So, you did everything you were supposed to do: you found a commercial building that met your business requirements and investment criteria, applied for a commercial real estate loan and provided all the documents required by your lender. After about two weeks, you received the much-expected “clear to close,” and your lawyer notified the seller that your loan had been approved. But just before the closing day, your lender informed you that your loan had been denied due to some title-related problems.
I know it’s not fair, but it could have been much worse. After all, the only serious inconvenience is that you need to find another piece of commercial real estate. But what would have happened if you had decided not to perform a title search and purchased the property with cash? If any title faults had been discovered later, you would have needed to clear up the problems at your own cost in order to have a marketable title to that piece of property.
The preliminary conclusion is that purchasing title insurance as part of a commercial real estate transaction can help you avoid a financial nightmare later on. Even if title-related problems are discovered, your insurer will take care of them on your behalf.
Then why do so many business professionals consider title insurance a waste of money?
Though a lender’s policy is a fundamental requirement of commercial real estate loans, I also strongly recommend that you purchase an owner’s policy for some simple reasons.
First, numerous errors can occur when examining and drafting documents for a commercial real estate transaction. Ownership changes, property encumbrances, liens, restrictions, judgments, death, fraud, forgery, missing heirs, omissions and errors can lead to many title problems that may or may not be discovered during the title search. Since no insurer can guarantee a perfect title, purchasing an owner’s title insurance policy is the only way to safeguard your investment against unexpected title defects that may be discovered after you become the legal owner of the property.
Second, an owner’s title policy for commercial real estate insures your interest in the property, guaranteeing that any confusion relating to your rights of ownership will be resolved in your favor. The title insurance company is also obligated to reimburse you for any financial losses resulting from unknown or undiscovered title problems, up to the limit of your policy.
Third, both title insurance policies only involve a one-time premium. This means that for several hundred or thousand dollars, you’re insured against a wide variety of problems. You can also opt for extended coverage that, in addition to standard coverage items, offers protection from claims relating to off-record title problems, such as incorrect appraisals, zoning bylaw violations, adverse possession and property value increase.
One last thought: familiarizing yourself with title insurance regulations and levels of coverage before investing your money in a piece of commercial real estate is extremely important, particularly as the real estate climate has changed dramatically over the past few years.
These days, many lawyers, lenders, real estate agents and business professionals rely on Guardian Title & Trust, Inc., to safeguard their own and their clients’ investments. As a reputable, ALTA-certified title insurer, we provide a complex, safe and lucrative mix of title insurance, escrow and real estate closing solutions for a broad portfolio of commercial and residential properties. To get in touch with our title insurance specialists, we invite you to call (904)-992-1162 or email firstname.lastname@example.org.