If you’ve closed on a home purchase, you know you’re confronted with a blizzard of approvals, waivers and fees. You can be forgiven for shrugging off at least a few of these as “mere technicalities.”
But in commercial real estate, title insurance definitely matters. Understanding it may help save a business considerable time and money in the long run.
What is title insurance?
Companies that provide title insurance promise to make the purchaser whole in case the title, or legal ownership giving the right to use the property, turns out to have problems.
One problem may be that the seller’s title is bound by a covenant requiring the property to be offered to somebody else first, such as a neighbor or municipality. Or a lien may be on the property to force payment of child support or income tax. Possible title defects are countless.
Title insurers compensate you (and your lender) against losses due to such problems and assume the cost of seeking legal remedies.
Commercial real estate titles require advanced skills
By federal law, the purchaser has a right to choose your their insurer. Because insurers often insure the same property as it changes hands repeatedly, they may offer you a discount for bringing a new property to them. Also, the buyer often pays the insurance for themselves and the lender, and if the buyer and lender are using the same insurer, your overall price may be better.
Although some purchasers attempt their own title research, few experts would advise it. Commercial real estate can be enmeshed in complex financial and legal histories long before you see it, and commercial property purchases sometimes involve multiple sites in separate jurisdictions.
A more common and trustworthy approach is to have an attorney research the title history.
But some attorneys are risk averse enough to advise against a transaction while an insurance company may evaluate, reduce and take on that risk for you. Title policies from insurance companies also often protect your purchase indefinitely into the future, even if title problems emerge long after purchase.
Purchasing commercial real estate is typically a complex legal process and experienced real estate attorney is important from start to finish. For example, they can help you choose an insurer and will be essential if a claim is made against the title.