provide the advice and counsel necessary to navigate the complexities, customs, and peculiarities of real property purchase and sale. When the cost is virtually the same, it is penny wise and pound foolish to spend many thousands of dollars without the benefit of competent counsel. With such large sums at stake, and increasingly sophisticated documentation required to bring transactions to closing, clients are well served to have legal representation in place before the first document is drafted, and certainly before a contract is signed.
What services can I expect to receive from my real estate attorney?
A real estate attorney will provide the advice and counsel necessary to navigate the complexities, customs, and peculiarities of real property purchase and sale. Generally, an attorney will be reviewing the terms of the contract, the status of the title to the property to make sure that title is marketable (this may also include the review of a survey of the property if the property is not a condominium and the buyer elects to obtain a survey – if a buyer is financing the purchase, the lender will require a survey). The attorney will also be handling the preparation of certain closing documents, reviewing the lender’s closing package (if the buyer is obtaining financing for the purchase), responsible for the conduct of the closing, and seeing to the recording of the deed and mortgage (if applicable), and issuing the lender’s and owner’s title insurance policy. The attorney will also address any issues that come up during the course of the transaction. Any non-title related matters, such as zoning analysis, permitting analysis, analysis of homeowners association or condominium association documents, or analysis of the physical condition of the property, will usually require separate written arrangements with the attorney’s office.
What is title insurance and why must I have it?
Title insurance is a type of insurance that insures against economic loss from defects in title to real property (and from the invalidity or unenforceability of mortgage loans when financing is involved). Title Insurance is intended to protect an owner or a lender from a loss occasioned as a result of a title defect, lien, or other matter which might adversely encumber the title to real estate. The title insurer will defend against claims challenging the title, or reimburse the insured for an actual monetary loss incurred, up to the limits provided under the policy. While title insurance is not required in cash transactions, virtually all mortgage lenders require a loan policy of title insurance whenever there is a mortgage. Unlike casualty (or “liability”) insurance, title insurance insures the title to the real estate (a collection of rights to use and occupy a specified space – a more detailed description of which goes beyond the scope of this topic). Accordingly, rather than annual premiums for renewing a policy, the premium for title insurance is charged only once and is good for as long as you own the property. Since title to real estate goes back hundreds of years, and can be susceptible to rare or otherwise dormant claims, it is our strongest recommendation, unqualified, that our clients purchase title insurance.
What types of claims would a title insurance policy protect against?
The types of claims that a title insurance policy would cover are, really, too numerous to list here. However, a few of the more conventional title defects are listed here:
- Forgery and impersonation;
- Lack of competency, capacity or legal authority of a party;
- Deed not joined in by a necessary party (co-owner, heir, spouse, corporate officer, or business partner);
- Undisclosed (but recorded) prior mortgage or lien;
- Undisclosed (but recorded) easement or use restriction;
- Erroneous or inadequate legal descriptions;
- Lack of a right of access;
- Judgments, liens and mortgages or any other claims against the property or the seller which become the new owner’s responsibility after closing, such as unpaid taxes, assessments and other debts to creditors;
- Claims to ownership by the spouse of a former owner;
- Invalid deeds;
- Undisclosed or missing heirs of a deceased owner who did not receive a share of the estate;
- Lack of mental competence of a grantor;
- Deed not properly recorded;
- Clerical errors in recordation of documents procedure;
- Conveyance by a minor;
- Unsatisfied claims not shown of record or not immediately apparent;
- Delivery of deed by non-authorized person;
- Incorrect indexing of documents by clerk’s office;
- A third part claims an interest in the title;
- Documents executed under fraud or duress;
- Non-recorded restrictive covenants
The sellers of the property have a prior survey, do I still need to obtain a new survey?
A boundary survey depicts the exact boundary of what is being purchased; shows easements for utilities such as water, sewer, power lines, etc. on the property; identifies overlaps, gaps or encroachments that may exist, such as driveways, fences or buildings on the property; and can identify possible boundary disputes. The title insurance underwriter will consider reliance on an existing survey of the property (generally, less than 10 years old), provided the older survey meets the following requirements:
- The property must be platted, single family residential;
- The prior survey must show the boundaries of the platted land and the location of all improvements situated upon the land;
- The prior survey must be certified by the surveyor to any prior or current owner, mortgage lender, or title insurer;
- The seller must execute a satisfactory affidavit, upon his personal knowledge, that (a) there are no improvements currently located on the property that are not shown on the survey; (b) there are no improvements to adjoining lands that encroach upon the property; and (c) the affidavit is given to induce the title underwriter to rely on the prior survey; and
- Approval from underwriting counsel for the title underwriter must be obtained
What is a municipal lien search and why is my closing agent recommending I get one?
A title search will only detect recorded liens affecting the property – a title search will not detect municipal charges which can become an unrecorded lien on the property if not addressed prior to closing. Moreover, unrecorded liens are not covered by title insurance. A municipal lien search will check for unpaid service charges water, sewer, or gas systems serving the land being purchased, as well as any lien for waste fees in favor of a county or municipality. In addition, a typical municipal lien search will also check for unresolved code violations, building permits which have not been closed out, or unpermitted structures. Since municipal liens such as these are not title matters, title agents are not required to conduct a municipal lien search or check on open permits. Therefore, a prudent closing agent will always recommend that a separate municipal lien search be conducted.
During the real estate transaction, who does the attorney represent? What about an in-house title company with an attorney?
The attorney represents the party that hires him/her. Generally, the real estate contract will state whether the buyer or seller is responsible for selecting the title and closing agent. If the Buyer selects a law firm or attorney to be the title and closing agent, then the attorney would represent the Buyer. An “in-house title company” is a title insurance company affiliated with the real estate agents brokerage, and often occupies office space shared with the real estate brokerage and its agents. Title insurance companies are not licensed to give legal advice and therefore cannot represent either a buyer or a seller. Moreover, a title insurance company with an attorney cannot represent either the buyer or a seller; the attorney represents the title insurance company. Similarly, an attorney representing the buyer cannot also represent the seller or any other party.
Can I consult with an attorney before signing my purchase and sale contract?
Absolutely! In fact, it cannot be recommended strongly enough that a buyer (or seller) engage the services of an attorney before the contract is signed. Once the contract is signed it becomes a binding obligation and the terms cannot be changed unless both parties agree. Better to review the proposed contract with your attorney, and understand one’s obligations and liabilities, before it is signed.
What closing costs can I expect to pay at closing? Are they negotiable?
The party responsible for the costs of the title search ($75 – $100), municipal lien search ($75-$125), owner’s policy of title insurance (up to $100,000 the cost is $5.75/$1,000; over $100,000 up to $1,000,000 the cost is $5.00/$1,000; over $1,000,000 up to $5,000,000 the cost is $2.50/$1,000; for transactions over $5,000,000 please contact our office for a calculation), and closing fee ($385) and other fees charged by the title agent, are usually negotiated between the buyer and seller prior to the contract being signed. In addition, a Buyer can expect the following:
Boundary Survey: the cost of a survey will largely depend on the size, location, and topography of a property, but a customary cost for a survey can reasonably expected to run between $350 – $750. In certain circumstances, if a survey of the property has been recently completed it may be feasible to utilize the existing survey if an appropriate affidavit can be executed affirming that there have been no changes to the property since the date of the survey (please contact our office for more detailed information on the requirements for use of an existing survey).
Recording Fees and costs: The cost to record documents in the Public Records (usually a deed and a mortgage) is $10.00 for the first page, and $8.50 for each page thereafter. Typical deeds are 1-3 pages, and typical mortgages are 15 to 30 pages. In addition, for transactions involving financing, the Florida Department of Revenue imposes (by statute) a Documentary Stamp Tax of $3.50/$1,000 of loan amount, and an Intangibles Tax of $2.00/$1,000 of loan amount. A seller can expect to pay a Documentary Stamp Tax of $7.00/$1,000 based on the sale price of the property.
Mortgage Lending related Costs: If the purchase of the property is being financed, your lender will provide you with estimated loan closing charges. Up until October 3, 2015 these estimates will be in the form of documents called Good Faith Estimate of Closing Costs (GFE) and Truth In Lending Disclosure Statement (TIL). After October 3, 2015 these documents are being combined into a new form called a Loan Estimate (LE) which will provide a much more detailed and comprehensive estimate of a borrower’s closing charges.
I’m paying cash for my property. Do I still need title insurance?
While title insurance is not required in a cash transaction, for most people, the purchase of real estate, whether residential, commercial, or industrial property, represents the single largest monetary investment of their lives. Therefore, protecting that investment is of paramount importance. The likelihood of a title defect, while statistically rare, can result in a catastrophic loss that can be prevented with the purchase of title insurance coverage. The costs associated with obtaining title insurance are miniscule in comparison to the losses that can occur from claims such as those identified in the preceding FAQ, particularly when consideration is given to the costs and expenses (including attorney fees) of defending a claim or clearing a title defect. The purchase of title insurance remains our strongest recommendation, unqualified.
My husband and I live part of the year up north and part of the year in Florida. How does Florida Homestead work?
The following information is available from the Sarasota County Property Appraiser’s website https://www.sc-pa.com/homestead/overview/:
When applying for the Homestead Exemption, you will need to provide to the County Property Appraiser’s Office several items listed below that serve as evidence of property ownership and Florida permanent residence. Married couples are required to provide this information for both spouses:
- Evidence of ownership or beneficial interest (a copy of your deed to the property, or tax bill)
- Evidence of permanent Florida Residence (a valid Florida Driver’s License or valid Florida ID Card (must reflect the permanent residence address)
- And present, at minimum, one of the following:
o Florida vehicle registration
o Proof of Florida voter registration (must reflect permanent residence address)
o A formal declaration of domicile recorded in the Public Records
- Or present, at minimum, two of the following:
o Employment verification (W-2 form or paystub referencing permanent residence address)
o Previous residency exemption termination (date of sale or cancellation of exemption at previous primary residence)
o Evidence of location where the applicant’s dependent children are registered for school
o Federal income tax returns listing the permanent residence address
o Proof of payment for utilities or bank statements or checking account information mailed to address for which permanent residency is being claimed
- All applicants are required by Florida law to provide their Social Security Number
- If you are a Permanent Resident Alien and not a U.S. Citizen, you will need to show your Alien Registration Card
I am purchasing property in a deed restricted community, are there any HOA requirements I must meet?
Typically, subdivisions created in the last twenty (20) years now require buyers to be approved by the homeowner’s association (HOA) prior to purchasing a property in the subdivision. This application requirement can be found in the subdivision’s recorded Declaration of Restrictions or Bylaws. The application requirement sets forth the application process and timing requirements. Buyers purchasing property in such a subdivision need to make sure they comply with the application process, including timely submitting their application for approval. This is especially important since it seems to now be a common practice for some HOA’s and/or respective management companies not to release the HOA’s estoppel certificate to the closing agent until the buyer has submitted an application for approval to the HOA. If the deed restricted community requires approval by the HOA, it is important to make the Contract contingent upon the buyer being approved by the HOA.