Chapter 9

Owner's Policy

The owner's title insurance policy is issued at closing and paid for by the new owner in a one-time, lump sum. It covers the new owner for an amount up to 100% of the total purchase price of the property. Note that in real estate transactions, title insurance policies are sold at each closing. So even if the transaction is between relatives, and the first owner has his own title insurance, the policy is not transferable and the new owner must buy another one.

SPECIFIC LIENS

A specific lien does not open all of a debtor's properties to foreclosure.Instead, it applies only to a specific property given as security in return for a loan. Types of specific liens include the mechanic's lien, the vendor's lien, the property tax and special assessment lien, and the mortgage lien.

The essential parts of a deed are:

A. Names of grantor and grantee B. Consideration C. Words of conveyance (granting clause) D. Interest or estate being conveyed (habendum clause) E. Deed restrictions F. Exceptions and reservations G. Appurtenances H. Legal description of property I. Signature of grantor J. Delivery and Acceptance (Acknowledgement clause)

Actual Notice

Actual notice is a real notice of a real estate transaction provided to the public. It may be given by advertising in a widely recognized newspaper, or a local television commercial, or in public meetings. Recently, actual notice has been connected with some real estate scams in Florida. Actual notice of a sale is given, but the deed is not actually recorded, so an unscrupulous owner can sell the same piece of property to two people. While it is legal to provide actual notice without recording the deed, most licensees are wise enough to avoid this practice.

Appurtenances

Appurtenances are the rights, privileges, and or properties that are considered incident to the principal property for purposes such as passage of title, conveyance, or inheritance. If a lot of land is half a mile from the beach and the original division of the land gave the owner the right to access the beach through the lots occupying that half mile, that right of way is an appurtenance which should be specified in the deed.

Escheat

Escheat is a procedure used when a person dies intestate (lacking a will) with no known legal heirs. In this case, the state acquires title to the property. This power ensures that property is always owned by someone (the state government, in the case of escheat). Escheat transfer underscores the importance of creating a will. It is a reminder that unless you designate legal heirs and stipulate the disposition of your property after your death, your property may go to the state.Surviving heirs with legitimate claims on your property will have to go to considerable expense and difficulty to gain access to it.

Covenant against encumbrances

Guarantees: there are no encumbrances other than those stated in the deed.

TYPES OF LEASES

Leases are usually classified by their payment method: A. Gross lease B. Net lease C. Percentage lease D. Variable lease E. Ground lease F. Sublease

Lis Pendens

Lis pendens is Latin for 'suit pending.' Lis pendens are recorded in the public record, as are deeds. They are a form of constructive notice that a legal action (for example, a foreclosure) is pending on a property.

B. Net lease:

Most often encountered in commercial leases, but also found in residential leases. The tenant pays property costs including taxes, maintenance, and insurance, plus a discounted rent to the owner.

Deed

The deed is the instrument that physically transfers the interest in the property. At closing, the deed of a property is signed by the grantor and must be delivered and accepted by the grantee before being registered in the public records conveying the interest in the property. Even if a property is sold or conveyed as a gift, a deed must still be used to put in effect the transfer.

Voluntary

Voluntary liens are placed against the property by the owner to secure payment of a long term debt such as a mortgage or home equity loan

The rights of ownership may be subject to...

private or government restrictions. Government restrictions are police power, eminent domain, and taxation. Private restrictions include deed restrictions, easements, leases, and liens

Mortgage lien:

A lien voluntarily placed on property by the borrower. He pledges the property as security to the lender.

TYPES OF STATUTORY DEEDS

A statutory deed is a concise form which offers the same legal protections as a more detailed form that spells out all the rules and restrictions concerning the use of a piece of property. The four types of statutory deeds are: 1. General warranty deed 2. Special warranty deed 3. Bargain and Sale deed 4. Quitclaim deed When selling a condominium, it is important to be aware of the fact that the deed must be recorded in the public record together with the notarized, original approval of the condominium or homeowner association.

GOVERNMENT RESTRICTIONS

Even a fee simple estate is subject to limitations on ownership. These limitations may be public, private, or both, depending on the interest in the estate. Government restricts ownership in 3 primary ways: 1. Police Power 2. Eminent Domain 3. Taxation

Covenant of seisin (or seizin):

Guarantees: Grantor guarantees he owns the property and the right to dispose of it. If the property is mortgaged, that is not a breach of the covenant.

Covenant of quiet enjoyment

Guarantees: peaceful enjoyment of the property, without fear of future claims on the title.

Covenant of warranty forever

Guarantees: that the grantee shall have title and possession to the property

Acknowledgement

In the acknowledgement, the grantor formally declares that she was not coerced or obligated to sell his/her property or sign the deed. The acknowledgement must be signed by two witnesses, or, if notarized, by one witness, in addition to the notary. At the same time, the deed must be accepted by the grantee to transfer the interest in the property. The grantee must be aware of the fact that a specific parcel of property is transferred to his control.

E. Ground lease:

Lease of land alone. A ground lease is usually for periods not longer than 99 years, creating a tenancy for years.

ELEMENTS 1-9

SEE PICTURES.

Judgment lien

The claim on a debtor's property as a result of a judgment against the owner. It is a lien on all of the property of the debtor.

A. Gross lease:

The most common lease in residential rentals. The tenant (leasee) pays one sum every month that covers everything. The landlord (lessor) pays all property costs, including taxes, maintenance, and insurance.

Property tax and special assessment lien:

When local governments levy taxes or special assessments, they immediately become liens.

Estate tax lien:

When someone dies, federal estate tax liens are automatically imposed against his or her assets.

ALIENATION

Alienation is the act of transferring property from one person to another. Voluntary alienation is the transfer of ownership with the consent and control of the owner. Involuntary alienation is the transfer of ownership without consent and control of the owner. There are two ways to transfer a piece of real property voluntarily: Deed Will

Income tax lien:

Although Florida does not have a state income tax; the federal government may place a lien on a delinquent taxpayer's property for failure to pay federal income taxes.

Consideration

Consideration is anything of value in exchange for which the deed is granted. It is usually formalized in terms of a dollar amount, but it may be personal or real property, or even an intangible asset.

Covenant of further assurance

Guarantees: that the grantor will procure and deliver to the grantee any subsequent documents necessary to make good the grantee's title.

Descent

If a person dies intestate (without a will), the property is typically transferred to the legal heirs (descendants) of the deceased. Usually they are the closest relatives, like children, or spouse. Transfer by descent is a form of involuntary transfer because the state, not the deceased, determines the disposition and the allocation of the assets to the legal descendants. Florida probate law sets the priorities of descendants to a share in the estate of the deceased.

PRIVATE RESTRICTIONS

Private restrictions on ownership include: A. Deed restrictions B. Restrictive covenants C. Easements by prescription or by necessity D. Implied easements E. Leases F. Liens

3. Right of Taxation

Property owners must pay property taxes, and in many cases, a special assessment, as decided by local and state governments. These tax monies are spent for the public good. If property taxes are not paid, the local government can sell a tax certificate for the property and, after a reasonable time, foreclose on the property.

Vendor's lien:

Sometimes, a seller will allow a buyer to use a purchase-money mortgage if the buyer does not have sufficient funds for the down payment. In this case, the buyer is the vendee, and the seller is the vendor. As a vendor, the seller places a lien on the land in the amount of the purchase-money mortgage.

Special Purpose Deeds

Special purpose deeds have evolved to cover situations in which an owner cannot or will not sign a deed. For example, the property owner may have died or been deemed incompetent making it impossible for him or her to sign the deed. The major types of special purpose deeds include: Special Purpose Deed: Guardian's Deed Property Owner: Minor Process: Guardian transfers property on behalf of a minor. The guardian is the minor's fiduciary, but he or she must be authorized by a court to sell or transfer the minor's property. Special Purpose Deed: Committee's Deed Property Owner: Incompetent An owner, who has either been declared Process: incompetent by a court or committed to an institution, is represented by a committee appointed by a court to handle his or her affairs. The deed must be signed by all committee members. Special Purpose Deed: Personal Representative's Deed Property Owner: Deceased Process: Formalizes and records the transfer of title on conveyance of a deceased person's property. The personal representative is appointed either by the will or a court to handle the deceased's property. In the case of a foreclosure sale, the owner does not sign the deed when the property is conveyed. Instead, a certificate of title is prepared by the foreclosing lender's attorney. It shows ownership and outstanding liens. All risks that may arise as a result of defects in the title fall to the buyer.

Sublease

Subleasing involves transferring a tenant's leasehold interest in a property and leasing the premises to a second tenant. The second tenant pays rent to the first tenant. A sublease is permissible only if there is a subleasing provision in the original contract or if the tenant secures the written permission of the landlord during the tenancy. In a sublease, the original tenant remains responsible for all obligations created by the original contract.

3. Bargain and Sale Deed

The bargain and sale deed is also mostly used in business, but is not that common. This kind of deed does not provide any defense from potential future attacks against the title. A bargain and sale deed consists of a granting clause, habendum clause, and covenant of seisin. It conveys whatever title the grantor has, without further promises or guarantees.

DEEDS

The deed is the legal instrument that transfers the interest in the property from the old owner (seller) to the new owner (buyer). The parties to the transfer of title are known as the grantor (the seller who owns the property and is giving the title) and the grantee (the buyer who will own the property and is receiving the title; literally the person who the title is granted to). To be valid, the deed must be signed by the grantor and witnessed by two people. The grantor must be of sound mind and legal age. A deed is a document that specifies the legal description of the property, the names of the old owner (grantor), and the names of the buyer (grantee). The deed also specifies the date of execution, the negotiation that took place between buyer and seller, and the restrictions that come with the ownership of the new property.

VOLUNTARY & INVOLUNTARY TRANSFER

The interest in a piece of real estate can be transferred either voluntarily or involuntarily. Both are perfectly legal ways to change the title of the property.Voluntary transfers usually involve the sale of property from one party to another, culminating in the delivery of a deed.Involuntary transfer of title may happen in a number of ways, including the death of the owner or action by the government.

Legal Description of the Property

The legal description of the property must be included in a deed.It is usually in the premises or introduction. The premises also typically contain the names of the grantor and grantee, the granting clause, the consideration that was given, and the date of execution of the deed.

Habendum Clause

'Habendum et tenendum' is the original Latin wording for "to have and to hold." In modern deeds, the clause that specifies the interest in the real estate conveyed is simply referred to as the habendum clause. If the habendum clause contains the wording "forever", the estate conveyed is fee simple. If the habendum clause contains the wording for "the life of the grantee", the kind of estate conveyed is a life estate.

A. Deed Restrictions

A deed can specify restrictions to which the property is subject. For example, a right of way belonging to another owner may be specified in a deed. Restrictions may be either for a specified period of time or ongoing. They are recorded in restrictive covenants along with the subdivision plat map. In addition to restricting the use of the property for the first owner, they also restrict its use for all the owners who follow.

E. Lease Restrictions

A lease may constitute a restriction of ownership. The lease is an agreement between landlord (lessor) and renter (lessee) that the lessee has the right of possession but not the right of ownership, for a fixed period of time in return for specified compensation. There are 5 requirements for a lease to be valid: 1. It must contain the names and signatures of the lessor and the lessee. 2. Both lessor and lessee must be legally capable of entering into a contract. 3. It must state the consideration for which the property will be leased. 4. It must state the term of the lease (or tenancy). 5. It must identify the property being rented. A maneuver played by tenants, who want to strengthen their lease, is to notarize it and record it in the public record. Once it is there, the lease becomes a cloud on the title and the tenant cannot be evicted as long as the lease is in force. This maneuver is often used in large transactions: ex. commercial leases where a retailer does not want to leave a commercial mall for 15 years even if the owner goes bankrupt. So the retailer gets a commercial 15-year lease, notarizes it, records it, and stays on the property as long as he or she wants.

LIEAN RESTRICTIONS

A lien is an example of an encumbrance placed on the title to a real property. It limits the ability of the property owner to sell the property. A lien is put on a property because of the outstanding debt of the owner, often related to the acquisition or repair of the subject property.The lien holder or lienor, may, in some cases, sell the property to satisfy the debt, thus overriding the rights of the owner, or LIENEE. Liens are usually considered to be either voluntary or involuntary.

OWNERSHIP IN A BUNDLE OF RIGHTS

A property owner does not only own the land, but also enjoys all the rights associated with the use of that land. At the same time his fee simple interest in a piece of property is limited by the covenants that run with the land, or by other public or private restrictions that may be associated with the ownership of the land. Both rights and limitations are specified in the title of the property. The full bundle of property rights includes: Disposition Control Possession Exclusion

TITLE TO REAL PROPERTY

A title documents the rightful interest in, or possession of, a real property by an owner or owners. In other words, the title is the legal documentation of the ownership of a collection of rights (also known as an estate) in a given real property. The type of estate determines whether a limited or complete bundle of rights is conveyed to the owner. The title document typically contains some basic information regarding the ownership of the real estate. It spells out the legal description of the property in a clear manner so that there is no ambiguity in identifying the property's borders. It also records the legal name of the owner or owners and the kind of ownership that belongs to them. For example, the title states whether the owners own the property as sole proprietors, or a joint tenancy, or as tenancy in common.

Adverse Possession

Adverse possession is another method of involuntary alienation. It occurs when a person openly occupies another's property for an extended period and the owner does nothing about it. After a sufficiently long period, the occupier can gain legal title to the property, since the original owner is considered to have abandoned it. In Florida, the following conditions must be met in order for alienation by adverse possession to take place: a. The possession, use, and or occupation of the property must have been continuous for at least seven years. b. The possession, use, and or occupation of the property must have been public. c. The possession, use, and or occupation of the property must NOT have taken place against the will of the owner. (This is known as hostile possession.) d. The requesting party may have paid taxes on the claimed piece of property.

LEGAL TITLE

After the closing of a transaction that conveys freehold interests in real property from a seller to a buyer, the parties need to give notice of, or announce, the new ownership. In this way the transaction is brought into the light of day and everybody recognizes the new owner as the legal proprietor of the real estate. There are two legal ways of giving notice: Actual notice Constructive notice

Acknowledgment

An acknowledgment is the formal declaration by the grantor that his or her signature on a document such as a deed is legal and voluntary. Acknowledgments must be notarized and require the signature of a witness. An acknowledgment must be recorded in the public record along with the deed.

C. Easements by Prescription and Necessity

An easement is the right, privilege, or interest that a party has in the property of another. Easements generally provide some use of the land to parties other than the owner of the land. They are a species of what, in civil law, is known as 'servitude.' An easement may be created by deed, in a contract, by grant (either expressed or implied), by prescription, or by necessity. An easement by prescription is an easement acquired by continuous, open, and hostile use for the period of time prescribed by law. This occurs when the use of property, such as a roadway, has continued uninterrupted for more than 20 years. An easement by necessity is an easement allowed by law as necessary for the full enjoyment of a parcel of real estate. Sometimes the local government or utility companies need access to a property to maintain a public service. They get an easement by necessity, such as the right to access a telephone pole in the garden of a property owner.

Will

Another way to voluntarily transfer the interest in a piece of real estate is through a will. A will is a document in which a person conveys the title of a property that belongs to him, to a designated heir or heirs after his death. It is usually signed and notarized or witnessed. There are typically two parties to a will. The testator (male) or testatrix (female) is the person who made the will. The devisee is the person receiving the real property (or the beneficiary if it is personal property). The devisee may be a person, like one of the relatives of the deceased, or a corporation, like a trust fund. Real property transferred by a will is known as a devise. Personal property transferred by a will is known as a bequest.

Assignment

Assignment of a lease means turning over all of the leased property to another person for the full lease period or the remaining portion of the lease and under the same terms and conditions as the original contract. A lease can be assigned only if there is an assignment provision in the original contract or if the tenant secures the written permission of the landlord during the tenancy.

Eminent Domain

Eminent domain is the right of a government authority to take private property for public use, upon payment of fair market value. Real estate is transferred against the will of the owner through a legal process known as condemnation. If the state identifies a parcel of land that must be brought under the control of the government for the benefit of the public, it can acquire the interest in that parcel of property by eminent domain.The state must be able to prove the benefit that will be conveyed to the public by acquiring that particular parcel of land. Eminent domain is often used to build highways or a large building for public use, such as a sports stadium. The state must provide compensation for the property it is acquiring. If the owner is not happy with the state's monetary offer, she may oppose the eminent domain and ask for a better evaluation of the property.The owner can present a certified appraisal to ask for more money than the state offered. If the state does not agree to pay the monetary value supported by the second appraisal, the owner and the state representatives have to choose a third certified appraiser to perform a third appraisal.The monetary value supported by the appraisal of this third party is binding.

GENERAL LIENS

General liens may affect all of the properties held by a debtor. Types of general liens include: Judgment lien Income tax lien Estate tax lien

1. Police Power

Governments use their police power to promote the economic welfare, safety, health, and general prosperity of the community. These powers are a major source of restrictions of property ownership. For example, many governments have passed no-smoking regulations that prohibit anyone from smoking on a public property, even the owner. States empower local, county, and city governments to exercise their police powers. The use of these powers can be seen in zoning ordinances and regulations, rent control regulations, building codes, health regulations, and city planning rules. The property owner can make any use of the property within the borders set by the law.On the other hand, the government can impose regulations that restrict the owner's use of the property. The government does not have to compensate the owner for these restrictions. For example, zoning regulations may prevent the owner of a building from opening a bar in it, even though that would be the most lucrative use of the space. The owner can seek a special exception, but he cannot sue the government for income lost as a result of the zoning regulations. Using the property for illegal purposes (e.g. growing marijuana hydroponically) will surely bring a visit from the police. On the other hand, even legal uses must conform to laws and regulations. An investor who gets low mortgage rates for an inner city fourplex must still comply with local health codes and city ordinances.

LEGAL REQUIREMENTS

In Florida, the general warranty deed is used to transfer interest in real property unless otherwise specified on the contract. Recording the deed with the Clerk of the Circuit Court constitutes constructive notice of the transfer in the interest of the property. Before the Clerk of the Court can record the deed, it must be signed by the grantor, witnessed, and notarized by a notary. In Florida, charges to record the deed include: A. Recording fees: These vary from county to county, usually $6 per page. B. Stamp Tax on the deed: These are 70 cents for each $100 increment or fraction of the sale price. Example: A $250,000 home requires $1750 in stamps. (250,000 · 100 = 2500 X .7 = 1750) These charges are included in the closing costs.

Voluntary Delivery and Acceptance

In the past, powerful landowners often used intimidation to force small farmers to sell their property for very little money. In order to avoid this situation, deeds contain a clause called the acknowledgement. This section makes it clear that the transfer of title is voluntary.

Exceptions and Reservations

In transferring an interest in real property, the grantor may reserve some specific rights or exclusions. The rights to use a specific balcony in a building or to access the water (e.g. a beach or lake shore) in the sale of a lot of land are good examples. The exceptions and reservations must be included in the deed.

Involuntary

Involuntary liens are placed on property by law, without consent of the owner. An example is a tax assessor placing an involuntary lien on a property of an absentee landlord who was not notified of a past-due tax bill. Other examples are vendor and mechanical liens. You can search for federal lien registrations on Florida property at www.sunbiz.org.

Deed Restrictions

The deed may convey either private or public restrictions. For example, if a deed comes with a recorded 100-year lease, the lease is a private restriction on the use of a parcel of land. The new owner, or grantee, can acquire the property but he must honor the lease or buy the tenant out in some way.

1. General Warranty Deed

The general warranty deed is a kind of statutory deed that gives the grantee the most protection. The grantor agrees to protect the grantee against any claims to the property's title. The general warranty deed is the most widely used instrument to transfer residential real estate in Florida. It contains a series of covenants and warranties that minimize the possibility of future claims against the title: Types of Covenant: Guarantees Covenant of seisin (or seizin) Covenant against encumbrances Covenant of quiet enjoyment Covenant of further assurance Covenant of warranty forever

Words of Conveyance

The granting clause is the part of the deed that contains wording such as 'sells' or 'grants' in order to indicate that the property is being conveyed. This clause is typically found in the premises section which names the parties, the date of execution, the consideration, and the legal description of the property.

Requirements for Making a Will

The requirements for making a will are: A. The testator or testatrix must be at least 18 years of age to alienate his or her assets via a will. B. The testator or testatrix must be competent when signing the will. C. When drafting a will, the owner needs to take into account state laws that entitle the surviving spouse or children to a portion of the assets.

2. Special Warranty Deed

The special warranty deed does not offer as much protection to the buyer as the general warranty deed. The grantor in a special warranty deed warrants or guarantees the title against defects arising after the grantor acquired the property and not against defects arising before that time. The grantor warrants the title ONLY against his potential future acts or the ones of his successors and agents or assignees. The grantor does not promise to provide any further assistance to defend the title.This deed is mostly used for business transactions, such as developers selling their own properties.

C. Percentage lease:

The tenant pays a rental fee that is proportional to the gross sales of the month made on the premises. This form of lease is used only for commercial leases. When using this kind of lease, the landlord may reserve the right to inspect the tenant's sales receipts.

D. Variable lease:

The tenant pays a variable amount each year. Variable leases are usually stipulated for contracts lasting five to ten years. Landlord and tenant do not know how the market will change and agree to include an escalator clause that usually increases the rent at a fixed percentage per year. Less frequently, they can link the rental allowance to a variable index; such as the increase in property value as measured by appraisals at specified intervals.

Requirements for a Valid Deed

There are at least 9 elements in a valid deed: 1. The deed must be in writing. 2. The name of grantor and grantee must appear on the deed. 3. The grantor must have legal capacity. 4. The property must be conveyed in exchange for some consideration. 5. A granting clause must be present 6. A habendum clause must be present. 7. The legal description must be used to identify the property. 8. The grantor must sign the deed; it must be witnessed by two persons. 9. The deed must be delivered and accepted by the buyer.

WAYS TO TRANSFER TITLE

There are four ways to transfer the title of a property without the consent and control of the owner. This is also known as involuntary alienation. The methods are: Transfer by descent or probate Escheat transfer Eminent domain Adverse possession

Construction's lien (also known as materialman's liens):

These liens are placed on improvements to the land or on the land itself by law in order to secure payment for labor and materials required for the improvements. If a contractor is not paid after having executed improvements on the property, he is entitled to put a specific lien on the entire improvement. Before being able to sell, the individual owner must pay the lien to clear the title.

D. Implied Easement

When two commonly owned parcels are divided in ownership, an implied easement can arise from evidence of prior usage of, or encroachment on, one parcel by the other. Usage is shown by physical evidence on the parcel such as a fence, walkway or driveway. If the usage or encroachment has continued for more than seven years, the physical evidence is taken as demonstrating the intent of the parties, at the time the parcels were severed, to continue the relationship created by the usage or encroachment.

4. Quitclaim Deed

With a quitclaim deed, the interest that the grantor holds in the property is conveyed to the grantee as is, with no further warranties. The quitclaim deed does not state the nature of the rights conveyed or warrant ownership. Literally, the seller only QUITS any CLAIM he/she may have on the deed to that property and passes it on to the buyer with all the old potential claims of other people. Quitclaim deeds are typically used to clear up a technical defect in the chain of title or to release lien claims against the property. Examples of such deeds are correction deeds, and deeds of release. For example, suppose that a title search reveals that a property was once held by a partnership that later abandoned it. To make the title marketable, the current owner must obtain a quitclaim deed from all of the partners in the partnership. Quitclaim deeds can also be used for transactions between family members.