Florida real estate misunderstandings

There is a lot of confusion regarding attorneys and the perception of their role when a buyer is purchasing or a seller is selling a house or other property in Miami or anywhere else in Florida.

Below is a summary of several common misunderstandings related to the purchase and sale of properties in Miami and Florida which is intended to provide buyers and sellers with a better understanding as to the role of real estate attorneys and the benefits they can provide to buyers and sellers.

1. Attorneys kill deals

The most common misunderstanding in Florida real estate transactions is that attorneys cause deals to fall apart. This is entirely untrue. In fact, attorneys are trained to facilitate real estate transactions and get them to close as efficiently as possible. The most common reasons real estate transactions do not close are material defects in the title of the property which cannot be cured and the failure of the buyer and the seller to agree on certain material terms of the deal. Florida real estate attorneys have the unique ability and training to spot both apparent and hidden issues with the property which if not properly addressed prior to closing can be large, expensive, and time consuming problems for both the buyer and the seller after the closing.

2. A Florida real estate attorney is more expensive than a title company

The second most common misunderstanding is that attorneys are expensive and cost more than a title company. This is untrue as well. In Florida both attorneys and non-attorney title companies can act as the title and closing agent in a real estate transaction. The promulgated rate for the title insurance premium is the same everywhere in Florida. The closing fees charged by Florida attorneys for conducting the closing are usually the same as those charged by a title company. In fact, in many cases the total charges of Florida attorneys acting as title and closing agents are less than those charged by a title company with the additional benefit of the protection only an attorney can provide.

3. An attorney charges an attorney’s fee in addition to the title charges

When most Florida attorneys handle the title insurance side of a routine real estate transaction, in many cases they do not charge an additional attorney fee. However, some transactions are not routine and require additional services that only an attorney can perform such as clearing material title issues. In cases such as these, a reasonable attorney’s fee is charged for these additional services, and when the attorney is also acting as the title and closing agent these attorney’s fees are typically less than those that would be charged by an attorney not handling the closing.

4. In Florida an attorney is not needed for a real estate closing because the title company handles everything

A title company is prohibited by law from giving legal advice, so if a counter party is trying to get out of a contract, or a buyer does not know how to take title to the property, or a title issue exists, the title company cannot help with this. An attorney will be needed for these and many other matters which can arise, and that will cost extra if a non-attorney title company is involved. For these reasons, many other States require the buyer and seller to be represented by an attorney in a real estate transaction. It only make sense to have a Florida real estate lawyer handle the whole transaction from the beginning which will likely save money in the long run and will provide the additional protection a title company cannot, by law, provide.

5. Every Florida title company is operated or owned by an attorney

There is no requirement that a Florida title company must be operated or owned by an attorney. In fact, many Florida title companies are owned and operated only by a Florida licensed title insurance agent, and that person does not need to be an attorney. Florida licensed title insurance agents only need to attend a 40 hour classroom course in title insurance to satisfy the education requirement to become a title agent. Florida attorneys, on the other hand, need to not only have a college degree, but must also spend an additional 3 years in rigorous study in law school, pass a 2-day bar exam, and continuously expand their knowledge and skills through continuing legal education. Additionally, Florida real estate attorneys have certain fiduciary duties and obligation to place the interests of their clients first which Florida title companies do not have.

6. A buyer or property owner in Florida cannot choose who will be handling their closing

This is absolutely untrue as well. Federal law provides that a person buying a property or refinancing a property has an absolute right to select their own title and settlement agent. This is intended to ensure that the buyer’s and the owner’s interest is protected instead of being compromised by the influence of other interested parties in a transaction. The only way to ensure that a buyer’s and an owner’s interest is fully protected is for them to choose who will be handling their closing.

Closing costs in Florida

When purchasing a home in Miami or anywhere else in South Florida there are numerous fees, costs and expenses which get allocated between the buyer and the seller on the closing statement (or HUD-1 Settlement Statement).

These items are called closing costs and are typically allocated according to local custom or are, at times, negotiated between the buyer and the seller. Below is a list of the typical closing costs paid by both the buyer and the seller in a typical residential real estate transaction in Miami and South Florida.

It is advisable for a buyer or a seller to engage the services of an experienced Florida real estate attorney prior to signing the purchase and sale contract to not only review the terms of the contract, but also to make sure that these various closing costs are properly allocated between the buyer and the seller in the contract.

Buyer closing costs

Customary buyer closing costs include:

  • Down payment
  • Title insurance
  • Documentary stamps on the note
  • Intangible tax on the mortgage
  • Loan fees
  • Prepaid interest
  • Inspection fees
  • Appraisal
  • Survey fee
  • Mortgage insurance
  • Hazard insurance

Seller closing costs

Customary seller closing costs include:

  • Loan payoff
  • Broker's commission
  • Documentary stamps on the deed
  • Prorated real property taxes
  • Title search fee
  • Lien search fee

As a highly experienced Florida real estate law firm and title company, Federal Title continually guides both buyers and sellers regarding the proper allocation of closing costs and makes sure that what the parties contracted for is properly reflected on the closing statement at the time of closing so that there are no surprises on the day of closing.

Why does owner's title insurance get a bad rap?

Google "owner’s title insurance," and you will find scores of blogs and other publications scorning this misunderstood insurance product. Frequently, at the settlement table, we hear homebuyers opine that title insurance is a "rip-off" and not worth the cost.

Most of these comments stem from a deep misunderstanding of the product and, too often, are merely a regurgitation of the opinions that predominate the conventional wisdom.

While owner’s title insurance is optional to a homebuyer, we rarely hear homebuyers bemoan the fact that they are required to obtain homeowner’s insurance. The average owner’s title insurance premium paid by homebuyers to cover a Bethesda, MD property costs $962 as a one-time premium without a deductible, while homeowner’s insurance would cost that same homebuyer $879 annually with a $500 deductible.

In other words, over a period of ten years of homeownership, that same homebuyer/homeowner would pay $962 for owner’s title insurance but pay $8,790 for homeowner’s insurance.

Yet, rarely do we hear complaints about the required homeowner’s insurance coverage. But why?

Here are the stats that give rise to the negative chatter over owner’s title insurance...

According to the Insurance Information Institute, 6 percent of insured homes had a claim against the homeowner’s insurance policy compared to less than 1 percent of title insurance policy holders. Moreover, in 2009 the homeowner’s insurance industry paid out roughly $0.87 for every $1 in premium; whereas, the title insurance industry paid out only $0.05 for every $1 in premium.

These statistics on their face – without an understanding of title insurance as a "risk elimination" line of indemnity insurance – raise eyebrows.

Further, these statistics would lead one to assume that the title insurance industry is a far more profitable industry than the homeowner’s insurance industry when, in fact, the opposite is true. As of 2008, the top three title insurance underwriters lost money while the top three homeowner’s insurance companies were profitable.

But here is the rub...

Title insurance is not homeowner’s insurance. Title insurance is about "risk elimination" of title problems arising from past events and not "risk assumption" of future events.

According to the American Land Title Association, 25% of properties have a title defect that requires clearing and curing title prior to closing and, in most cases, this work is performed and cured without the parties to the transaction ever knowing about it.

The cost for this work is paid with title insurance premiums; both to the title agent in the form of commissions and to third-party service providers for reviewing and clearing title. Title insurance premiums also pay for the cost of maintaining accuracy of title plants and other title records.

So, in addition to paying out claims for human error or fraud by a seller or prior homeowner, the title insurance premium also covers work performed for eliminating the risk of a title defect.

Before the advent of title insurance, homebuyers hired and paid attorneys to review title, cure title, and issue an attorney’s opinion title. If the attorney erred, the homeowner could make a claim against the attorney – assuming the attorney had not since been disbarred for malpractice.

In this modern world, the homeowner has the option of purchasing owner’s title insurance for which they can rely on the title insurance underwriter (or, in the event of a defalcation or bankruptcy, it’s regulating state insurance commission) to make good on a claim.

Buying new construction? Agents, homebuyers should verify proper permitting

Too often, after closing a homebuyer is faced with faulty workmanship performed by a contractor and/or the seller. In some cases, the homebuyer finds out too late that the faulty workmanship was not even permitted.

This scenario can lead to blood-bath of expenses, including the possibility that a government inspector orders a demolition of the work for health and safety reasons.

Under the terms of the GCAAR sales contract, a seller of new construction or a newly renovated house is not contractually obligated to produce permits for the benefit of the homebuyer. Therefore, it is advisable that an agent and/or the homebuyer verify proper permitting by the seller.

The good news is that it’s easy to research. Most jurisdictions maintain on online database for permits and accompanying inspections. Below, I have listed just a few of the links for researching permits in the surrounding jurisdictions.

Standard v. Enhanced: New construction

Part 5 of a series

Too often we hear prospective homebuyers or real estate agents dismiss the need for owner’s title insurance coverage because the property is "new or in a newer development." In fact, nothing could be further from the truth since a large percentage of title claims occur on new construction properties.

Title insurance claims on new construction mostly involve cases of mechanic’s liens. A mechanic’s lien is a lien placed on the property by a contractor or sub-contractor for unpaid labor and material performed during construction.

Many times, a mechanic’s lien is filed after a homebuyer has purchased the property from the seller. In other words, a title report performed at the time of closing will not reveal the mechanic’s lien.

In this instance, a homebuyer who elects to purchase the standard (limited) owner’s title insurance coverage will be stuck with having to pay off and clear the mechanic’s lien at their own expense since mechanic’s lien coverage is not afforded under this type of owner’s policy.

However, if the homebuyer selects the enhanced owner’s title insurance coverage, there is specific affirmative coverage for a mechanic’s lien so long as the work was performed prior to the date of closing (or policy date).

If you are purchasing a property that is either new construction or recently renovated, not only should you obtain owner’s title insurance coverage but you should elect to purchase the enhanced type of coverage.
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