5 Things Residential and Commercial Real Estate Developers and Brokers Should Know About Clearing Up (Quieting) Title
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Oftentimes, residential and commercial real estate developers or brokers may confront title issues that interfere with the ability to sell or close on a property. If the property owner does not have clear, marketable title, it means that there is a “cloud on title.” Since clouds on title interfere with the ability to sell or close on real property, residential and commercial brokers will need to consider effective ways to have the cloud on title removed. In Florida, one effective way to clear-up title is by filing a quiet title action with the court. The lawsuit is based in Florida Statute Chapter 65.
1. What is a Quiet Title Action?
A quiet title action is a lawsuit that is commenced by filing a complaint in the Florida circuit court where the property is located. Quiet title actions are governed by Section 65.061 of the Florida Statutes. It is an equitable action, and thus falls within the jurisdiction of the circuit courts under Section 26.012(2)(c) of the Florida Statutes. Since quiet title actions are equitable actions, property owners cannot generally recover any monetary damages. Price v. Tyler, 890 So. 2d 246, 251 (Fla. 2004) (holding damages are not recoverable in actions to quiet title). The premise of the lawsuit is a plaintiff requesting the judge to determine rights of the parties who may have competing interests in a property. The plaintiff is essentially asking the judge to cut off the rights of those who have clouded title.
Section 65.061(2) of the Florida Statutes identifies three situations in which a property owner can bring a quiet title action:
- when a person or corporation, who is not the rightful owner of the land, has a conveyance or other evidence of title to the property, or asserts any claim, or pretends to have any right or title to the property;
- when any person or corporation, who is the true and equitable owner of the land, but does not have record title because there was a defect in the deed due to the omission of a seal, lack of witnesses, or wording of the acknowledgement; or
- when possession of the property has been held by any person or corporation adverse to the record owner and such adverse possession has ripened into good title.
If any of the above situations occur, property owners can file a complaint with the court to resolve the title dispute, declare the proper owner of the property, and remove the cloud on title. § 65.061(4), Fla. Stat.
2. Who Can Bring a Quiet Title Action?
In order to bring a quiet title action, the property owner must have title to the property. Without title to the property, there is nothing to be quieted. Atlantic Beach Improvement Corp. v. Hall, 197 So. 464, 466 (Fla. 1940).
For example, mortgagees cannot bring a quiet title action. A mortgage is a lien that “transfers no title, right of possession, or interest in land.” Barclay v. Robert C. Malt & Co., 985 So. 2d 53, 55 (Fla. 4th DCA 2008). Therefore, lenders who have a mortgage interest in property, i.e., mortgagees, do not have a right to bring a quiet title action, unless it purchases the property at a foreclosure sale. Likewise, the holder of a nonexclusive easement cannot bring a quiet title action. An easement is an intangible right to make use of the property of another person. A nonexclusive easement does not convey any title to land to the holder of an easement. Gantt v. Riverbend Estates, Inc., 755 So. 2d 817, 818 (Fla. 2d DCA 2000).
To bring a quiet title action, the property owner must prove that it has title to the property in its complaint by deraining title from the original source, or for a period of at least 7 years before filing the complaint. A property owner must also set forth the book and page of the records where any instrument affecting the title was recorded, unless the property owner claims title from a common source with the defendant(s). § 65.061(3), Fla. Stat. Based on this, residential and commercial real estate developers and brokers cannot bring a quiet title action on behalf of the property owner, unless they’ve obtained title to the property. Clarifying the issue for proactively brokers may be pivotal to effectuating the transaction.
Because quiet title actions are concerned with curing or removing defects or clouds on title, lawsuits can be avoided through effective negotiation. It is good form to attempt to obtain quitclaim deeds or releases from known parties who claim to have some adverse or record interests in the property. If a lawsuit is necessary, it is important to name and serve all proper defendants, plead the case adequately and obtain an error free judgment.
3. What Are “Clouds on Title”?
If any person asserts a claim, or pretends to have a right or title to the property, it may cast a cloud on title. § 65.061(2), Fla. Stat. Essentially, if there is any document, claim, unreleased lien, or encumbrance on the property, which creates a defect in the chain of ownership of the property, there is a cloud on title.
Some examples of clouds on title include: mortgage liens, tax liens, construction liens, forged deeds or mortgages, probate issues, foreclosure issues, an error in the legal description of the property, and any rights of third parties. Most clouds on title can be removed by a proper quiet title action, except for federal tax liens and mortgage liens. Mortgage liens, for example, can be removed from title in Florida if a satisfaction notice, cancellation, or release of the mortgage is recorded in the public records. § 701.04, Fla. Stat. §65.801 provides for the quieting of tax titles, and permits the grantee or purchaser to maintain an action to quiet title against the holders of the record title to the property and any other persons or corporations claiming any interest in or any lien or encumbrance on the land before the issuance of the tax deed or before the loss of title to the land in any tax proceeding or foreclosure.
4. Who Must be Named as Defendants?
It is essential for property owners to name all necessary defendants who have a cloud on title in a quiet title action. If a party is not named, he or she will not be bound by any judgment that is adverse to his or her interests. § 65.041, Fla. Stat. Property owners can only name the following defendants in a quiet title action: (1) known defendants for a cloud of a known or an unknown nature; and (2) unknown defendants for a cloud of a known nature. Property owners cannot name unknown defendants for clouds of an unknown nature. Key v. All Persons Claiming Any Estate, etc., Upon Real Prop. Described in Bill of Complaint in Said Cause, 36 So. 2d 366, 369 (1948).
Any lawsuit involving service of process by publication against either known or unknown persons of residence claiming an interest in the property should take into consideration that some of the defendants may be minors or otherwise incompetent, and, if so, the law precludes any valid judgment being entered against those defendants unless the court determines that the defendant is not required to be represented, or a guardian ad litem or attorney ad litem is appointed.
Based on this, it is strongly advised that property owners consult with an experienced attorney to conduct a diligent search and inquiry to find all the defendants necessary for a quiet title action. Failure to name all the necessary defendants may result in having to bring another quiet title action.
5. Can Property Owners Recover Attorneys’ Fees?
The courts in Florida follow the “American Rule,” which provides that attorneys’ fees may only be awarded when authorized by statute or by agreement of the parties. Florida Patient’s Comp. Fund. v. Rowe, 472 So. 2d 1145, 1148 (Fla. 1985). Specifically, Florida courts have stated that attorneys’ fees are not recoverable in a quiet title action, absent an independent statutory or contractual basis. Price, 890 So. at 250. Section 65.061 of the Florida Statutes governs quiet title actions, which does not provide a statutory entitlement to attorneys’ fees. Therefore, unless there is a contract that authorizes the recovery of attorneys’ fees, property owners will be responsible for its own attorneys’ fees in a quiet title action.
If a residential or commercial real estate developer or broker discovers a cloud on title that prevents the property from selling or closing, the property owner may have to have the cloud on title removed. The property owner and those affected by the encumbrance should consult with an experienced attorney to bring a quiet title action.