Winter Park Home Magazine - Issue 1 2014
Occasionally unexpected issues arise that delay, or even stop, a real estate closing. There are also situations in which a Purchaser obtains title to property, and after closing learns that the property is subject to significant problems that would have been disclosed by the advice of an attorney or the review of a survey. Here are four recent examples:
Number 1 – Use of a Durable Power of Attorney after death of Principal. John and Michael, both single, own platted Lot 8. They enter into a Contract to sell Lot 8 to the Kelleys, with John signing the Contract on behalf of Michael utilizing a Power of Attorney. At closing John presents an original and properly executed Durable Power of Attorney signed by Michael (the "Principal"), which authorizes John to sign the deed on Michael’s behalf. At closing John then signs the deed and companion documentation, both individually and as Attorney in Fact for Michael. When presented with the Affidavit of the Attorney in Fact (the "AIF"), which includes the confirmation by the AIF that the Principal is still alive, John hesitates. He then advises the closing agent that Michael recently died, and that he did not realize that he could no longer use the Power of Attorney after John’s death. The closing agent has no choice but to stop the closing.
The title work reflects that John and Michael owned the property as tenants in common. Michael's estate will therefore need to be probated to determine his heirs for his one-half interest in Lot 8. Furthermore, the Contract was signed by John as AIF after Michael had died. Michael’s estate is therefore not contractually bound to sell the property, and the deposit will be returned to the Kelleys. If the Kelleys still wish to purchase Lot 8, they will have to renegotiate the Contract at a later date once Michael’s heirs have been judicially determined.
Number 2 - “Too much” cash at closing. Andrew and his wife agree to purchase property for $150,000.00, with no financing contingency. Three days before closing they indicate they will bring $10,000.00 in cash, and will wire the remainder of the funds. This potential delivery of a large sum of cash immediately raises a red flag. The Buyers are advised by the closing agent that all funds need to be wired into the closing agent’s account before the closing can be completed. There may be some minor exceptions to this rule. For example, a Buyer may be allowed to bring a small amount of cash (e.g. $350.00) to cover any additional costs due to last minute changes to the settlement statement.
In recent years the State of Florida (Chapter 896 – the Florida Money Laundering Act) and the federal government (the Anti-Drug Abuse Act of 1988) have imposed mandatory reporting requirements for transactions involving more than $10,000.00 in cash received in a trade or business. These laws also impose substantial penalties and fines if the closing agent fails to comply with these guidelines. The reporting of these cash funds must be filed without delay. To avoid the penalties potentially associated with receiving cash in excess of $10,000.00, the prudent closing agent will therefore stop, or at least delay, the completion of the closing until such time as the issues associated with these funds can be satisfactorily resolved.
Number 3 - Property purchased at foreclosure sale. Some investors independently search the public records websites when deciding whether to bid on property at a foreclosure sale, and do not obtain a title insurance commitment, thereby losing the benefits of a professional search and examination. A title insurance commitment (when issued in conjunction with a final Owner’s Policy) not only serves to identify the current owner of a property, and to identify all liens impacting the property that will be eliminated or remain as liens on the property after the issuance of the Certificate of Title, but it also serves to protect the prospective purchaser by shifting the burden of correcting any mistakes in the examination of title to the title insurance underwriter. This shift of burden, of course, only occurs when a title insurance policy has been issued in conjunction with the title insurance commitment.
Recently, I spoke with one investor who had purchased property at a foreclosure sale. His “online” title search failed to pick up the existence of a $125,000.00 mortgage recorded prior to the foreclosed mortgage. If this investor had obtained a title insurance commitment, the outstanding mortgage would have been disclosed, and the investor could have elected not to purchase the property. Alternatively, if this prior mortgage had been misindexed or missed by the title insurance underwriter, and no exception for this mortgage appeared in the title commitment and the Owners' Policy (after issuance of the Certificate of Title), then the investor, under the parameters of the title insurance policy, could look to the title insurance underwriter, and not to himself, to pay the cost and expense of eliminating the prior mortgage as an encumbrance on the property.
Number 4– Ordering a Survey for closing. To save money, a Buyer sometimes chooses not to obtain a survey for closing. This money saving approach can be very expensive. In one recent example, an individual purchased a vacant metes and bounds parcel of land and chose not to obtain a survey until six months later – when he submitted plans to construct a new home. At that time he learned that he had purchased the “wrong” lot, i.e. a lot lying between two neighboring parcels of land, and not the corner lot on the street that he thought he was purchasing. In another example, a Purchaser acquired vacant land subject to an access easement that bisected the property. The Purchaser did not obtain a survey or read the easement terms prior to closing, and never retained counsel to review the contract or the related title work. As a result, this individual had to subsequently, and at considerable expense, attempt to negotiate with the beneficial owner of the access easement to change its location. If the Purchaser had retained counsel prior to closing, the attorney could have reviewed the easement terms, determined their impact, and advised his client of his contractual options. Alternatively, if a survey reflecting this easement had been obtained and reviewed prior to closing, the Purchaser could have elected to retain an attorney to determine his options under the contract. Ideally, the Purchaser would have wanted to place the burden of moving the easement onto the Seller – or otherwise have elected not to purchase the property.
Not even a well-prepared and knowledgeable closing agent can anticipate every issue that may arise at a closing. Having an attorney guide you through these potential pitfalls is probably the best way for you to protect what is often the greatest financial investment of your lifetime.
This Article is not a substitute for hiring an independent
attorney to review your title commitment and closing documents.
Frank and his wife, Joan, have two daughters. They have lived in Winter Park, Florida since 1980. Joan is a retired Speech Pathologist. Their older daughter, Allison, who is a mixed media artist, lives in Venice, California and is a 2007 graduate of Hamilton College, graduated from Parsons The New School for Design with a postgraduate degree in Graphic Designs in 2008, and received her Master of Fine Arts in Electronic Media Arts and Design from the University of Denver in 2010. Their younger daughter, Rachel, who works at the Aspen Institute, lives in Washington D.C. and is a 2011 cum laude graduate of Hamilton College and received her Master of Arts from Georgetown University in 2013.
