Title Insurance Guide for Commercial Real Estate
October 24, 2018
Commercial real estate transactions can be incredibly complex, involving months of research and piles of paperwork. (Some legal descriptions alone for commercial property have topped 100 pages!) Add building renovations, zoning changes and multiple owners to the mix and it's not surprising that obtaining clear ownership for commercial property can be challenging. That's where title insurance comes in. Unlike a deed, which is a document that shows proof of ownership, a title is the evidence that you have a right to possess and use the land. Compared to other types of insurance that protect against circumstances that can happen in the future (such as auto insurance), title insurance protects against situations that have happened in the past, like unpaid taxes or liens against the property. Like residential title insurance, commercial title insurance involves two different types of policies: loan policies and owner's policies. Loan title insurance policies are designed to protect the investment of the bank or other lender should any problem with the title later surface. An owner's title insurance policy protects the buyer or owner of the property should title issues arise. Because commercial real estate deals typically involve large amounts of money, complex transactions and complicated title histories, title insurance plays a vital role. It not only protects against title defects, but it also typically covers issues such as boundary mistakes, zoning conflicts and environmental concerns.
How Does Title Insurance Work?
Title insurance can reveal past problems. Every title insurance policy begins with a title search. The search reveals the background story of what has been recorded on the property, such as deeds, mortgages and easements. It would also reveal potential problems that involve the title. For example, the search may show that part of a neighboring building extends on the subject property (encroachment), or that a contractor has filed a lien on the property because they weren't paid in full for work they completed there in the past. If issues do arise during the search, they can be addressed before the closing or sometimes remain on the title as an exception. It also safeguards your investment. Without a title insurance policy, a commercial property investment could be vulnerable to potential issues and claims. For example, if someone does file a claim on a property, even if it's an illegitimate claim, the owner may have to pay for the legal fees required to defend their ownership rights (not to mention the time and headaches associated with handling legal issues). With title insurance, the owner can rely on their title insurance partner to address any title issues that arise.
What Does Title Insurance Typically Cover?
Every policy is different and is based on the property, the needs of the buyer or seller and the terms of the transaction. However, title insurance typically provides protection against loss that may arise from:
- Unknown title defects, such as title fraud, forged, unauthorized or improperly indexed deeds, that prevent the buyer from having clear ownership of the property.
- Unrecorded liens like unpaid taxes, utilities, mortgages and work orders.
- Encroachment issues such as boundary descriptions that are inconsistent with the area being used.
- Incorrect or inadequate legal descriptions along with errors in public records and in official responses relating to title searches and inquiries.
Talk with a Title Insurance Agent
Title insurance agents play an integral part in commercial real estate deals. Being an impartial third party, they ensure the title search is conducted accurately and in a timely manner. Title agents also review all title work, legal descriptions and surveys, responding to comments and objections that could "cloud" a title and delay a closing. All the while, they maintain strong relationships with clients, municipalities, surveyors, underwriters and outside agencies to streamline the closing process. If you have questions about the title process, reach out to Amrock for answers. We'll help you navigate the title and escrow world and become a partner in your commercial real estate transactions. Whether your commercial real estate transaction is single-site, multi-site or even multi-state, the Amrock Commercial team can answer your questions and streamline the process. From Amrock, you'll get the personal attention and individualized service you deserve with the local connection you need. Connect with our Commercial team today!