I purchased a property in Dade County in 2013. The property was on the same parcel as another condominium building. The purchase contract stated this in the additional terms- “Seller, as a condition subsequent to closing, shall remove and sever the subject properties from the condominium regime.” When I recently went to sell the building, the buyers attorney informed me the land was never separated from the condominium with the city. Furthermore the city will not allow the separation as it would not meet their size and setback requirements. The buyer therefor backed out of the sale. After extensive investigation, it was discovered that the sellers attorney executed the separation of the property with the county but not with the city. The city will not issue any permits for work on the property unless it rejoins the condominium association. Rejoining the condominium could trigger them to ask for backpay of 7 years HOA dues. It will also reduce the value of the building as it will be tied to a HOA and have ongoing fees payable. I am trying to decide the best course of action forward. 1. Make a claim with the title insurance company because I feel they never should have issued title insurance on the property to begin with. I am unsure if I can make a valid claim and would value any feedback here. 2. Request the seller and his attorney hire a zoning attorney to battle with the city and obtain a variance to allow the plot to be legalised. 3. Sue the seller alleging they had an intention of fraud. I would argue they were aware the city would not allow the separation due to the size and setbacks, hence they sold the property and said the severance would be done after the sale. I am not sure how much I would try to claim in damages though? I purchased the building for 80k. Funds spent over the years adds up to 40k. The recent contract I had to sell the building was for 150k.

You may have a statute of limitations issue. I would take out the title insurance, contact the title company and let them handle the front end. If they say too much time has passed (it may be limited to 3 years or 6 years depending on the statute) point out to them that the code probably says something like SOL begins "after discovery" and you just discovered it. If they refuse to go any further you contact a real estate attorney in the county that the property exists and have a consult. You will need to take any written agreements you have, the title insurance paperwork, the letter from the county, the letter from the city, the work that the previous attorney did and the closing settlement. In this case I would probably get two different attorneys opinions. You would ask if they think you have a claim. You want to ask what their legal theory is regarding how they would approach the claim. You want to know how much they charge per hour, You ask how long it would take to litigate and what the projected cost would be to go to trial. You have to know "worst case scenario" to help figure out your options. And then you want to know what your chances of winning the case are, ask if he thought the other side would appeal, does he think they would be willing to settle, and does the winning side collect attorney fees. That is the short answer.

The first thing you should do is submit a claim to the title insurance underwriter, not the agent that sold you the policy. Assuming its a Florida Modified 2006 form ALTA policy the place to submit a claim should be found under Conditions 18 of the policy. There may also be an online claims submission web site, try searching the underwriter's name and "claims" to see if you can find it. I would also pull out a copy of your title policy and look at the legal description under Schedule A 4 and see how the property is described. If it says a part of the condominium described in the declaration of condominium for XYZ Condominium as recorded in Official Record Book 1234, Page 5678, Public Records of Miami-Dade County I think there's a good chance there will also be an exception for the Dec of Condo on Schedule B and the underwriter will deny coverage because they insured the property as part of the condo. If those two things are not there, it may be covered. This sounds like it wasn't a run of the mill sale. Were you represented by an attorney at closing? If so I would immediately contact him/her. If the release of the property was a condition of closing I would expect the settlement agent, who probably issued the policy, would have addressed the requirement so I would also contact them and ask how. Along those lines, look at the title commitment that you should have received in advance of the closing and see if there is a Schedule B-1 requirement for the release from the Dec. If its not there I suspect the policy will describe the property as above. If it all goes south you're going to need a good real estate attorney to fix this. I don't know what you paid but the repair probably won't be cheap. If you need a referral I've retained an attorney in South Florida to fix many complex title related problems I'd be happy to refer you to. Good luck.

“Seller, as a condition subsequent to closing, shall remove and sever the subject properties from the condominium regime.”The agreement was to sever post-settlement so I assume you'll find the title policy insures as part of the condo and subject to the declaration etc. and as @Peter Walther suggested, the title claim would be denied on that basis. Without seeing the original agreement nobody can give a reliable answer but based upon the info provided that would seem to leave as defendants (1) the seller and (2) your real estate agent or attorney (if any)... the latter for not researching this and/or leaving severance open as a matter that could actually be handled post-settlement. Regarding who you sue first... the answer is everybody, or you may lose the right to sue someone you should have later.

@Peter Walther The title was not unmarketable -- it was free and clear of competing claims of ownership and free of liens and encumbrances. As I'm sure you're aware since you obviously have experience evaluating and handling title claims, there is a big difference between "unmarketable title" and "economic marketability". The problem here is not that she doesn't own the property, it's that she can't do what she wants with it... which is classic economic marketability, and not covered. So then on to the question was the title defective? You think so. Which of the covered risks in 2(a) do you believe covers the defect? Even if defective this entire situation would have been prevented had either the issue been addressed and resolved prior to settlement, or the contract terminated due to the problem. Accordingly, the problem was created, suffered, assumed or agreed to by the buyer and subject to exclusion. We'll hopefully see how it all pans out! Remember I don't evaluate claims I just try to avoid them.

@Nat Chan - Ideas 1. Offer to sell it to the condo association for a new amenity buildout or something for the same contract price of $150k. See if any of the board members want a project. Maybe you can even owner finance it for them. 2. IT’S WHO YOU KNOW— Dress up super nice and be very humble and/or waterworks sad and call/visit the County clerk, get them on your side, then go call/visit the city mayor, city administrator (often last longer than mayors), and get them to talk to the clerk/severing person for you. If you smile at the right people or get enough concerned citizens outraged then you can usually make injustices disappear. - I had a township change rules so I couldn’t dump construction debris in their free dump (you get 10 trips per year as part of $7000 in property taxes on a 200k home) and I had shown up in a loaded truck with my helper, while 7 months pregnant, and they turned me away. I emailed and called the town administrator and I got a call from an admin that said they’d cleared it and I could go dump my construction debris extra special. The guy at the dump was like they called and said you were special and to make it happen. I’m sorry for turning you away I was just following the new rules. So the lesson learned is to be humble, kind and ask for help. Don’t accept no for an answer. Say, I don’t understand, if the county clerk that records the DEEDS has this separated, it must be separated. What can be done to make the city records system right? The more you’re a squeaky wheel, the more they will want to make you go away. Don’t go away until you get what you need. Kindness and humility and coffee and donuts and cute outfits always help.

Tom, you're correct, I'm aware of the difference between marketability of title and saleability of the property. Marketable title is generally defined as: a title that a court of equity considers to be so free from defect that it will legally force its acceptance by a buyer. If I'm correct, the units were never legally created, therefore, I believe title to them is per se unmarketable. If that's correct then loss related to the defect is insured against by Covered Risk 3, Unmarketable Title. This is not related to the contract's post closing requirement to obtain a release of the property from the condo. I agree, that requirement should have been set up to be accomplished pre-closing, but it wasn't, but that doesn't have anything to do with the validity of title as of Date of Policy. As far as the matter being excluded from coverage, the Court in the Florida decision FIRST AMERICAN TITLE INS. CO. v. KESSLER 452 So.2d 35 (1984) noted: "Assumed" and "agreed to" as used in a title policy have "reference to some particular defect or incumbrance assumed to or agreed to by the [insured] by the title conveyance to it or by some collateral agreement by the [insured] with reference to that specific subject matter." First National Bank of Minneapolis v. Fidelity National Title Insurance Co., 425 F.Supp. 105 (D.Neb. 1977), reversed on other grounds, 572 F.2d 155 (8th Cir.1978). Defenses based on this exclusion "do not necessarily require a finding of actual knowledge of the defects or encumbrances...."7 Lawyers Title Insurance Corp. v. Research Loan & Investment Corp., 361 F.2d 764, 769 (8th Cir.1966). But see Arizona Title Insurance & Trust Co. v. Smith, 21 Ariz.App. 371, 519 P.2d 860, 863 (1974) ("[O]ur policy of construing ambiguities in favor of the insured leads us to require actual knowledge on the part of the insured as to the full extent and amount of the assessment before the exclusion would become operative." "Create" as used in a title insurance policy "refers to a conscious, deliberate causation or an affirmative act which actually results in the adverse claim or defect." Laabs v. Chicago Title Insurance Co., 72 Wis.2d 503, 241 N.W.2d 434, 439 (1976). See Arizona Title Insurance & Trust Co. v. Smith, 21 Ariz.App. 371, 519 P.2d 860 (1974); Feldman v. Urban Commercial, Inc., 87 N.J.Super. 391, 209 A.2d 640 (1965). Cf. Hansen v. Western Title Insurance Co., 220 Cal.App.2d 531, 33 Cal.Rptr. 668 (1963). The term "suffers" as used in a title policy "implies the power to prohibit or prevent the [defect] which has not been exercised although the insured has full knowledge of what is to be done with the intention that it be done." Arizona Title Insurance & Trust Co. v. Smith, 519 P.2d at 863. See Feldman v. Urban Commercial, Inc., 209 A.2d at 648. I don't think it can reasonably be said that Nat met any of those requirements. I'm glad you try to avoid claims. Unfortunately, in my experience too may policy issuing agents believe their job is to close deals no matter what it takes, such as in this case. That's why I'm silently annoyed when I read of people looking for investor friendly title agents. My translation is they're looking for someone who will quickly close a deal no matter what problems may exist of may be created in the process. I felt about 80% of the claims I worked on were created in the insured transaction and the problem was either known by or should have been known by the agent, resulting in an unnecessary concern by the Insured whether they have clear ownership of the property and delay in their sale or refinance of the property.

Nat was good enough to provide me with the property address and with that I ran the chain of title. In 2006 an LLC purchased property legally described as Lots 2 & 3 and the East 75' of 18, Block 40 of a given subdivision. 2 & 3 sit side by side and the part of 18 is adjacent to and South of the other two. Two buildings were on the property, a 32 unit apartment building on 2 & 3 and an out building on the part of 18. In 2008 the LLC recorded a Prospectus for XYZ, A Condominium which includes a statement "THIS CONDOMINIUM WILL (emphasis added) BE CREATED AND THE UNITS SOLD AS FEE SIMPLE INTERESTS". The Prospectus also includes as Exhibits, a Declaration of Condominium, Purchase and Sale Agreement, Operating Budget, Escrow Agreement, Warranty Deed, Rules and Regulations and Frequently Asked Questions and Answers Sheet. Florida Statute 718.104 governs the creation of condos and F.S 718.616 has additional requirements for the conversion of existing occupied improvements to a condominium. F.S 718.104(2) provides that a condominium is created by recording a declaration in the public records. I believe that a declaration has not been recorded, a Prospectus with Exhibits has. In addition, F.S. 718.104(4)(e) provides that the Dec must contain a survey of the land and a graphic description of the improvements. If the construction is not substantially completed there shall be a statement to that effect, and, upon substantial completion of construction, the developer or association shall amend the dec to include the certification. The statute also provides "Completed units (emphasis added) within each substantially completed building in a condominium development may be conveyed to purchasers . . ." The dec attached to the Prospectus includes a survey and a graphic depiction of improvements to be completed. I don't find an amendment recorded that includes a certification of completion and Nat told me there were no interior improvement in the building she purchased. As a side note, in my experience, one of the things a title examiner is supposed to look for when insuring title in a new condo is an as built survey that shows the improvements were completed without which title should not be insured unless with an exception. Moving on, in 2010 the developer entered into an loan agreement with the City where the City would lend money to the developer in return for completion of the improvements and ten of the units being sold to low and very low first time homebuyers. In 2012 the developer sold multiple units in the first building and the three units in the back building to XYZ Liquidation, LLC. In 2013 XYZ conveyed the three reputed units in the back building to Nat and simultaneously the XYZ Condo Association recorded an easement to Nat for ingress and egress over the Association roads. The deed and easement are signed by the same person and prepared by the same attorney. In 2015 a Plan of Partial Termination for the three units in the back building was recorded. There's no sign the Plan was submitted to either the County or the City for comment or approval. Interestingly the Partial Termination is for the units, not the East 75' of Lot 18 where the building sits. Even if the Plan was effective, which I personally doubt, only the units were addressed, not the limited common elements, not the common elements and certainly not the dirt on which it all sits. I believe there is a claim to be made to the title insurance underwriter because the title to the units appear to have been unmarketable at the time the deed was given to Nat for failure to comply with Florida Statutes for the creation of condo units. I would also suggest asking investors who own units in the main building if they are interested in buying the units since they already have an interest in the project. Based on the location and configuration of the Lots and surrounding properties I think its unlikely property could be acquired to address the County and City's concerns for the creation of a new tax parcel.

Who do I sue first?

Nat C.

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Investor · Miami, FL · Member since 2013 · 807 posts · 475 votes

6y

@Brian Van Pelt

The course of action you have outlined is exactly what I am going to undertake.

I appreciate everyone here helping me flesh out the situation and figure out the way forward.

Who do I sue first?

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