Chapter 9 (Title, Deeds, and Ownership Restrictions)

Question 1

abstract of title

Answer 1

A summary report of what a title search found in the public record.

Question 2

acknowledgment

Answer 2

The formal declaration before a notary public by the grantor that the grantor’s signing is a free act.

Question 3

actual notice

Answer 3

Direct knowledge acquired in the course of a transaction, such as having actually seen the deed instrument or heard that there is a lien on the property.

Question 4

adverse possession

Answer 4

The true owner of record fails to maintain possession and the property is seized by another.

• Hostile possession of the property (without owner’s permission), to the exclusion of the true owner or any who may contest it
• Open possession with no attempt to conceal occupancy
• Taxes paid on the property by the adverse possessor during all the years of possession
• Claim of title, even an imperfect one, exists (sometimes called color of title), thus creating a reasonable basis for the action
• Adverse possession must continue for seven or more consecutive years without the consent of the owner
• Notorious and flagrant public possession of the property

Question 5

alienation

Answer 5

The act of transferring ownership, title, or an interest in real property.

Question 6

assignment

Answer 6

Occurs when a lessee (tenant) assigns to another person all of the leased property for the remainder of the lease.

Question 7

chain of title

Answer 7

The complete successive record of a property’s ownership.

Question 8

condemnation

Answer 8

A judicial proceeding to exercise the power of eminent domain.

Question 9

construction lien

Answer 9

A statutory right of material suppliers or laborers to place a lien on property that has been improved by their supplies and/or labor.

This lien is based on the principle of law called unjust enrichment. Unjust enrichment means that property owners may not use the labor or material of another party to add value to their property without reimbursement to that party.

A construction lien (or mechanic’s, materialman’s, or laborer’s lien) is a statutory right of material suppliers or laborers to place a lien on property that has been improved by their supplies and/or labor.

This lien must be filed with the clerk of the circuit court no later than 90 days after the last supplies are delivered or the last labor is performed in order to assume priority over any mortgage liens created after the first material/work appeared on the property affected.

This, in effect, allows a construction lien filed after work is completed to become retroactive to the first delivery of material or first day of work.

If a mortgage is placed on the property during the period when construction is in progress, a lien filed after construction is completed will precede the mortgage in priority.

Once filed, a construction lien is effective for one year. The party who places the lien on the property must initiate court action to collect the debt during the lien’s one-year life or forfeit the privilege.

This lien may be discharged or canceled by expiration of time, payment of the debt, or court action through a suit.

Question 10

constructive notice

Answer 10

Notice given by recording the information in the public records.

Question 11

deed

Answer 11

A deed is defined as a written instrument used to convey an interest in real property. Thus, a deed conveys legal title.

Question 12

easement

Answer 12

The right to enter and use a portion of an owner’s land for a specific use.

Easements can be terminated by agreement, abandonment, or court order. Some easements are created by a written agreement between the parties that establishes the easement right.

Two such examples are easement appurtenant and easement in gross

Question 13

easement appurtenant

Answer 13

An easement that benefits an adjacent parcel of land.

An easement appurtenant allows an owner the use of a neighbor’s property, such as the right to cross parcel A to reach parcel B.

Question 14

easement by necessity

Answer 14

An easement created through a court of law because a property is landlocked.

With an easement by necessity, if a landowner subdivides land, conveying part of it in a way that causes a parcel to be landlocked, the court may authorize creation of an easement by necessity to allow property owners to enter and exit their landlocked property.

Question 15

easement by prescription

Answer 15

An easement created through a court of law after longtime uninterrupted use.

An easement by prescription is created by longtime usage. Such easements are created and must be recognized after 20 years of open, continuous, uninterrupted use. (Note the similarity to adverse possession; however, the adverse user in an easement by prescription acquires only an easement and not title.)

Question 16

easement in gross

Answer 16

An easement in gross benefits an individual or a business entity and is not related to a specific adjacent parcel.

For example, utility easements are easements in gross.

The easement allows the utility company to access the land, trim trees, and so forth to maintain utility equipment.

Question 17

eminent domain

Answer 17

Eminent domain gives government the right to take land from an owner through a legal process called condemnation, as long as the taking is for a public purpose.

Eminent domain is called a taking for just compensation.

Question 18

encroachment

Answer 18

The unauthorized use of another person’s property created when an improvement crosses over a boundary line.

Unlike an easement, an encroachment is the unauthorized use of another’s property. For example, a fence or garage located beyond a legitimate boundary without the owner’s consent is an infringement or intrusion on property. When an encroachment has continued for more than seven years, it may create an implied easement. If encroachments are not known and a contract for sale is created before a survey reveals that one exists, the title might be unmarketable and the contract might be voidable.

Question 19

equitable title

Answer 19

The beneficial interest in real estate that implies that an individual will receive legal title at a future date.

Question 20

escheat

Answer 20

A law that provides for the State of Florida to take the property of an owner who dies intestate and without any known heirs.

Question 21

further assurance

Answer 21

A promise in a general warranty deed that guarantees the grantor will sign and deliver any legal instrument that might be required.

Question 22

general lien

Answer 22

A lien that is not restricted to one property but may affect all properties of a debtor.

General liens include judgment liens, income tax liens, and estate tax liens.

1. Judgment lien.
   A judgment lien is an involuntary lien attaching to real property when a judgment is obtained against the owner. A judgment lien is a general lien on all property of the debtor (unless specifically exempt by law) in the county where the judgment was recorded into the public records. In Florida, a judgment lien remains a lien on real property until it has been paid or expires by passage of time.
2. Income tax (IRS) lien.
   Florida does not have a state income tax. However, failure to pay federal income taxes can result in a lien on property of the delinquent taxpayer. A federal tax lien, once filed, becomes a lien on all property owned by the taxpayer at the time of filing as well as on all future property acquired by the taxpayer until the lien is satisfied.
3. Estate tax lien.
   Federal estate tax liens are imposed against a decedent’s taxable assets automatically upon death. They do not require recording or filing. The tax rate is progressive as the worth of the estate increases. While Florida has no inheritance tax, it does have an estate tax designed to collect up to the maximum allowable federal estate tax credit for state death taxes paid. If Florida did not receive this tax, the federal government would.

Question 23

general warranty deed

Answer 23

The most common type of deed for conveying real estate, and it contains all the covenants and warranties available to give the most complete protection.

1. Quiet enjoyment guarantees peaceful possession undisturbed by claims of title.
2. Further assurance guarantees the grantor will sign and deliver any legal instrument that might be required to make the title good in the future.
3. Warranty forever guarantees the grantor will forever warrant and defend the grantee’s title against all lawful claims.

Question 24

grantee

Answer 24

The person(s) receiving title to property in a deed.

Question 25

granting clause

Answer 25

A clause in a deed that contains the premises or the words of conveyance.

Question 26

grantor

Answer 26

The person(s) giving title to property in a deed.

Question 27

gross lease

Answer 27

An agreement for the tenant to pay a fixed (base) rent and for the land¬lord to pay all of the expenses associated with the property.

In a gross lease, the tenant (lessee) pays a fixed (base) rent and the landlord (lessor) pays all expenses associated with the property, including taxes, utilities, insurance, and repairs.

However, it is not uncommon for the tenant to pay unit-related utility costs. Most residential and office building leases are gross leases (also called straight leases or flat leases).

Question 28

ground lease

Answer 28

An agreement for the tenant to pay a fixed (base) rent and for the landlord to pay all of the expenses associated with the property.

n a ground lease, the tenant leases the land only and erects a building on the land. Ground leases (or land leases) are long-term leases that will run for terms up to 99 years. Ground leases are characterized by separate ownership of the land and building(s).

Question 29

habendum clause

Answer 29

The type of estate being conveyed and starts with the words “to have and to hold.”

Today, the habendum clause starts with the words “to have and to hold.” Then, usually, the word “forever” follows if the estate is fee simple or the words “for the life of the grantee” if it is a life estate.

Question 30

intestate

Answer 30

To die without leaving a will.

Question 31

junior lien

Answer 31

Priority is based on the date of recording in the public records.

The priority of junior liens is based on the date of recording in the public records.

The priority of most liens is the date and time that the lien was recorded in the public records.

Four important junior liens are the following:

1. Mortgage liens
2. Judgment liens
3. Vendor’s liens
4. Income tax (IRS) liens

Question 32

lender’s policy

Answer 32

Title insurance issued for the amount of mortgage debt to protect the lender (mortgagee).

Question 33

lien

Answer 33

A written document that states that a person is owed money and establishes that the party may foreclose on the property if the debt is not satisfied; the right to have property sold to satisfy the debt.

A lien is a right or legal interest given to a creditor or a unit of government to have a debt satisfied out of some specific property belonging to a debtor. Liens can entitle the holder (lienor) to have property sold, regardless of the desires of the owner (lienee).

Liens are usually recorded with the clerk of the circuit court in the county where the property is located. As a debtor, the property owner has no choice but to pay the lienor or have the property disposed of by the courts in order to satisfy the lien.

A lien is an encumbrance on the title to real property. However, not all encumbrances on property are liens. Encumbrances can also be easements, covenants, deed restrictions, encroachments, and governmental regulations.

Question 34

mechanic’s lien

Answer 34

Also called a Construction Lien

Question 35

net lease

Answer 35

An agreement for the tenant to pay fixed rent plus property costs such as taxes, insurance, and utilities.

In a net lease, the tenant (lessee) pays fixed rent plus property costs such as maintenance and operating expenses (taxes, insurance, and utilities). Net leases are typically used on commercial property.

The terms net, net-net, and triple-net are often used in commercial real estate. The number of “nets” indicates that the tenant is assuming more and more of the expenses.

In a triple-net lease, the tenant pays all operating and other expenses in addition to the fixed rent.

These expenses include taxes, insurance, assessments, maintenance, utilities, and other charges associated with the property.

Question 36

opinion of title

Answer 36

An opinion executed by an attorney after studying the abstract of title.

Question 37

owner’s policy

Answer 37

Title insurance issued for the total purchase price of the property to protect the new owner (mortgagor).

Question 38

percentage lease

Answer 38

An agreement for the tenant to pay rent based on the gross sales received by doing business on the leased property.

Percentage leases are common with large retail stores, especially in shopping centers.

A percentage lease can be either net or gross.

Question 39

police power

Answer 39

The broadest power of the government to limit or regulate the rights of property owners in order to protect the health, safety, and welfare of the public.

Zoning, for example, can prevent an owner from using property in the most profitable manner, and the owner can’t recover from the government lost revenue caused by the zoning.

Question 40

quiet enjoyment

Answer 40

A promise in a general warranty deed that guarantees peaceful possession undisturbed by claim of title.

Question 41

quitclaim deed

Answer 41

An instrument that releases the grantor of any rights in the property that the grantor may have and is used to clear clouds on the title and to cure title defects.

The quitclaim deed does not contain a covenant of seisin.

Question 42

seisin

Answer 42

The clause in a deed that is a promise that the grantor has the right to convey title.

Question 43

specific lien

Answer 43

A lien that applies only to a certain specified property.

• Property tax and special assessment lien. Municipal governments have been delegated the authority to levy real property taxes and special tax assessments. Unlike other debts and liens, property taxes and special assessments become liens as soon as the assessment is complete.
• The courts have ruled that special assessments may be levied only against properties that are benefited by an increase in value. Special assessment liens are ahead of private liens in priority and second only to real property tax liens (property taxes and special assessments are discussed in greater detail in unit 18).
• Mortgage lien. When a lender makes a loan using real estate as security, the property owner signs a mortgage document that creates a lien against the property. Mortgage liens are voluntary liens because they are made with the owner’s consent. The date the mortgage is filed and recorded with the clerk of the circuit court establishes the priority of the lien against other claims on the property. If the borrower (mortgagor) defaults, the lender (mortgagee) can proceed to force sale of the property to satisfy the debt.
• Vendor’s lien. If a buyer of property (vendee) is unable to make the full down payment required, a seller (vendor) frequently will allow a purchase money mortgage to make up the amount of money the buyer is unable to produce. Actually, any portion of the sale price remaining unpaid to the vendor creates a vendor’s lien. This is an equitable lien of the grantor (seller) on the land conveyed in the amount of the unpaid purchase price. A vendor’s lien is enforceable only against the party obtaining title from the vendor. It does not apply against later purchasers unless a written mortgage has been executed and placed in the public records. A valid vendor’s lien is enforceable by foreclosure. Priority is established by the recording date of the purchase-money mortgage.
• Construction lien. This lien is based on the principle of law called unjust enrichment. Unjust enrichment means that property owners may not use the labor or material of another party to add value to their property without reimbursement to that party. A construction lien (or mechanic’s, materialman’s, or laborer’s lien) is a statutory right of material suppliers or laborers to place a lien on property that has been improved by their supplies and/or labor. This lien must be filed with the clerk of the circuit court no later than 90 days after the last supplies are delivered or the last labor is performed in order to assume priority over any mortgage liens created after the first material/work appeared on the property affected. This, in effect, allows a construction lien filed after work is completed to become retroactive to the first delivery of material or first day of work. If a mortgage is placed on the property during the period when construction is in progress, a lien filed after construction is completed will precede the mortgage in priority. Once filed, a construction lien is effective for one year. The party who places the lien on the property must initiate court action to collect the debt during the lien’s one-year life or forfeit the privilege. This lien may be discharged or canceled by expiration of time, payment of the debt, or court action through a suit.

Question 44

sublease

Answer 44

A lease given by the lessee for a portion of the leasehold interest, while the lessee retains some reversionary interest. The sublease may be for all or part of the premises, for the whole term or part of it, as long as the lessor retains some interest in the property.

1. A lessee (tenant) assigns only a portion of the leased property. For example, a college student who rents a three-bedroom home might sublet one of the bedrooms to another student.
2. A lessee (tenant) assigns all the property for a period that is less than the remaining term of the lease (such as for the summer only).

Subleasing is also called subrogation and subordination of space. The original tenant remains obligated for the lease terms.

Question 45

subordination agreement

Answer 45

Written agreements between holders of liens on a property that changes the priority of mortgage, judgment, or other liens in certain circumstances.

The priority of liens may be changed by a written agreement called a subordination agreement. Under a subordination agreement, the holder of a prior lien (lien with an earlier recording date) agrees to allow a junior lienholder’s interest to move ahead of the prior lien.

Question 46

superior lien

Answer 46

Superior liens take priority over all other liens. They are automatically superior to any other lien.

Three superior liens are as follows:

1. Real estate (property) tax liens, which become a lien January 1 each year
2. Special assessment liens
3. Federal estate tax lien (at time of death)

Question 47

testate

Answer 47

To die with a will.

Question 48

title

Answer 48

A legal concept signifying ownership of a collection of rights to real property.

Question 49

title insurance

Answer 49

A contract that protects the policyholder from losses arising from a defect in the title.

Question 50

title search

Answer 50

An examination of all the public records to determine whether any defects exist in the chain of title.

State statute determines how far back into history the search must go. Florida’s Marketable Record Titles Act limits the search to 30 years.

Question 51

variable lease

Answer 51

An agreement for the tenant to pay specified rent increases based on a predetermined index (CPI) at set future dates.

Question 52

warranty forever

Answer 52

A promise in a general warranty deed that guarantees the grantor will forever warrant and defend the grantee’s title against all unlawful claims.

Question 53

Involuntary Alienation

Answer 53

The government may exercise this power (or delegate it to railroad and utility companies) regardless of whether the owner wants to part with the property. Therefore, it is a form of involuntary alienation.

Question 54

Elements of a Deed

Answer 54

CEDDING:

• Consideration (valuable or good)
• Execution (signed by a competent grantor and two -witnesses)
• Description of property
• Delivery and acceptance (voluntary)
• Interest or estate being conveyed (habendum clause)
• Names of a grantee and grantor
• Granting and other appropriate clauses

Question 55

4 types of statutory deeds

Answer 55

(1) quitclaim deed
(2) bargain and sale deed
(3) special warranty deed
(4) general warranty deed.

Question 56

Bargain and Sale Deed

Answer 56

A bargain and sale deed consists of the granting clause, habendum clause, and covenant of seisin. However, in the bargain and sale deed, the grantor does not covenant or warrant to defend the title against any future claims or attacks on the title.

A bargain and sale deed might be appropriate when an out-of-state property owner desires to sell several parcels of land through a Florida real estate auctioneer.

Question 57

Special warranty deed

Answer 57

A deed in which the grantor does not warrant the title (assume any responsibility for the title) in any way or manner except against acts by the grantor or the grantor’s representative. In other words, the grantor guarantees that nothing has been done to encumber or cloud the title during the grantor’s ownership.

This is the type of deed that most large corporations use when selling property. Special warranty deeds are also used by lenders who have foreclosed on and have taken title to property. The grantor (lender) only assumes title responsibility for the period that the property was owned by the lender thus avoiding title liability for the period prior to foreclosure.

Question 58

Special Purpose Deeds (3)

Answer 58

When an Owner Cannot Sign a Deed

Under certain circumstances, a property owner may be unable to sign a deed. Three types of deeds used in such cases are the following:

1. Personal representative’s deed: A personal representative is an individual either appointed by will or by order of a court to settle the estate of a deceased person. The testator typically identifies a trusted person to serve as personal representative who will be charged with carrying out the provisions of the will under the direction of the court in which the will was probated. If an owner should die without leaving a will, the probate court having jurisdiction will appoint a personal representative to settle the decedent’s affairs. A personal representative’s deed is used to formalize and record the transfer of title. It should show the full consideration paid for the property and contain a covenant of no encumbrances.
2. Guardian’s deed: A guardian acts on behalf of a minor (or other ward) and is also a fiduciary. Normally, the permission of a court is required for a guardian to sell or convey property belonging to the minor. When authorized by the courts, a guardian’s deed legally conveys the minor’s property.
3. Committee’s deed. One of the essentials of a valid deed is a competent grantor. When an owner is declared legally incompetent or is committed to an institution, a committee is often appointed by the court to administer the affairs of the incompetent. The committee functions under the direction of the court if conveying or disposing of the incompetent’s estate. All members of a committee must sign the deed. A committee also must adhere to fiduciary disclosure requirements.

Question 59

Public or Government Restrictions on Ownership

Answer 59

To remember the government restrictions, remember PET:

• Police power
• Eminent domain
• Taxation

Question 60

Taxation (Right of Property Taxation)

Answer 60

This power was specifically limited to the various states by the U.S. Constitution. Citizens pay for the benefits and protection provided by the various levels of government. Property is usually the primary basis for local taxation. Local taxing authorities can foreclose on real property for nonpayment of taxes.

Question 61

Private Restrictions on Ownership (4)

Answer 61

To remember the private restrictions, remember DELL:

• Deed restrictions (Page 8 and 9)
• Easements
• Leases
• Liens

Question 62

The five requirements of a valid lease

Answer 62

(1) Names and signatures (if the lease is for more than one year) of the lessor and lessee
(2) Legal capacity of the lessor and lessee to enter into a contract
(3) Consideration
(4) The term of the tenancy
(5) The property identification.

A lease for real property for an indefinite term or for longer than one year must be in writing and signed by the lessor, lessee, and two witnesses.

Question 63

Calculating the Rent Owed for a Percentage Lease

Answer 63

Typically percentage leases involve a base or minimum monthly rent plus a percentage of the gross sales in excess of an amount specified in the lease.

For example, assume that a lease calls for monthly minimum rent of $1,000 plus 3% of annual gross sales in excess of $325,000. What is the annual rent for the year if the annual gross sales were $450,700?

Step 1. Begin by determining how much of the gross sales are subject to the 3% charge.
$450,700 total gross sales - $325,000 = $125,700 subject to 3%

Step 2. Multiply the amount subject to the 3% charge.
$125,700 × .03 = $3,771 additional annual rent

Step 3. Add the additional annual rent to the base rent to determine total annual rent due.
$1,000 × 12 months = $12,000 annual base rent
$12,000 annual base rent + $3,771 additional rent = $15,771 total rent

Question 64

Calculating Rent Owed for a Variable Lease

Answer 64

A variable lease features rent that changes at set times as specified in the lease agreement. A variable lease (or sometimes index lease) provides for adjustments of rent according to changes in a price index.

For example, assume that a building rents for $12 per square foot with an index of 1.5. The index increases to 1.8. What is the adjusted rental rate?

Step 1. Begin by calculating how much the rent prices increased.
1.8 rate - 1.5 rate = .3 difference in index
.3 difference ÷ 1.5 original rate = .20 or 20% increase

Step 2. Add the percentage increase to the base index of 1.0, then multiply the rent per square foot times this figure.
.20 increase + 1.0 base index = 1.20
$12 per square foot × 1.20 = $14.40 adjusted rental rate

Alternative solution:

Step 1. Divide the new index by the original index.
1.8 ÷ 1.5 = 1.2

Step 2. Multiply the number from step one by the original rent.
1.2 × $12 = $14.40 new rental rate

Question 65

Lien Priority

Answer 65

When there are two or more liens on a property, the priority of the liens determines the order in which the liens will be satisfied (paid off) if the property must be sold. Lien priority is important because the lienor (creditor) receives no compensation until all liens senior to the lienor’s lien have been fully satisfied.

1. Superior Liens
2. Junior Liens
3. Construction Liens
4. Subordination Agreement

4(a) The priority of liens may be changed by a written agreement called a subordination agreement. Under a subordination agreement, the holder of a prior lien (lien with an earlier recording date) agrees to allow a junior lienholder’s interest to move ahead of the prior lien.