Do I Need Title Insurance When Buying Property In Florida?
Ask Bill: Do I need Title Insurance when buying property in Florida?
J Piotrowski: The real-estate market in South Florida is hotter than our noontime summer sun. Many of you may find yourselves shaking your head at the costs and fees of buying or selling a property – like one of the most common costs: title insurance.
This kind of smart preparation incorporates financial planning, retirement planning, and estate planning. Also, this is not just for people with a lot of money or assets or people who are older. In fact, smart preparation should start in your early adulthood.
Ask Bill: So what is title insurance, and why would a buyer need it?
J Piotrowski: Let’s step back and first answer the question, “What is title?" Title is the set of rights that come with property ownership – to inhabit, improve, rent, encumber (perhaps by borrowing against it) and transfer it.
When you buy a property, you want to know for sure that the owner transferring it to you has clear title, or an unencumbered right to transfer it.
Title insurance is the agreement by a title company to insure you against losses arising from covered titled defects that exist as of the date the title policy was issued.
Ask Bill: What are title defects? How do you know if there are title defects on a property?
J Piotrowski: Some common title defects or encumbrances you would want to know about (and clear up) before purchasing a property are:
- an outstanding mortgage, line of credit or lien;
- unpaid property taxes;
- a dispute by a potential heir, former spouse or another party who had (or has) joint ownership;
- survey issues;
- past forgery or fraud;
- clerical errors; and
- An easement or other restriction that affects property enjoyment or use, and therefore value.
To ensure that you are obtaining clear title, you will want to hire a title company to do a title search. A title search is a historical examination of the public records of a property. The title search will examine past transfers, whether by sale, bequest, settlement, or some other means, and may reveal title defects (mentioned above).
Ask Bill: So back to the first question – if a title search is done, why the need for title insurance?
J Piotrowski: The fact of the matter is that people make mistakes – either in the search or in executing or recording past transfers. That is, the property record might not reflect all ownership interests or claims. You could unknowingly be saddled with the costs of settling or resolving claims that could actually be higher than the property’s value. Defects in title could also affect your ability to resell the property to a future buyer.
Title insurance is an insurance policy protecting your ownership of the property from prior title defects that are covered under that policy. After purchasing a property, if you later discover a title defect during your period of ownership, you would make a “claim” with your title insurer, and, if the claim is covered under the policy, your title insurer will work to resolve the defect.
Ask Bill: What are different kinds of title insurance?
J Piotrowski: There are two primary types of title insurance:
- A lender’s policy (if your sale is financed) is issued in the name of the lender and its purpose is to ensure that the lender’s interest (the mortgage given on your property) is a valid lien against your property.
- An owner’s policy is issued in your name, and it protects your ownership of the property from title defects that were in existence before the policy was issued.
Ask Bill: If there is a lender’s policy, why would a buyer need an owner’s policy? Do I need both?
J Piotrowski: A lender’s policy protects only the lender’s interests (its mortgage) in your property and insures up to the loan amount. You cannot make a claim under your lender’s policy for any title defects that may exist on your property as you are not the insured. While an owner’s policy is optional, it is rather inexpensive protection covering against hidden liabilities and defects which, while rare, could swallow up a property’s value.
In real estate purchase transactions that involve financing, it is very common for the purchaser to purchase an owner’s policy and the lender’s policy to be “simultaneously issued” at a reduced rate. Title insurers offer the simultaneous issue rate because the insurer is insuring the same property, it's just insuring different interests (owner is insuring its ownership interest and lender is insuring its lien interest).
Ask Bill: How much does an owner's title insurance policy cost?
J Piotrowski: The cost of an owner's title insurance policy is a one-time premium paid at closing. The premium rates for title insurance policies in Florida are uniform rates promulgated by the State and are based on the purchase price of the property. Current rates for original owner coverage are $5.75 per thousand for the first $100,000, then $5.00 per thousand up to $1 million of coverage. For example, if the purchase price of your property is $1,000,000, the promulgated rate for an owner’s policy would be $5,075.
If you are planning on refinancing or buying a property, it is recommended that you provide the title agent with your prior owner’s policy (in the case of a refinance) or require the seller to provide you with the seller’s title policy under the purchase and sale agreement as you may qualify for a reissue credit, which will lower the cost of your owner’s policy premium. Buying property is likely one of the largest investments you will ever make. Title insurance plays a key role in protecting that investment.