After successfully completing this topic, you will be able to
• distinguish between a chain of title and an abstract of title, and
• explain the different types of title insurance.
A chain of title is the successive history of conveyances affecting a particular property. Successive changes of ownership are linked to form a “chain.” The chain should show the history of a property’s ownership. The Florida Marketable Record Titles to Real Property Act eliminates clouds on title more than 30 years old, so the “root of title” will consist of finding the deed that granted title to the person who owned the property more than 30 years ago.
An abstractis a summary of the recorded documents and provides a history of the property.
|Example of a chain of title An attorney is looking through an abstract of title for a specific property that Atkins is selling Webster. The search shows Atkins acquired the property by deed in 1998, with Jones as the grantor. Since we need to go back at least thirty years, we need to know when Jones acquired the property. A further search shows Jones acquired the property in 1950 by a will from her father. Barring any other liens or mortgages, the attorney’s opinion is that Atkins has clear title to the property and can transfer the title to Webster at the closing.|
An opinion of title is an attorney’s professional opinion of the condition of title, based on examination of the recorded documents pertaining to the property. Buyers must remember that it is only an opinion. If the title to the subject property is later found defective, it may be difficult to be reimbursed for damages unless the attorney was negligent. Today, attorneys acting as closing agents order title insurance just as a title company does.
Brokers and sales associates are not allowed to give an opinion of title and should refer questions from buyers and sellers to an attorney or title insurance company. Licensees should advise buyers to get an attorney’s opinion or a title insurance policy before purchasing property. If a licensee knows there are problems such as liens or encumbrances on a property, the licensee must disclose that fact to potential buyers.
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Title insurance is protection from adverse claims on the title of property, and will pay for any defect in title that is not specifically excluded in the policy. Title insurance has become the predominant method of protection for buyers and lenders because it will pay for losses sustained by the new owner or the lender; the new owner does not have to prove negligence.
Like most insurance policies, there are exclusions and exceptions from the insurance. These arise mainly from government restrictions on ownership (police power, eminent domain, and ad valorem taxation) and private restrictions (deed restrictions).
Exactly which defects are covered under the insurance depends on the type of insurance policy.
A standard coverage policy normally insures the title based on a search of the public records. It also insures against such hidden defects as forged documents, conveyance by incompetent grantors, and incorrect marital statements.
An extended coverage policy, such as an American Land Title Association (ALTA) policy, gives more coverage. For example, it will protect against defects that may be discovered by a property inspection, rights of parties in possession, examination of a survey, and certain unrecorded liens. Most lenders require a lender’s ALTA policy.
The two basic types of title insurance are owners’ title insurance and lenders’ title insurance.
An owner’s (mortgagor’s) policy protects the buyer against title defects. It is not transferable.
A lender’s (mortgagee’s) policy protects the lender. It is transferable.
While a title search will disclose any recorded liens or encumbrances on a property, there can be other charges on a property that could later become a lien. Examples include code violations, building permits that have not been closed properly, and structures that were not properly permitted. The new owner may become liable for unpaid utility bills as well. Buyers should ask the title agent to perform a municipal lien search as part of the title search.