A Title Insurance Primer
The need and purpose of title insurance continues to perplex both first-time and seasoned buyers alike. While not much thought typically goes into the purchasing of such insurance during the house-hunting process, this final step in obtaining new real estate property is considered the most important of all. It is imperative that purchasers and lenders understand the results of their title clearance process, exactly who is responsible for these costs and the importance of using a licensed and qualified title insurance firm.
What is title insurance and why do you need it?
A person’s “title” in real property refers to their legal right to own, use, control, possess or dispose of the property. Therefore, it is very important that prior to a person assuming title to a property that there are assured that it is free and clear of any liens, unpaid taxes, encumbrances, encroachments or pending permits.
Florida Title insurance serves to protect a purchaser and the lender from prior rights or claims that others may have to the property or from outstanding debts of the prior owners. This means it protects the new purchase and the lender from claims that arose from before the closing of the current sale. This is distinguished from a homeowner’s insurance policy, which protects against future events such as a hurricane or flood.
There are two main types of title insurance – a Lender’s Policy and an Owner’s Policy.
Lenders always require their own title insurance protecting their interest in the title of a property prior to issuing a mortgage loan. This provides necessary protection to the entity lending money to a new purchaser.
Alternatively, a new purchase is protected against specific kinds of claims listed in the Owner’s policy. Such claims include the prior owner’s debts or having to pay a lien placed against the property prior to the new owner obtaining title.
Who chooses the title company in Florida and who is responsible for the cost?
Unlike traditional insurances, the title insurance premium is paid for only once and lasts as long as the purchaser or their heirs own the property. In Florida, the price of the title insurance policy is set by law and is based on the sale price of the property.
Specifically, title rates are established according to Fla. Stat. 627.7825 and are calculated as follows:
- 5.75‰ for the first $100,000;
- then, 5‰ should be added over $100,000 up to $1 million;
- 2.5‰ over $1 million up to $5 million;
- 2.25‰ over $5 million up to $10 million;
- and 2‰ over $10 million coverage
However, the party who typically chooses, and ultimately pays the Owner’s insurance premium, varies from county-to-county in Florida. While the majority of counties call for the seller to pay the premium, certain counties, such as Sarasota, Collier, Miami-Dade and Broward amongst others, calls for the buyer to pay the premium.
A party’s realtor or real estate attorney would be able to further advise whether they are responsible for the cost in their particular district. It’s worth noting, however, the party who is responsible for paying the Owner’s policy gains control over the closing process and has the right to choose the title company.
The parties may negotiate who pays for the Owner’s policy as a way of sweetening the deal and allowing for the sale to proceed. Therefore, the party who ultimately pays for the title insurance is determined, not only by the particular county in which the sale is taking place, but by the governing purchase and sale contract.
The importance of choosing the right title company for your needs.
Usually, parties are indifferent about the selection of the title firm handling their closing and, oftentimes, automatically opt to work with the companies their agents or lenders have a pre-existing working relationship with.
However, since the selection of the right title firm is paramount, it is imperative that purchasers and sellers understand that they are free to select whichever title company they choose and are not bound to work with the partners of their agents.
In Florida, title insurance may be issued by licensed and bonded title insurance companies, as well as, attorneys in good standing with the Florida Bar Association.
Choosing the right title insurance firm ensures that the parties experience a seamless and stress-free closing, that all deadlines are met and that no surprises regarding the title will arise after closing.
Therefore, it’s important for the party selecting the title insurance firm to do sufficient due diligence by researching online, asking friends and family members of their experiences, as well as, contacting a few title companies to obtain quotes.
So while each county in Florida has its own rules regarding which party may select the title company and, therefore, be responsible for the cost of the Owner’s policy, the parties may still negotiate between themselves.
It’s best to discuss these matters with your real estate professional to determine which course of action is best for you!