Here is a guide to the process and the key legal considerations.
1. The Title Insurance Claim Process in Florida
Your Owner’s Title Insurance Policy is your primary protection against a lien that existed before you purchased the property but was not disclosed in your closing documents. The process focuses on notifying the insurer and allowing them to resolve the defect.
Step 1: Immediate Written Notification to the Insurer
The moment you discover the lien or title defect, you must notify your title insurance company (the underwriter) in writing.
- Why it’s Crucial: Your policy is a contract that requires you to give the insurer prompt notice. Delaying notification can give the company grounds to deny your claim.
- What to Include:
- A description of the defect (the lien, the amount, and who is claiming it).
- A copy of the document or letter you received regarding the lien.
- Your Owner’s Title Insurance Policy and any other relevant closing documents (like the closing disclosure or settlement statement).
Step 2: Insurer Investigation and Obligation
Once you file a claim, the title insurance company has an obligation to act quickly. Title insurance is unique because it is designed to cure the defect, not just pay for loss later.
The insurer will typically take one of two actions:
- Cure the Title: The most common resolution is for the insurer to pay off the missed lien to have it formally removed from your property record.
- Legal Defense: If the lien’s validity is disputed, the insurer will hire and pay for legal counsel to defend your title and fight the lien in court, often through an action to quiet title.
- Indemnify: If the defect cannot be cured, the insurer will compensate you for the resulting financial loss or the reduction in your property’s value, up to the face amount of the policy (usually the purchase price).
2. Key Florida Legal and Coverage Considerations
Coverage for Missed Liens
A standard Owner’s Policy covers defects that existed before the policy’s effective date and were not listed as exceptions. This includes:
- Recorded Liens: Undiscovered mortgages, unpaid property taxes, judgments, or homeowner/condominium association liens.
- Errors in Public Records: Clerical or indexing errors that caused the lien to be missed during the title search.
The “Unrecorded Lien” Exception
You must review the Standard Exceptions section (often on Schedule B-II) of your policy. Standard policies often exclude coverage for:
- Construction/Mechanics’ Liens for services, labor, or materials when such liens are imposed by law but not yet shown in the public records (i.e., a contractor performed work but hadn’t formally filed the lien when you closed).
- Unpaid Taxes or Assessments not yet shown as existing liens in the public records.
If the missed lien falls under a standard exception, you may need to check if you purchased an enhanced policy or if the title company waived that exception at closing.
Statute of Limitations
In Florida, the general statute of limitations for filing a lawsuit for breach of a written contract (which your title policy is) is five years (Fla. Stat. § 95.11(2)(e)).
- When the Clock Starts: The clock for this five-year period generally starts when the defect is discovered or should have been discovered with due diligence, not the day you bought the home.
- Prompt Notice is Key: Regardless of the statute of limitations for a lawsuit, the policy itself requires you to act quickly once you know about the problem.
3. Potential Liability of the Title Company/Agent
In addition to the title insurer (the underwriter) being responsible under the policy, the title agent or closing company that performed the search and closing may have separate liability if their negligence caused the lien to be missed.
- This is a distinct claim from the claim on your insurance policy.
- A successful claim against the closing agent may allow you to recover damages that exceed the face value of your insurance policy, such as special damages (although this is often governed by the Economic Loss Rule and can be legally complex).
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