State laws can have a huge impact on the way residents are obligated to obey and uphold the law. While federal law does oversee many larger principles and regulations in our lives, many aren’t aware that state law generally has a greater impact on the people who live in a certain state. In Florida, there is much legislation on a variety of topics, including residential real estate, and it impacts these transactions. Florida is considered a lien theory state, and that impacts the mortgage process for residential home buyers.
Mortgages are often thought of as a loan, however, this isn’t actually accurate. Mortgages are an interest in real property that is held by the lender as protection in case the borrower should default on their financial obligation. Who holds the legal title of the property (who actually owns the property) depends on state legislation. In Florida, the borrowers that engage in a mortgage are the legal title holders of that property.
This is because Florida is a state that practices lien theory, as opposed to title theory, that is used in other states. In other states, the lender holds the actual legal title. If a residential real estate owner attempts to sell their Fort Lauderdale property before the mortgage is paid in full, the mortgage lien appear on the title as a cloud. The lender is then entitled to claim some of the proceeds to satisfy the remainder of the loan. This would, thereby, release the lien, which clears the title and allows the sale to go forward.
If you are engaging in a residential real estate transaction, whether as buyer or as a seller, and a cloud shows up on the title, this isn’t to be ignored. While it may just be a part of the legal process to complete the real estate transaction, it could have serious ramifications if the cloud on the title is not cleared up properly. It’s important to dot your i’s and cross your t’s when going through a big contract, like the contract for residential real estate.
Source: FindLaw, “What Is a Mortgage Lien?,” Accessed January 15, 2018