Not infrequently in the context of a purchase and sale transaction, the title search may reveal a defect in title. Most real estate contracts define a defect in title as a matter which renders title “unmarketable”. Subject to specific exceptions and qualifications in a real estate contract, generally, a marketable title is one that must be such “as to make it reasonably certain that [title] will not be called into question in the future so as to subject the purchaser to the hazard of litigation.” See e.g., Henley v. MacDonald, 971 So. 2d 998 (Fla. 4DCA 2008). Examples of defects in title are the failure of a predecessor in title to sign a deed or the failure to obtain condominium association approval, when approval is required.
If the buyer’s examination of title discloses a defect in title, the buyer is usually obligated to notify the seller of the title defect within a certain time period to give the seller an opportunity to cure the defect (cure provisions are strictly contract requirements and vary from contract to contract). In a typical real estate contract, after the buyer gives timely written notice of the title defect to seller, there are certain obligations imposed upon the seller to cure the defect and to do so within a stated time period.
In D&E Real Estate, LLC v. Vitto, 43 Fla. L. Weekly D2654 (Fla. 3DCA 11/29/18), the Contract contained an initial period of 30 days for seller to cure the title defect (“Cure Period”). It further provided:
“If Seller is unable to cure defects within Cure Period, then Buyer may, within 5 days after expiration of Cure Period, deliver written notice to Seller: (a) extending Cure Period for a specified period not to exceed 120 days within which Seller shall continue to use reasonable diligent effort to remove or cure the defects (“Extended Cure Period”); or (b) electing to accept title with existing defects and close this Contract on Closing Date….; or (c) electing to terminate this Contract and receive a full refund of the Deposit, thereby releasing Buyer and Seller from all further obligations under this Contract. If after reasonable diligent effort, Seller is unable to timely cure defects, and Buyer does not waive the defects, this Contract shall terminate, and Buyer shall receive a refund of the Deposit, thereby releasing Buyer and Seller from all further obligations under this Contract.”
In this Case, the Court had the opportunity to rule upon two issues which commonly arise when there is a defect in title. The first is if the buyer fails to timely notify seller in the manner required by the Contract that buyer has elected to extend the Cure Period, is the Cure Period extended?; and second, if the Cure Period is extended, how does the seller satisfy its “reasonable diligent effort” contract obligation to cure or remove the defects in title?
With respect to the first issue, the Buyer had timely notified the Seller in writing that there was a title defect. However, the Seller was not able to cure the title defect within the initial 30 day Cure Period. Thereafter, the Buyer did not timely notify the Seller that it had elected to extend the Cure Period in the manner required by the contract, leading the Seller to argue that it was under no obligation to cure title after the Cure Period expired, and that in fact it was entitled to terminate the Contract. The Court found that the Buyer did not timely notify the Seller, in writing, to extend the Cure Period, however, it concluded that the Seller was estopped to declare the Contract was terminated because of the Seller’s inconsistent post-Cure Period conduct upon which the Buyer relied. The testimony at trial was that after the Cure Period had expired, the Seller, instead of declaring the Contract had terminated, continued to make some effort to cure or remedy the title defect. The Seller also received numerous post-Cure Period email communications from the Buyer’s attorney requesting the Seller to render title marketable and inquiring about the status of the results of Seller’s efforts. Despite the Buyer’s failure to extend the Cure period in the manner required by the Contract, at no time after the initial Cure Period expired did the Seller notify the Buyer that the Contract had been terminated. The trial court found the Seller’s failure to communicate termination of the Contract to Buyer misled the Buyer into believing that the Seller was in fact attempting to render title marketable.
Having determined that the Seller was under the obligation to use reasonable diligent efforts to render title marketable after the initial Cure Period had expired, the Court next had to decide whether the Seller met its diligent efforts obligation. The Court stated that whether a seller exercises reasonable diligent efforts in rending title marketable is nearly always a mixed question of law and fact. The trial court concluded the Seller did not exercise reasonable diligent efforts to clear title because the Seller did nothing more during the “Extended” Cure Period except to file a motion to dismiss the pending bankruptcy case (the pending bankruptcy case was the reason title was unmarketable). In addition to filing the motion to dismiss, the Court stated that the Seller should have asked the bankruptcy court for relief from the automatic stay, which the bankruptcy court invited the Seller to seek, and have sought an expedited hearing on its motion to dismiss. The Third District Court of Appeal affirmed the trial court’s findings of fact and law that Seller’s efforts to cure title were unreasonable, and it was not entitled to cancel the Contract, and moreover, that Seller had breached the Contract because of its failure to exercise reasonable diligent efforts. The Buyer had the right to obtain, and the Appellate Court affirmed the trial court’s order granting, specific performance of the Contract.
Notably, there was no discussion in the opinion about whether the Contract contained an integration, anti-waiver, or no oral modification clause, and if it did, whether Seller argued to the trial court that the doctrine of estoppel is an insufficient claim or defense as a matter of law. As posted in the Case Law Update Article below entitled: “Lessons Re-learned; Get It In writing!”, in 2013, the Florida Supreme Court held that the doctrine of promissory estoppel is not a valid exception to the statute of frauds and held that the seller’s oral promise to extend the contract due diligence period is not enforceable when the contract contains a clause which prohibits an oral modification. The D & E Real Estate decision was not appealed to the Florida Supreme Court ending review of the decision for now.
From a practice pointer standpoint, when a real estate contract requires notice be given to the other party, notice should be sent within the time period and in the precise manner stated in the contract. And even if the contract contains anti-waiver, integration, or no oral modification clauses, a party to the contract should promptly assert its rights, respond to emails, and communicate clearly, and obtain a written modification of the contract if necessary, to avoid a later argument that the party’s conduct misled the other party about the status of and rights under the contract. What we’ve got here in this case is a failure to communicate.
