Who do I sue first?

Buying & Selling Real Estate
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Who do I sue first?

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

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.

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Peter Walther
Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
6y

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. 

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  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    6y

    @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.

    Gimer Law516 Reviews
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  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    6y

    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.

    2Reply
  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    6y

    @Peter Walther Thanks for the analysis. It appears you and I are the last ones talking about this one! 

    Fyi you can't cite Nebraska cases (or Arizona, California, New Jersey, etc.) as authority when a case will be governed by Florida law. Well, maybe you can but the court will ignore you and you'll lose, as you aren't citing precedent. 

    I just looked it up and the definition of marketable title in Florida is different than you provided. In Florida it seems marketable title is "a title that must be such as to make it reasonably certain that it will not be called in question in the future so as to subject the purchaser to the hazard of litigation with reference thereto and must be free from reasonable doubt as to any question of fact or law necessary to sustain its validity."

    There are no clouds on Nat's title -- nobody else claims an interest in her land. Alternatively, if there is a cloud, she created it in closing before the defect was removed. Although perhaps worth less than expected, the title is marketable. Will look forward to future updates!

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  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    6y

    I guess we just wore them out so this is my last word on the subject.

    The quote was from the Florida decision so the Court, not me, was looking to the other states for direction, not precedent.

    I wrote that generally that's the definition of marketability, the Definitions section of the Conditions of the 2006 ALTA Florida modified Owner's Title policy provides:

    (k) "Unmarketable Title": Title affected by an alleged or apparent (emphasis added) matter that would permit a prospective purchaser or lessee of the Title or lender on the Title to be released from the obligation to purchase, lease, or lend if there is a contractual condition requiring the delivery of marketable title.

    I believe Nat's title meets that definition.

    I agree there's no cloud on her title because I believe she may not have title to have a cloud on if her units were not legally created.  Therefore her "title" to them would not be marketable under the policy definition.

    0Reply
  • Doug McVinuaPro Member
    Property Manager · Queen Creek, AZ · Member since 2016 · 608 posts · 426 votes
    6y

    @Nat C. This is an interesting thread, what seems to be missing is the politics? You mention this is a well-known developer etc. Well known developers have connections and make things happen that are often thought impossible.

    We won a battle with the City a few years ago that ended up at the City Council regarding a variance and it was very much who you knew and what they wanted. Yes, all the "legal stuff" was public but all the real maneuvering went on behind the scenes and it was political, very political. In fact, I was called an hour before the Council meeting by the attorney and informed the variance was pulled from the calendar because the attorney found out we had the votes needed to defeat it.

    I suspect you are fighting forces within the City that you don't understand. Find someone local, maybe it's another adjoining property owner with concerns and look for solutions. Did you mention someone was doing surveys of the land? Why and what are they planning?

    Yes, I get all this legal talk but I suspect there is more to this story...Maybe someone wants your building to add to the rest?

    Find someone connected and find a solution to the problem!

    [email protected]602-751-7577
    0Reply
  • Nat C.
    OP
    Investor · Miami, FL · Member since 2013 · 807 posts · 475 votes
    6y

    @Peter Walther and @Tom Gimer, I didn't see the recent posts until now. It's certainly a fascinating subject and enthralling to read as you both debate the issue. I just wish I wasn't the stooge in the middle of it!

    I will assemble and lodge a claim with Old Republic Title next week. Like with any insurance company, I am anticipating their refusal but it will be interesting to see their response nevertheless. I will certainly update the thread. 

    Thanks again, guys!

    0Reply
  • Nat C.
    OP
    Investor · Miami, FL · Member since 2013 · 807 posts · 475 votes
    6y
    Originally posted by @Doug McVinua:

    @Nat C. This is an interesting thread, what seems to be missing is the politics? You mention this is a well-known developer etc. Well known developers have connections and make things happen that are often thought impossible.

    We won a battle with the City a few years ago that ended up at the City Council regarding a variance and it was very much who you knew and what they wanted. Yes, all the "legal stuff" was public but all the real maneuvering went on behind the scenes and it was political, very political. In fact, I was called an hour before the Council meeting by the attorney and informed the variance was pulled from the calendar because the attorney found out we had the votes needed to defeat it.

    I suspect you are fighting forces within the City that you don't understand. Find someone local, maybe it's another adjoining property owner with concerns and look for solutions. Did you mention someone was doing surveys of the land? Why and what are they planning?

    Yes, I get all this legal talk but I suspect there is more to this story...Maybe someone wants your building to add to the rest?

    Find someone connected and find a solution to the problem!

     Agreed and agreed. Unfortunately, I'm not inside the US presently, which makes actionable pursuit of this matter arduous. 

    You are not the first person to ask if there is more to the story. There was a broker who spent a lot of time trying to discuss the property with the city attorney and he said he became very suspicious that the city had some interest in the property, due to their non-willingness to resolve issues. I truly can't imagine what interest the city would have in my big, ugly building though. 

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  • Doug McVinuaPro Member
    Property Manager · Queen Creek, AZ · Member since 2016 · 608 posts · 426 votes
    6y

    @Nat C. I doubt the City has an interest in your building other than seeing something done with it. They are likely frustrated with its current state and desire change. You are likely experiencing pushback because someone else has an idea that has been floated and is being worked on without you, the political undercurrent is at work.

    Find a local zoning attorney that is very active that doesn't represent the developer. You will have to dig through City zoning hearings/records etc to find someone that knows how to navigate this process and the local system including the politics. You don't want to hire anyone that works with the developer as that will just be a money pit.

    [email protected]602-751-7577
    0Reply
  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    6y

    I've already tossed out the copies of the docs from the chain of title I printed out, but I believe the City lent/granted the original developer $300k on a 2nd mtg as an incentive to sell 10 of the completed units to low income purchasers.  I also seem to recall the mtg was extinguished by a foreclosure of the 1st mtg so I'd guess the City wasn't very happy with the original developer.

    0Reply
  • Nat C.
    OP
    Investor · Miami, FL · Member since 2013 · 807 posts · 475 votes
    6y
    Originally posted by @Peter Walther:

    I've already tossed out the copies of the docs from the chain of title I printed out, but I believe the City lent/granted the original developer $300k on a 2nd mtg as an incentive to sell 10 of the completed units to low income purchasers.  I also seem to recall the mtg was extinguished by a foreclosure of the 1st mtg so I'd guess the City wasn't very happy with the original developer.

    You are suggesting the city is annoyed with the original developer who came many years before I arrived on the scene; so now they are passing the grudge onto me and my back house?

    0Reply
  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    6y

    Pure speculation on my part

    0Reply
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