"Secret Lien" On Farm Purchase Ruins Buyers' Retirement Plans

In Dixie County, Florida, The Gainseville Sun reports the story of how the purchase of a 70-acre farm that, unbeknownst to the buyer, contained a "secret lien"(1) that was owed by the seller and that was missed by the company doing the title search, screwed up the retirement plans of the unwitting purchasers. The secret lien, coupled with the buyers' lack of understanding that their title insurance policy obtained when they bought the property requires the insurance company to defend the title against such a claim, and foot the legal bills associated with the defense, led to a 3-year ordeal that left them with lawyer expenses "way up in the six digits" incurred in defending the title to the land and a missed opportunity to develop the property during the real estate boom of a couple of years ago.(2)

For the story, see Couple's legal battle over farm finally settled (The three-year ordeal has left the Old Town couple saddled with legal fees).

For the associated Florida appellate court ruling referenced in the story, see Orix Fin. Servs. v. MacLeod, 977 So. 2d 658 (1st DCA 2008) (which ruled that the buyers' remedy for the screw up, if any, will lie against the title insurer or abstractor or against the clerk of the circuit court itself).

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(1) According to the story, the "secret lien" arose as a result of a judgment creditor’s proper recordation of a lien followed by a screw up in the county recorder's office whereby the clerk failed to properly index (ie. alphabetize) the lien on its records, which explained why the title company missed it when searching the public records for liens and other encumbrances on the property. The Dixie County Clerk of the Court ultimately agreed to pay the judgment creditor $200,000, the state's cap on suits against a government entity, on account of the screw up (although the clerk's attorney was quoted as saying that the settlement was not an admission of liability, but was in the best interests of all parties), the story reports.

(2) Unexplained in this story is why the buyers hired an attorney to defend the title to the property through litigation (and who ran up considerable fees throughout the legal process), and why the attorney failed to inform his clients at the outset that they should simply file a claim with their title insurance company. Under the standard title insurance policy in Florida and other states, the insurance company is required not only to indemnify a property owner for losses resulting from claims against title (up to the dollar amount of the policy), but to supply and pay for the legal defense against adverse title claims when they manifest themselves. title insurance legal issues