01 Feb Why Title Insurance Matters in Commercial Real Estate Transactions
Why Title Insurance Matters in Commercial Real Estate Transactions
Buying real estate is no minor undertaking and the process is often fraught with uncertainty. Every buyer wants to make sure that neither their time nor money is wasted. The risks are even greater for commercial buyers as these types of purchases can make or break the buyer’s business.
As a real estate agent, title Insurance helps to address these types of concerns for your clients. Of course, this does not mean that you won’t encounter buyers who don’t see the value of title insurance. However, nonetheless, it’s important that your clients understand that title insurance helps ensure that their investment is safe from unforeseen title issues.
How does Title Insurance Protect?
In a commercial transaction a title conveys the right to own a particular property. When the seller enters into an agreement to sell commercial property, that person is in essence asserting that the title is good and ready for transfer. However, this is not always the case.
Title Insurance was meant to prevent your client from purchasing property with title issues. But when your client is a company that’s buying property, whoever is authorized to conduct business on the company’s behalf is responsible to the shareholders as the individual that makes sure that the investment is sound, i.e., there are no hidden surprises with the title.
Namely this form of insurance offers a sense of security in knowing that the title is free from encumbrances. Likewise, the owner’s policy protects your client if a title claim was to arise.
The title insurance company handles all of the necessary research and investigative work to ensure that the title is ready for transfer. However, like all forms of insurance, despite the policy provider’s best efforts, sometimes unforeseen problems do crop up – after the transaction has taken place. When this occurs, the buyer is protected by title insurance.
Title claims by third parties can involve long legal battles with mounting legal fees and other financial losses. Title insurance for commercial transactions also includes reimbursement for legal fees and if the court finds for the third party, the escrow and title insurance company is still obligated to compensate your client.
Issues that Title Insurance Is Meant to Avoid
The underlying principle of title insurance is to eliminate the risks associated with purchasing or owning a property. Your client essentially pays the title insurance company to perform the legwork to ensure that the title is clean. This includes conducting public record searches and other documents to guarantee to your commercial buyer that the title is good.
Other risks that title insurance companies look for are:
- Incorrect names or other inaccuracies on title documents
- Outstanding debts or liens against the property
- Existing easements to a public authority or utility company
- Any pending litigation concerning the property
Commercial real estate purchases tend to be larger financial investments and without title insurance, title issues such as the items mentioned above could pose a serious problem. The potential losses could easily outweigh the title insurance premiums. So to better protect your client’s commercial interests, remember to highlight the significance of title insurance.