Florida Title & Closing Do's & Don'ts PDF

Today, our lineup of binge-worthy flicks will focus on the title and closing process. We're specifically inspired by scenarios encountered by our non-attorney title agents, so we've framed our discussion as a list of title and closing do's and don'ts for non-attorneys. The legal and ethical duties...

Today, our lineup of binge-worthy flicks will focus on the title and closing process. We're specifically inspired by scenarios encountered by our non-attorney title agents, so we've framed our discussion as a list of title and closing do's and don'ts for non-attorneys. The legal and ethical duties imposed by Florida law on non-attorney title and closing agents affect your routine practices in every real estate transaction. Sometimes, the lines between what is allowed and what's prohibited can become blurry or gray, especially when you are a well-intentioned, customer-friendly agent just desiring to assist a party in the transaction. First, a reminder as to your ethical duties generally. Our starting point is what the statutes define as primary title services. Then, I'll point you to the prohibitions against the unauthorized practice of law, as Florida case law explains. It will be helpful for you to have some application by way of some examples. Next, we'll move to some specifics as to the title commitment and the title policy, starting with your contractual obligations. Now, those are your duties under the contract, as opposed to your duties under Florida statutes and case law. Then, we'll consider your duties to meet the requirements and evaluate the exceptions in the commitment that will result in your issuance of the final policy. After that, we'll dive into your title and closing documents. We'll first break down what you do as a closing agent, as opposed to your actions when acting as the title agent. We'll do that by reviewing what's considered closing services and your duties when you are conducting the closings. We'll conclude this series with examples of your ethical duties when preparing and reviewing those documents. As a reminder, our target audience today is non-attorney agents—that is, title agents who are not also lawyers. Today, we'll begin with something we can all agree on, primary title services. What are they, and why is it important for you to know? Under the Florida statutes that govern title insurance, you must perform primary title services for you as a title agent to issue a commitment and a policy. What are they? First, you must evaluate the title search to determine insurability using sound underwriting practices. This is necessary to be sure that appropriate coverage is given and appropriate exceptions are taken to issue the policy. You must perform these actions to charge and collect the premium for issuing the policy. Let's break down those two phrases: determining insurability and sound underwriting practices. Let's start with sound underwriting practices, which include following state law and your underwriter's guidelines. Those are things such as our bulletins, manuals, and other instructions. You use those as a basis for making sound underwriting decisions. The next phase is to determine insurability. To do that, you must have a working knowledge of the insuring provisions, which are the covered risks and exclusions, so that you can provide the coverage the consumer needs and the highest level of service. There's a little caveat here. If you are not an attorney, don't expand on the coverages or explain the meaning of those provisions. That may go beyond the scope of what you're allowed to do. All right, next up in that area of performing primary title services, you must also determine and clear underwriting objections and requirements and prepare and issue the commitment policy. What does that look like in the real world? Well, you will review the deed into the current seller, review your requirements in Schedule B1 of the commitment, and determine the course of action for each of those requirements. You may need to add new requirements upon your review. You need to confirm that all of those requirements will be met before closing, and you need to review the exceptions in Schedule B2 of the commitment. You will drill down into each document listed as an exception. You also need to confirm that there are no additional requirements within those exceptions. An example of that might be when you're reading through the covenants, conditions, and restrictions and find that there is a right of first refusal granted in those. You have an exception for the CCRs, but you'd have an additional requirement for releasing the right of first refusal found in the CCRs. Another example here, too, is you would need to provide copies of those title matters that are listed in Schedule B2 to the surveyor so that if they are locatable on the survey, the surveyor has them and can locate them for you. Another reminder is that your agency agreement, which is your contract between your agency and us as your underwriter, that also includes this duty to determine insurability. You not only have that contractual duty but also that ethical duty found there. Next up is the prohibition against unauthorized practice of law. To state the obvious, the practice of law is giving legal advice. That would include preparing legal documents, and those duties and responsibilities must be performed by an attorney licensed to practice law in Florida. The flip side of the coin is that if you are not a licensed attorney, there are limitations, and that's because of the level of legal skill, knowledge, and expertise of law that's required in those situations because those actions affect people's legal rights. Let's begin with what actions are authorized or allowed by a non-attorney agent in Florida. You may perform certain acts and prepare certain documents relating to the issuance of the title policy. You may determine whether a commitment may be issued, and you may prepare deeds to complete a transfer because those actions are indispensable to determining insurability. Courts boiled this down to permission to prepare documents affecting the title to be insured. Those documents would include deeds, mortgages, and satisfactions, and you may also perform other acts necessary to fulfill the conditions of the commitment. Then, we should ask, what documents should you refer to an attorney for preparation? Those would include wills, trust agreements, durable powers of attorney, and documents purporting to create a lane. Let's get practical with some do's and don'ts in applying these general principles. Let's begin with a don't. Do not prepare legal documents without issuing a policy. How could this happen? Well, let's say you're asked to prepare a deed for a friend or a good customer on property that's not being insured. It's that simple. If you're not an attorney, that's the unauthorized practice of law. Don't do it. Something similar, if you draft curative documents to clear up a cloud on property on which a policy is not being issued, that could constitute the unauthorized practice of law, depending on what type of document you're creating. That's one of those gray areas. Call us on that one. As a best practice, there are additional documents that you just should not prepare due to the complexity of the document and the legal or technical expertise required to draft such a document. Those could be a wraparound mortgage or a deed reserving an enhanced life estate. Those actions are considered the practice of law, and they should be prepared by an attorney. Practically speaking, preparing these complicated documents may expose you, the preparer, to liabilities for mistakes in drafting. Probably don't do it. What if you're asked to accept documents prepared outside of your closing? Again, this is generally don't do it. Here are a few examples. If you watch the series, this character, the footman, you love to hate him. Similarly, where documents are signed outside of your closing, you should view them with skepticism. Let's first talk about if you experience this in a current transaction. You may encounter a situation where a party wants to transfer title to another party who is named as the seller in the contract. They provide you with an unrecorded deed that is required to be recorded in order for title to be in your seller, which is what's stated in the contract. The most obvious reason to decline this request is that the deed may be a forgery. You don't know because it was prepared and executed outside of your closing office. That deed may contain an error or a defect, which might result in title not passing from that grantor into the grantee, which of course would be the seller or grantor in your deed. We don't want to rely on that document. Another example is a deed executed by the grantor prior to death but delivered to the title agent's office or recorded in the public records after the grantor's death. These are sometimes referred to as deeds from the grave. These deeds should be scrutinized carefully to ensure delivery occurred before the grantor's death. As a reminder, the title insurance policy covers any defect in, lien, or encumbrance on the title, specifically including loss from a document affecting the title not delivered. The intent of the grantor is the determining factor in that legal matter of delivery. An intent is a question of fact, which means we really prefer that a court decide that question of fact instead of us. If you're faced with this situation and there's a question about the delivery of the deed, contact the underwriting department; they'll be glad to assist you. Yet another example is a previously executed power of attorney that fails to meet underwriting requirements, where the attorney-in-fact then demands that you accept a newly signed and revised POA in its place. In this situation, the principal must sign the revised POA as part of your closing. Really, if you think about this, a better practice would be to have that principal sign the deed, the original deed, as part of your current transaction instead of relying on that POA, which was signed outside of your purview. It's at least something to consider and ask the question. What about questionable documents in a prior transaction? In other words, discovered in the chain of title. Many times, we'll give you a heads-up on these potential issues with a notation in your title search report or your commitment. One example is an uninsured deed in the chain of title. There's a heightened risk in these uninsured deeds because of the possibility of mistakes or fraud. No professionals have reviewed these uninsured deeds. Those uninsured transfers are often accomplished by way of a quitclaim deed. Generally, we don't like to rely on those quitclaim deeds because they're risky. There are no warranties of title. Many times, the grantor doesn't even warrant that they have title. They say, "Anything and everything I may have." Usually, there's no consideration. With all of these, there could be a forgery where the true owner has no knowledge of the transfer. That would result in a claim because there would be a complete failure of title. The title would not have transferred from the true owner to the party we insured. In all of these circumstances, be extra careful. As they say, these days, take a beat. Ask questions. Discuss with a colleague. Potentially, you may need to add new requirements. Many times, a fraudster will go to an easier target if you take those simple steps. One more example where you might think you are being helpful, but it may result in you finding yourself in a bit too deep. That is advising customers on how to hold title. A non-attorney should not advise a party as to how to take title. Either as the grantee in a deed or as the borrower named in a mortgage. Let's begin with some do's this time. Do prepare documents as stated and agreed to in the contract or the lender's instructions. Those are the foundation of your transaction and they serve as your instructions. You are contractually obligated to follow them. If you don't, you could open yourself to liability. What if those instructions don't match? What if parties make a change before closings? For example, sometimes the parties want to add a grantee on the deed. Well, any changes like that should be reflected in writing. In other words, the contract should be amended so that you can follow it and those instructions in preparing your documents. Think about this: if you want to go back and look at the contract later after closing, you would want that in writing to say, "Hey, this is how they told me they wanted to take title, and here it is in writing to prove that." Remember, too, that any changes to how the title is held can result in an underwriting issue or possibly a conflict. Let's say the lender only wants one party named as a borrower on the mortgage even though two parties are in title. Usually, we see this with husband and wife. You must consider this request in light of our underwriting requirements. All parties in title, which would be two, the husband and wife, must sign as borrowers to the mortgage, which would be two borrowers on the mortgage. In this case, the lender's request must be declined because we cannot ensure an interest that a lender would not be able to foreclose because one party failed to sign the mortgage. Another option is they may change title so there would be only one title holder who signs as the borrower on the mortgage. These two have to match. Of course, that latter example would require a contract amendment. You can see how we have a scale of things that must happen if changes are made so that if you're looking at the transaction in hindsight, you have those instructions in writing. If you go beyond these allowable actions, you could open yourself and your title agency up to potential liability for a customer's misunderstanding. For example, they could sue for an improper granting clause. Well, what if the parties just simply ask you questions about how to hold title? Or when you're talking with them, you can tell they just don't understand. The bottom line is you cannot advise them don't do it. Recognizing all of these limitations, you can provide your customers with a tool that we here at FNF Florida Underwriting have created to assist you in these situations. Ah, the Dowager Countess, always offering words of wisdom to her family. We offer this co-ownership interest reference chart, which you can provide to your customers as a resource. At the end, we have this little clause: refer your customers to this note, which basically says the chart is for informational or general purposes only. It is not legal advice. It clearly states that they have the option to consult an attorney or a tax advisor. If you find that your customer still needs additional help, you may not go further. You must refer them to an attorney. This is your script, this chart. Don't ad-lib on it. Also, consider having the parties sign this document as to how they would like to hold title and a statement that you did not provide them with legal advice.