I am often asked, why should I get title insurance? Commercial title insurance is protection which assures that the rights and interests to property are as expected, that the transfer of ownership is smoothly completed and that the new owner receives protection from future claims against the property. Commercial title insurance protects marketability of the property and is the most effective, most accepted and least expensive way to protect property ownership rights.
Because land endures over generations, many people and entities may develop rights and claims to a particular property. These interests may limit the title of any buyer and title insurance helps protect the buyer against unknown claims. The question is simply, should I get title insurance
Without title insurance lenders would be loath to risk large amounts of capital on complicated transactions and buyers would be more hesitant to purchase property from strangers. Hidden risks – those matters, rights or claims that are not shown by the public records and are therefore not discoverable by a search and examination of those records – threaten title to the property and could cause complete loss. Matters such as forgery, incompetency or incapacity of the parties, fraudulent impersonation, and unknown errors in the records are examples of hidden risks which could provide a basis for a claim after the property has been purchased.
Title insurance isn’t just for the buyer. Subdividers need it when planning a new tract of homes or a commercial strip center. Attorneys use it for clients who are investing in shopping centers, hotels, office buildings and countless other commercial real estate projects. Builders need it in order to obtain construction loans from their lender. Everyone wants to have peace of mind when investing their money, time and energy.
For the lender, a title policy is a guarantee that it has a valid and enforceable lien (loan or deed of trust) secured by the property, that no one else other than those listed on the policy has a prior claim or loan and that the party to whom they are making the loan owns the property being used as security for the loan. This protection remains in effect as long as the loan remains unpaid.
The existence of a lender’s title policy encourages lenders to loan money and reduces their risk. The title company insures that title to the property is marketable in the event of foreclosure and the guarantee is backed by the integrity and solvency of the title company.
Before issuing a policy of title insurance on a commercial real estate transaction, the title company must review the numerous public records concerning the property being sold or financed. The purpose of this title search is to identify and cure defects before the new owner takes title or the lender loans money.
The title company's research helps determine if there are any rights or claims that may have an impact upon the title such as unpaid taxes, unsatisfied mortgages, judgments, tax liens against current or past owners, easements, restrictions and court actions. These recorded defects, liens and encumbrances are reported in a “preliminary report” to applicable parties. Once reported, these matters can be accepted, resolved or extinguished prior to the closing of the transaction. In addition, title insurance protects against any recorded defects, liens or encumbrances upon the title that are undisclosed and which are within the coverage of the particular policy issued in the transaction.
Other types of casualty insurance cover against future loss due to the occurrence of some future event. Title insurance is a unique form of insurance that provides coverage for future claims or loss due to some event in the past that causes a title defect. Another difference is that most other types of insurance companies charge ongoing fees (premiums) for continued coverage. With title insurance, the one-time premium is all you – or your heirs – will ever pay as long as you have an interest in the covered property. There are no annual payments. If you sell your property, giving warranties of title to your buyer, your coverage continues. Considering title insurance could last a lifetime, the cost of title insurance is reasonable and worth an additional closing fee.
If a claim is made against the owner or lender, the title insurance company protects the insured by:
Each policy is a contract of “indemnity.” It agrees to assume the responsibility for legal defense of title for any defect covered under the policy’s terms and to reimburse for actual financial losses up to the policy limits.
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