NOTICE OF TITLE & PROTECTION OF TITLE
NOTICE OF TITLE
Actual notice /
Constructive notice
In any legal system that permits private ownership of real property, there will always be disputes as to who truly owns a particular parcel of real estate. For example, an owner might “sell” his property to three unrelated parties. The first party buys the property at the earliest date, the second party pays the highest price, and the third party receives the best deed, a warranty deed. Who owns legal title to the property?
Ownership of legal title is a function of evidence. A court will generally rule that the person who has the preponderance of evidence of ownership is the owner of the property. In the example, if the first two buyers did not receive a deed while the third party did, the third party may have the best evidence and be ruled the legal title-holder. However, what if the first buyer had moved into the house and occupied it for six months before the original owner sold the property to the second and third buyers? And what if the second buyer, after searching title records, reports that the seller never really owned the property and therefore could not legally sell it to anyone! Now who owns the property?
The illustration underscores the difficulty of proving title to real estate: there is no absolute and irrefutable proof that a party holds legal title. Our legal system has developed two forms of title evidence– actual notice and constructive notice– to assist in the determination.
Actual notice
The term “notice” is synonymous with “knowledge.” A person who has received actual notice has actual knowledge of something. Receiving actual notice means learning of something through direct experience or communication. In proving real estate ownership, a person provides actual notice by producing direct evidence, such as by showing a valid will. Another party receives actual notice by seeing direct evidence, such as by reviewing the deed, reading title records, or physically visiting the property to see who is in possession. Thus if Mary Pierce drives to a property and sees directly that John Doe is in possession of the home, Mary then has received actual notice of John Doe’s claim of ownership. Her knowledge is obtained through direct experience.
Constructive notice
Constructive notice, or legal notice, is knowledge of a fact that a person could have or should have obtained. The foremost method of imparting constructive notice is by recordation of ownership documents in public records, specifically, title records. Since public records are open to everyone, the law generally presumes that when evidence of ownership is recorded, the public at large has received constructive notice of ownership. By the same token, the law presumes that the owner of record is in fact the legal owner. Thus, if John Doe records the deed of conveyance, he has imparted, and Mary Pierce has received, constructive notice of ownership. Possession of the property can also be construed as constructive notice, since a court may rule that Mary should have visited the property to ascertain whether it was occupied.
A combination of actual and constructive notice generally provides the most indisputable evidence of real property ownership.
PROTECTION OF TITLE
Title records Title evidence Title companies Chain of title Title abstract Title opinion Title insurance
Title records
Chapter 119.011 (12) identifies public records as “all documents, papers, letters, maps, books, tapes, photographs, films, sound recordings, data processing software, or other material, regardless of the physical form, characteristics, or means of transmission, made or received pursuant to law or ordinance or in connection with the transaction of official business by any agency.”
State laws require the recording of all documents that affect rights and interests in real estate in the public real estate records of the county where the property is located. These public records, or title records, contain a history of every parcel of real estate in the county, including names of previous owners, liens, easements, and other encumbrances that have been recorded.
Deeds, mortgages, liens, easements, and sale contracts are among the documents that must be recorded. Other public records that affect real estate title are marriage, probate, and tax records.
Generally, a County Recorder’s Office or other similarly named office maintains the title records.
Title records serve a number of purposes, not the least of which is to avoid ownership disputes. Other important purposes are:
- public notice
Title records protect the public by giving all concerned parties constructive notice of the condition of a property’s legal title: who owns the property, who maintains claims and encumbrances against the property.
- buyer protection
Title records protect the buyer by revealing whether a property has marketable title, one free of undesirable encumbrances. The buyer is legally responsible for knowing the condition of title, since it is a matter of public record. Recording a transaction also protects a buyer by replacing the deed as evidence of ownership.
- lienholder protection
Title records protect the lienholder by putting the public on notice that the lien exists, and that it may be the basis for a foreclosure action. Recording also establishes the lien’s priority.
Title evidence
Marketable title. Since the value of a property is only as good as the marketability of its title, the evidence supporting the status of title is a significant issue. To demonstrate marketable title to a buyer, a seller must show that the title is free of
- doubts about the identity of the current owner
- defects, such as an erroneous legal description
- claims that could affect value
- undisclosed or unacceptable encumbrances
The four principal forms of evidence the owner can use to support these assurances are:
- a Torrens certificate (not applicable to Florida)
- a title insurance policy
- an attorney’s opinion of the title abstract
- a title certificate
Title certificate. A title certificate is a summary of the condition of title as of the date of the certificate, based on a search of public records by an abstractor or title analyst. The certificate does not guarantee clear title against defects, unrecorded encumbrances or encroachments.
Title companies
A title company performs a title search to determine if the title to a particular property is legitimate. The company will examine property records to assure that the person claiming to own the property really does legally own it. The company looks for anyone else who could claim full or partial ownership of the property. It looks for unrecorded breaks in the chain of title. It also searches for outstanding mortgages, liens, judgments, unpaid taxes, restrictions, easements, leases, or any other issues that may affect the property’s ownership. Sometimes, title companies require a property survey to be performed. The company may prepare a report on what it found, known as an abstract of title, and then provide a title opinion letter regarding the validity of the title.
Title companies may maintain an escrow account related to the property transfer, handle the transaction closing, and file the new title after closing. The title company may also issue title insurance policies but would complete the search before issuing a policy. If the search fails to discover any uninsurable defects, the company issues a binder, or commitment to insure. The binder recapitulates the property description, interest to be insured, names of insured parties, and exceptions to coverage.
Chain of title
Chain of title refers to the succession of property owners of record dating back to the original grant of title from the state to a private party. If there is a missing link in the chronology of owners, or if there was a defective conveyance, the chain is said to be broken, resulting in a clouded title to the property. To remove the cloud, an owner may need to initiate a suit to quiet title, which clears the title record of any unrecorded claims.
Title abstract
An abstract of title is a written, chronological summary of the property’s title records and other public records affecting rights and interests in the property. It includes the property’s chain of title and all current recorded liens and encumbrances, by date of filing. A title abstractor or title company analyst conducts the title search of public records needed to produce an abstract. Insurers and lenders generally require the search to identify title defects and ascertain the current status of encumbrances.
A title plant is a duplicate set of records of a property copied from public records and maintained by a private company, such as a title company.
Title opinion
Attorney’s opinion of abstract. An attorney’s opinion of abstract states that the attorney has examined a title abstract, and gives the attorney’s opinion of the condition and marketability of the title. Generally, an opinion is not a proof or guarantee of clear title. Further, it offers no protection in the event title turns out to be defective.
Title insurance
A title insurance policy is commonly accepted as the best evidence of marketable title. A title insurance policy indemnifies the policy holder against losses arising from defects in the insured title. Unlike other types of insurance that are based on problems that may happen in the future, title insurance is based on loss prevention by stopping title problems from happening.
The common policy types are the lender’s policy and the owner’s policy, which protect the respective policy holders’ interests in the property.
Owner’s policy. An owner’s policy is issued for the property’s initial or appreciated value and protects the buyer from unexpected or unknown defects with the title. It is paid in one premium payment. An owner’s policy may have standard coverage or extended coverage. Standard coverage protects against title defects such as incompetent grantors, invalid deeds, fraudulent transaction documents, and defects in the chain of title. Extended coverage protects against liabilities that may not be of public record, including fraud, unrecorded ownership claims, unintentional recording errors, and unrecorded liens. Extended coverage may also protect against adverse possessors, boundary disputes, and prescriptive easements. Neither standard nor extended coverage insures against defects expressly excluded by the policy or defects that the owner might have been aware of but did not disclose. This policy is not transferrable.
The American Land Title Association (ALTA) is the standardized title insurance policy used in Florida. Information on both types of policies as well as a sample owner’s policy, including conditions and exclusions, can be found at www.homeclosing101.org.
Lender’s policy. A lender’s policy is issued for the financed balance of the mortgage loan and protects the lender from title defects. If a property sells for $100,000, and the buyer pays $20,000 as a down payment, the balance of the purchase price, or $80,000, will be financed. Thus, a lender who holds an $80,000 mortgage on a property will obtain protection worth $80,000 against the possibility that the lender’s lien cannot be enforced. The premium is a one-time payment, and the policy is transferrable to another lender if the loan is sold.
