Florida Real Estate Broker ExaminationReal Estate Law and RegulationsHard
A property owner in Florida sells their home. After the sale closes, the buyer discovers an unrecorded lien for a new roof installed just before the closing, which the seller had contracted for but not paid. The title insurance policy obtained by the buyer did not identify this lien. Which of the following statements is true regarding the buyer's recourse?
- AThe buyer is responsible for paying the lien, as it was for an improvement to their property.
- BThe buyer has no recourse, as unrecorded liens are not covered by standard title insurance policies.
- CThe buyer must sue the seller directly, as the title insurance policy only covers recorded liens.
- DThe title insurance company is generally responsible for defending against the lien or paying to clear the title.
Show answer & explanationAnswer & explanation
Correct answer: D. The title insurance company is generally responsible for defending against the lien or paying to clear the title.
Standard title insurance policies typically protect against unrecorded liens (such as mechanics' liens for recent work) as long as the work was completed before the policy effective date and the lien was not excluded. The title company would be responsible for defending against the lien or paying to clear the title.
Why the other options are wrong
- A. The buyer is generally protected from such liens if they obtained title insurance and were unaware of it.
- B. Standard title insurance policies are designed to protect against certain unrecorded liens, particularly those that arise from work done prior to closing.
- C. While the buyer could sue the seller, the primary and more direct recourse for a title defect not excluded by the policy is typically through the title insurance company.
Title Insurance Coverage
A policy that protects property owners and lenders against financial loss due to defects in title that existed at the time the policy was issued.
- Covers defects that were unknown at closing.
- Protects against recorded and some unrecorded liens (e.g., mechanics' liens).
- Does not cover defects that arise after the policy date.
- Owner's policy protects the buyer; lender's policy protects the lender.
Memory trick: Title insurance protects you from hidden past liens, even if unseen.