Florida consumers have a choice when closing a real estate purchase that is not available in all states. A buyer can choose an attorney for representation and issuance of title insurance or a title company. In some states, attorneys cannot issue title insurance, and the insurance must be acquired through a separate title agency or underwriter. In most of those states, the buyer or seller retains an attorney and pays a title company separately for title insurance. In most states, a title company cannot conduct a closing. Florida attorneys act as title underwriters and can provide both legal representation and title insurance. Florida buyers can also forego legal representation and obtain title insurance at closing through a title company or agency.
Interestingly, the cost is about the same for buyers using attorneys as buyers only using a title company. Title insurance rates in Florida are set by statute and state administration. Title companies and attorneys also charge a closing or settlement fee, which tend to be similar in amount.
A seller does not have the option of choosing an attorney or title company because a title company is limited in what it can do. Since it is not an attorney, it cannot represent anyone in a real estate transaction. It can only issue title policies and prepare documents necessary for issuance of the title policy. If the title company is not issuing a title policy, it cannot prepare documents in connection with a real estate transaction. That means it cannot prepare the deed for a seller. When the title company is issuing a title insurance policy, it is generally allowed to prepare deeds and mortgages, releases and other documents necessary to meet requirements of a title commitment.
Perhaps the biggest difference between the title company and an attorney is what the title company cannot do. A title company cannot provide legal advice. When problems arise in connection with the closing, the title company’s arsenal of documents it can prepare is limited. It cannot prepare an amendment to contract or an agreement settling issues between buyer and seller.
A title company is prohibited from preparing any documents that are not integral to the issuance of a title insurance policy. That means, even when a title company is issuing title insurance, it is not authorized to prepare a bill of sale for furniture involved with the sale. Title insurance does not insure title to furniture. A title company cannot even prepare a deed if it is not issuing title insurance and that can create a problem if the title company has been asked to work with the seller and the buyer is arranging for title insurance through another source.
Title companies want to be involved with real estate closings and do not want real estate salespeople or other referring business to go elsewhere when sellers are involved. Most title companies make arrangements to have an attorney draft deed and related closing documents when the title company is not issuing title insurance but has been requested to assist with the seller side of the closing. The title company generally picks the attorney and the seller might not even realize an attorney is involved. The title company then charges an escrow fee and adds the attorney’s fee to the settlement statement as well.
In an effort to compete with attorneys, title companies sometimes overstep the legal boundary and engage in the unlicensed practice of law. Florida courts have confirmed title companies are engaged in the unauthorized practice of law if they give advice relating to how someone should take title, the legal effect of documents, prepare contracts, deeds, mortgages or other instruments—except when required to meet the terms of a title commitment and issue a title policy. These services can be provided by attorneys.
Many believe title insurance is all the protection they need when buying a property. Title insurance is relatively unique. A one-time premium is paid for lifetime coverage. It is an indemnity policy. Most insurance provides protection against future events. Title insurance provides future protection for past events which were unknown at the time the policy was issued. Perhaps the best-known protection of title insurance in Florida is insurance that title is marketable. Marketability is generally defined as reasonably free from doubt and such that a reasonable buyer would accept. The title policy definition of marketability is a title which is free from matter that would allow a prospective purchaser to be released from the obligation to purchase.
Title insurance provides tremendous protection from a wide variety of potential problems. It provides protection from false impersonation and fraud in previous deeds, lack of access to and from the property, errors or omissions in the underlying title search, and as long as a survey is obtained, defects that would be revealed by an accurate survey. Getting a title policy is generally recommended for all buyers. However, getting a title policy does not protect against all problems.
A title policy does not insure against all possible issues. Title policies contain a list of standard exclusions, which includes governmental matters and zoning. That means governmental regulations concerning construction and location of docks are excluded from title insurance protection unless there is a notice of enforcement recorded in the public records. Open or expired and unclosed building permits are another exception from title insurance protection. That means a title insurance policy will not provide complete protection for a buyer.
The maximum title insurance protection is the amount of the purchase price. That can be little consolation if a serious title problem is discovered at the time of subsequent sale and the sale price is a lot more than what the seller paid to acquire the property.
That exact situation was involved with a closing we handled some years ago. Before becoming our client, the owner bought a home directly from a bank and was provided a title policy by the bank as part of closing. He did not think he needed an attorney because the bank was providing a title policy. A few years later, and after some renovations, he sold the property for twice what he paid for it and retained our firm to represent him at closing.
The buyer’s attorney found a number of title problems and we promptly made a claim against his title policy. The title insurance underwriter opined that the title was a disaster and agreed to pay the full policy amount of what our client paid to buy the property. Nothing would be paid for the profit our client was to make on his sale. We went to work and solved the title problems, the buyer agreed to extend a closing and we ultimately closed the sale. However, our client’s title policy would have only paid him half of his sale price.
Buyers often need more help than the comfort of a title policy. Many are not sure how to take a title, often looking for help fitting their Florida property into their estate plan. Some want to rent and need help creating a corporation or LLC, leases and related documents. Others need advice in working through contract disputes, issues and sometimes even their own mistakes. Those are areas where attorney representation offers something a title company cannot provide.
The difference between attorney representation in a real estate transaction and hiring a title company to issue a title policy is the services each can provide. If one only wants a title policy, either can provide. However, when representation, legal advice or additional documents and services are needed, only an attorney can meet those needs in Florida.
William G. Morris is the principal of William G. Morris, P.A. William G. Morris and his firm have represented clients in Collier County for over 30 years. His practice includes litigation and divorce, business law, estate planning, associations and real estate. The information in this column is general in nature and not intended as legal advice.