Commercial real estate transactions are considerably different from residential transactions. Most notably, the sum of money being exchanged is much larger. For this reason, lenders must know they are well protected before they provide a loan for a buyer. Commercial land title insurance is a great way to mitigate financial risk for the buyer and the lender during a commercial land transaction.
In this review, we discuss what you need to know about commercial land title insurance including how it is defined, how it works, what is included and how to obtain a policy.
What is Commercial Land Title Insurance?
Commercial land title insurance, or simply commercial title insurance, is an insurance policy that protects mortgage lenders, owners and purchasers from defects in a title for commercial real estate. There are two primary types of commercial land title insurance policies:
- A lender’s policy – This protects the lender from issues with the commercial property’s title. This policy is required for commercial real estate transactions that involve borrowing funds to complete the transaction. It remains in effect for the duration of the loan and terminates upon payoff to the lender. This policy does not protect the property owner (buyer).
- An owner’s policy – This protects the property owner (the buyer) if issues are found with the property’s title during closing or after the sale. Contrary to a lender’s policy, this policy provides the owner with protection for the lifetime of their ownership of the property. An owner’s policy is not a requirement, but it is strongly recommended to limit financial risk long-term and help ensure a smooth closing process.
What is The Benefit of Commercial Land Title Insurance for The Policyholder?
Commercial land transactions come at a greater risk as there is more money involved. The primary benefit of commercial land title insurance is that it protects the policyholder from financial costs associated with title issues. For example, if the ownership of the property is challenged, the title insurance covers the costs to defend ownership.
Additionally, title insurance acquired during a transaction ensures that any issues are detected before the buyer completes the purchase. This ensures they are not responsible for any issues that occurred before they took ownership of the commercial land.
How Does Commercial Land Title Insurance Work?
Commercial land title insurance providers detect and seek to eliminate title concerns before the purchase occurs, protecting the buyer and lender from costs associated with title concerns discovered later. Specifically, the title company conducts an extensive title search to uncover possible liens, encroachments, etc. If issues are detected, they work to ensure they are cleared before purchase.
Title insurance policies are purchased in a lump sum before or during the closing process; there are no continuing payments to be made. For a lender’s policy, it lasts the entirety of the loan.
For an owner’s policy, it lasts for as long as the policyholder owns the commercial property, providing the policyholder with continued protection after the purchase. Even if the claim is found to be not legitimate, the associated legal costs are covered by the title insurance provider.
What Does Commercial Land Title Insurance Cover?
Every policy should be personalized; every policyholder has unique needs, and there is no cookie-cutter, one size fits all solution when it comes to commercial land title insurance. However, there are common protections most policies provide. These protections include:
- Unrecorded liens – These are debts placed upon a property that may or may not appear in public records. An unrecorded lien could be related to unpaid taxes, mortgages, work performed and utilities.
- Title defects – This could include deeds that are forged or unauthorized. Title frauds are a more common form of a title defect that may be detected during a commercial title search.
- Inaccurate legal descriptions – Errors in public records could impact the sales process and lead to concerns after the sale is complete. Incomplete legal descriptions are equally of concern.
- Encroachment concerns – This occurs when the commercial property owner goes beyond their property and onto their neighbor’s land. For instance, if the previous owner built a storage facility that encroaches on their neighbor’s property, then it could lead to encroachment issues with the commercial title.
How Can I Obtain Commercial Land Title Insurance?
A commercial land title insurance policy can be purchased through a title company of your choice. Ideally, you should choose a company that has experience with commercial land transactions in your area.
This will ensure familiarity with recent or recurring issues with that area, as well as local laws and ordinances that may be applicable to the property being purchased. Keep in mind, the buyer and the seller may need to agree upon the title insurance provider before closing, particularly if the company will also serve as the escrow agent.
Contact Mathis Title Company Today to Get Started
The experienced team at Mathis Title Company provides a variety of settlement services including title insurance, to a wide range of the Northern Virginia areas. To discuss the specific needs for your policy and receive a quote, contact Mathis Title Company today by calling 703.214.4020 or contacting us online.