Buying a commercial real estate property is already an expensive process. That said, the last thing you want is to encounter financial losses when the property’s title turns out to be problematic.
Title insurance can help protect you from title issues that might arise after you buy the property. While it is not mandatory, getting title insurance is often a necessary step in commercial transactions, where investments are very substantial.
What is title insurance?
Title insurance is a unique type of policy that safeguards you from financial losses caused by title issues. Unlike other kinds of insurance that protect you from future incidents, title insurance protects you from things that occurred in the past.
These include but are not limited to:
- Undisclosed liens
- Encumbrances
- Ownership disputes
When you buy a property, the owner must transfer the title to you. However, there are situations where the owner’s property ownership is challenged, even if they have the deed.
For example, imagine you purchase a property with a supposedly clean title. Later on, you discover that there’s an undisclosed lien on the property, and someone files a claim against you.
In cases like this, title insurance helps ensure you do not bear the costs of the legal issue. Your policy can cover legal costs to defend against title claims and compensate you for financial losses if the claim is valid.
How does a title search work?
Before you can get title insurance, the title insurance company will conduct a title search. This process involves investigating the ownership of the property and any possible defects, such as falsified documents or unpaid property taxes.
If the title turns out to be “dirty,” the insurance company may resolve these issues. Otherwise, the seller may be obligated to fix the outstanding problems before they can sell. If they refuse to do so, then it may be time to walk away from the deal.
If the title search somehow misses an issue and someone files a claim against you, title insurance will help cover your legal costs.
Protect your investment before signing on the dotted line
Title insurance becomes relevant early in the buying process, usually before making an offer. It might be less expensive to go without, but you could end up paying more if any issues arise later on.
An experienced attorney can guide you through this process and make sure you have legal safeguards the entire way. Investments are risky, but with preparation, due diligence and legal guidance, you can reduce the chances of running into financial setbacks.