Purchasing a property in Florida is a valuable investment, but there are various aspects buyers need to pay careful attention to. This isn’t just about the usual areas of focus, like location, price, and financing options. One of the most important areas of any real estate transaction that all those involved need to understand is the fine details of the property’s title.
Clarity here is essential, as defective titles can lead to legal disputes, resale hurdles, and in some cases loss of the property itself. So, we’re going to take a closer look at two types of title that often cause confusion in Florida property sales: marketable titles and insurable titles. They may sound similar, but there are vital distinctions.
What Is a Marketable Title?
In simple terms, a marketable title describes a title that has no significant defects, doubts, or likely claims associated with it. This means that buyers can purchase a property, safe in the knowledge that there shouldn’t be any litigation caused by problems or disputes that were legally present at the time of the sale.
In Florida, this is a standard feature of real estate sale transactions. In the majority of cases, the legal duty is on the seller to provide a marketable title. Indeed, it is often included in contracts that the sale is dependent on the seller issuing this title. The motivation for this is to provide buyers with reassurance that certain components won’t disrupt the sale of the property.
Some of the types of title defects that cause such disruptions and would prevent a marketable title being issued include:
- Unreleased mortgages
- Liens on the property
- Legal judgements issued against the property
- Third parties with potential claims on ownership, such as heirs
- Boundary disputes or legal description errors
What Is an Insurable Title?
The inability to issue a marketable title due to potential defects doesn’t necessarily mean the process can’t progress. This is where an insurable title may come into play. This is a type of title that is issued when there is a chance that there are title defects with the property, but a title insurance company has agreed to cover the risks.
This isn’t the same as confirming that the potential defects have been resolved. Rather, the insurer agrees to cover the buyer’s financial losses in the event that the insured defects arise.
Not all types of defects are likely to be considered acceptable to insurers. Some of the common types insurable titles cover include:
- Minor public record errors
- Some types of unresolved liens
- Technical defects that could potential affect ownership in the future
This type of title is unlikely to provide the same level of reassurance to buyers that a marketable title offers. Nevertheless, it is often accepted by mortgage lenders involved in the transaction. This is because the insurer is taking responsibility for part of the financial risk to the lender’s security interest.
Key Differences Between Marketable and Insurable Title
| Title Type | Existence of Defects | Level of Protection |
|---|---|---|
| Marketable title | Confirms that there are no significant defects and that the ownership is legally sound | Legal protection against potential future disputes related to the title that are claimed to have been in existence at the time of sale |
| Insurable title | Confirms that certain defects may exist, but the risk is accepted on these by the insurer in line with policy terms and conditions | Protection provided is purely financial in nature, intended to compensate buyers or lenders. It doesn’t necessarily provide legal ownership protections. |
Risks of Relying Solely on Insurable Title
An insurable title can, on the surface, seem like a good solution to proceeding with a purchase when certain defects are in place. However, it’s vital to be mindful of the potential risks involved with relying entirely on this type of title.
Limited protection
Firstly, insurable titles primarily provide financial relief when certain insured events arise. They do not prevent disputes from arising or the legal and practical issues that come from ownership conflicts. Owners may still find themselves going through lengthy and stressful court cases.
Potential exclusions
As with any insurance product, there will be limitations to what is covered. While the insurance company may agree to cover specific defects, the policy will usually exclude any issues beyond these. There may also be specific exclusions related to zoning violations and issues the buyer knew existed at the time of purchase.
Resale difficulties
A buyer and a mortgage lender may find the insurable title to be sufficient to accept the risks involved with a sale on this occasion. However, this doesn’t automatically mean other parties will agree with this assessment when it comes to reselling the property down the line. If the potential defects covered by the insurable title have not been resolved, owners can find it difficult to convince future potential buyers and may even see a drop in value.
Florida’s Marketable Record Title Act (MRTA)
Alongside the contractual components that support the enforceability of marketable titles, the Florida statutes also provide guidance that makes it easier to assign a marketable title to older properties.
The Marketable Record Title ACT (MRTA) forms part of Chapter 712 of the Florida statutes. In essence, it places a time limit of 30 years on property rights restrictions. Unless the restrictions are properly preserved and recorded, they’re extinguished from the chain of title.
For instance, a property may have had a deed restriction in the past, which was a potential title defect risk, preventing a marketable record from being issued. After 30 years, if this restriction hasn’t been re-recorded, it can be eliminated from the title. As a result, a marketable title can be issued.
That said, it’s important to bear in mind that the MRTA doesn’t cover all potential claims and defects. Those related to government interests, certain easements, or taxes are not necessarily able to be extinguished under the statute.
Which Title is Better?
Certainly, it tends to be preferable for buyers, lenders, and sellers alike to obtain a marketable title rather than an insurable title. While the latter may provide limited financial protections, the former offers more straightforward confirmation of ownership rights and legal safeguards.
The key takeaway here is that understanding the differences between these types of title allow those involved with property transactions to make more informed decisions. While neither provides complete protection from risks, they each have a distinct role to play in promoting title clarity and progressing the closing process.
