Title insurance is a required part of the transaction when you are buying commercial real estate. It protects both you, the buyer, and your lenders against any problems with commercial real estate titles. There is always a degree of risk present when buying any type of property; however, this risk is considerably higher when dealing with more expensive business properties.
This is why commercial real estate brokers who are guiding their clients through the purchase process will assist them in obtaining the necessary title insurance.
What Is Title Insurance?
In the most basic of terms, title insurance is an insurance policy that protects anyone who is buying commercial real estate as well as lenders against any ownership challenges made on the property. It gives protection to those who hold interest in the property in the event the title is not free and clear, which it is presumed to be for the sales transaction to be completed.
Why Do I Need Title Insurance?
The main reason why buyers are required to purchase title insurance before commercial real estate brokers can complete the sale of any property is because of the inherent risk that a title may not be free and clear. This is a particular risk when dealing with commercial real estate, which frequently goes through many hands over the years and is financed over and over again by different lenders.
Even though a title company will perform a title search before the transaction is finalized to determine if the title is free and clear and the property can be sold, there is still a certain risk present. Mistakes can be made and lienholders of commercial real estate may surface after the fact, challenging ownership of the property.
Title insurance offers financial protection in the event of disputes. It will fund legal proceedings if necessary and cover the financial interests of the investors should ownership be declared to belong to someone else.
Two Types of Title Insurance
When buying commercial real estate, you may be required to purchase two different types of title insurance. One policy is called a loan policy and protects the interest of the lender who is financing your purchase. The other type is an owner’s policy that protects your interest in the event that problems with the title arise in the future.
Commercial real estate brokers will know during the negotiation process whether you must purchase both policies to satisfy your lender or if an owner’s policy is sufficient.
You may also be required to purchase additional endorsements to the title insurance policy that protect against things like zoning issues, errors in the marked property boundaries, and other concerns that could affect your ownership of the property or its worth.
Although this does mean an added expense when buying commercial real estate, title insurance is considered a necessity like regular property insurance. Title insurance simply protects your commercial real estate investment in a different way. Commercial real estate brokers can advise you about this once you find a property you would like to purchase!