Search post
Filter by Category

Real Estate Contracts and Municipal Lien Searches

0

 When buying a residential property, the buyer and seller will agree to conditions outlined in the closing contract or purchase agreement. This is a legally binding contract between the two parties. It’s important for both to understand how nuances within the agreement could affect their ability to negotiate or back out of the deal. Most real estate agents, Realtors, and real estate attorneys will use a standardized form and modify it according to their clients' needs. Here are some things that everyone involved in the real estate transaction should know about these contracts and how they affect the title insurance policy that is written.

 

What are some of the types of real estate contracts?

Depending on your state, you will come across different types of standard form contracts. Typically, these are forms provided by state or regional association of Realtors and/or bar associations. New York State has a standard contract as does the City of New York. This outline of the standard purchase agreement in California from the California Association of Realtors was updated with changes in language in 2014 and 2015.

In Florida, there is the FARBAR As-Is Contract and the FARBAR standard contract as well as NEFAR standard agreement. The FARBAR is a contract that has been approved by both the Florida Association of Realtors (FAR) and the Florida Bar Association (BAR). The NEFAR is the Northeast Florida Association of Realtors.

 

Want to learn more about unrecorded debt and municipal liens? Watch this  webinar!

 

FARBAR As Is Contract vs. Regular FARBAR Contract

There is one significant difference between the As Is Contract and the Regular Contract. That’s the inspection period and each party’s rights and responsibilities during that time. In the As Is Contract, the buyer has the right to inspect the property and cancel if they don’t accept it in its current condition. If they find an issue during the inspection period, they may negotiate or walk away from the deal. In the regular contract, the seller is making specific representations that systems in the home are working properly, like the electrical, plumbing, and mechanical/air conditioning systems. If they aren’t working correctly, the buyer may object to their condition and the seller may be responsible to repair the system(s). There is no such responsibility in the As Is contract.

 

Important parts of contracts and other forms

  • Inspection Period
  • Contingencies
  • Closing Costs
  • Special Assessments
  • Seller Disclosures
  • Addendums and riders

 

It’s important for buyers to understand that the standard contracts act as a jumping off point and that contingencies, addendums, and riders may be added to give them more or less leverage in negotiations should any issues arise during the inspection period, at closing, or shortly after closing. Of course, it’s highly advised that buyers retain their own legal counsel should they be unsure of the best solution for their homebuying experience.

While the municipal lien search listed within some of these contracts will uncover unrecorded debt and issues that affect a new owner, not all contracts explicitly list or require this search. Buyers should ask their real estate professional if the items found by this search will be covered by their title insurance policy. Those items include property taxes, code violations not yet recorded as liens, unpaid utility balances and special assessments, and open permits which may have fees.

 

How Florida Statutes Chapter 159 Section 17 and Chapter 162 affect title insurance policies

There are two Florida state statutes with which every real estate attorney and title agent working in the state are familiar.

The first, Chapter 159 Section 17 deals with the rights of municipalities to levy liens on properties, all lands or premises, served by any water system, sewer system or gas system for all service charges for such facilities until paid. These liens are “on a parity” with the priority of state, county, and municipal tax liens. If these liens are delinquent for more than 30 days, the governing authority may foreclose in the manner provided by the laws of Florida for the foreclosure of mortgages on real property.

A Florida lien search or Municipal Lien Search is typically required of title agents for purposes of removing or limiting exceptions when issuing title insurance policies. Since Chapter 159 doesn’t specifically provide when the lien for unpaid utilities or assessments attaches, a title agent can’t remove the exception on a loan policy. However, the exception can be limited to charges “which are not yet due and payable” if the title agent obtains the utility and special assessment search which shows no current outstanding charges or all outstanding charges are paid at closing.

Another important statute in Florida real estate transactions is Chapter 162, which states a code lien may be recorded by the local governing authority. Once this lien is recorded, the code enforcement lien attaches to all real property owned by the violator within the county. Many local municipalities have enacted ordinances which give these liens the same priority as tax liens. Of course, any recorded lien in the name of the current owner will be found in the title search, but oftentimes municipalities will not record an ongoing violation that’s accruing daily fines.

While these code liens have the same priority as tax liens, they won’t show up on the property taxes... although one county in Florida is proposing to add code liens to property tax bills. A municipal lien search will show any current violations that may eventually become a lien in the public record. Should the seller own multiple properties in the county, this search will show any potential issues that will also affect those properties.

 

Municipal Lien Searches are part of some standard contracts

Both the NEFAR and FAR/BAR contracts make explicit references to municipal lien searches. It can be found under the Title Evidence/Municipal Lien Search section in the standard contract of the NEFAR and the Title Evidence and Insurance section of the As Is Contract of the FARBAR. These updates were made to reflect the requirement of the Florida lien search in Chapter 159 to appropriately modify the title insurance policy.

While other states’ standard contracts don’t call specifically for a Municipal Lien Search, confirmation of special assessments and utilities and other liens or potential liens imposed by the municipality are listed as requirements. A Municipal Lien Search will show such items like property taxes, special assessments, utility balances and liens, code violations, and open and expired permits. This search is an invaluable tool for title agents and real estate attorneys to assess the property for any potential issues affecting the new owner that won’t be found in the public record search.

Agents and attorneys may do these searches themselves or work with private third-party companies like Proplogix in order to remove or limit exceptions on the title policy. Working with a third-party allows agents and attorneys the time to focus on scaling their operations effectively while ensuring that the information is backed by a guarantee for accuracy.

 

New call-to-action

Property Title Search: How To Find Liens On A House
Educating Real Estate Agents on Municipal Lien Searches

About Author

Amanda Farrell
Amanda Farrell

Amanda Farrell is a digital media strategist at PropLogix. She enjoys being a part of a team that gives peace of mind for consumers while making one of the biggest purchases of their lives. She lives in Sarasota with her bunny, Buster, and enjoys painting, playing guitar and mandolin, and yoga.

Related Posts
Common Ways Real Estate Professionals Get Sued And How To Avoid It
How Elevation Certificates Help Determine Your Property's Flood Risk
What kind of land survey do I need?

Comment