The Importance of a Title Examination When Acquiring Real Estate

The South Florida housing market is recovering after taking a big hit during the 2006 housing crisis. According to the Case-Shiller Home Price Index released January 30, prices in Palm Beach, Broward, and Miami-Dade counties rose 0.8 percent from October and 9.9 percent from a year earlier. It was the 11th consecutive month that prices for the three counties have increased on an annual basis. Real estate brokers believe a strong demand for homes combined with a lack of supply is driving up prices. Prices are rising for both new and existing home sales. When purchasing a property, a title examination is an important aspect that should not be overlooked.

A title examination ensures that the title to a property is suitable for sale. The examiner must determine who presently holds title to the property and must analyze carefully how the title was derived. The examiner must scrutinize all documents that convey title in order to confirm that they are correctly executed by the parties in the chain of title and that the legal descriptions are accurate. The chain of title is the history of passing of title from the present owner back to the original owner.

Additionally, the examiner must determine all other matters that affect the title such as liens, encumbrances, restrictive covenants, and easements. If there are any defects in the title, the examiner should advise the client on what steps must be taken to clear the defects. Anything found that could render the title unmarketable gives the buyer the chance to back out of the sale or negotiate with the seller to rectify the situation before closing.

At the conclusion of an examination, the examiner should have identified in whom title is currently vested, all encumbrances affecting the property, and any title defects that must be resolved. From the examination, the examiner prepares a summary of their findings in a title commitment. The title commitment states the status of ownership and allows for an evaluation of the title before the property is acquired. The commitment is also used by the title company to create an agreement to issue a title insurance policy; however, certain requirements stated in the commitment must be satisfied before the policy will be issued.

Title insurance provides a guarantee of ownership in the property and protects against unknown claims that may arise. Title insurance is based on events in the past and insures the validity and priority of the interests of the owner. A title insurer’s obligations include: (1) to indemnify for any loss not excepted from coverage; (2) to defend the insured in litigation; and (3) where feasible to cure the defect, lien, or encumbrance from the title. An experienced real estate attorney can represent a purchaser throughout the transaction process to handle any issues that may develop.