The Fundamentals of Commercial Title Insurance
Commercial title insurance is a specialized type of insurance policy designed to protect against potential losses or legal issues related to the title of a commercial property. Put simply, it’s evidence that the owner has the right to possess and use the land. This Comprehensive Guide to Commercial Title Insurance can help you along the way.
There are two different types of commercial policies: one to protect the investment of the lender and the other to protect the buyer or owner of the property. Generally speaking, these policies cover:
- Title defects
- Liens
- Encroachments
- Legal descriptions
- And more
These transactions involve complicated issues with title and a significant amount of due diligence between buyers, sellers, lenders, real estate brokers and attorneys and other related commercial professionals.
The Commercial Title Search Process
Before issuing an insurance policy, the title insurance company will perform a title search. This is a deep dive into public records and legal documentation surrounding all title transfers of the commercial property. Documents examined include deeds, mortgages, court judgments, and tax records.
Since it’s not unusual for a commercial investment property to be more than 20 years old, it may have had several owners and been subject to zoning changes and multiple mortgages and/or renovations. That’s why a comprehensive and exhaustive title search conducted by an experienced, professional title company is a must.
When the title search is complete, the insurance company will issue a title commitment outlining all potential issues with the chain of ownership and legal claim to the property. Title issues will be shown as requirements that must be addressed prior to closing or listed as a title exception or as a title defect. Once the title commitment requirements are satisfied, the transaction’s closing process can begin.
Common Issues in Clearing Commercial Real Estate Title
Several common issues affecting property ownership rights can be uncovered during a commercial title search. These encumbrances, or claims against a property made by a party who is not the property owner, must be addressed to ensure a clear title. Some of the most frequent problems found in title reports include:
- Liens – Legal claims against a piece of property recorded with the local county, giving the lienholder a legal interest in the property. Liens commonly arise from commercial loans, unpaid taxes, municipal bills, court judgments, or mechanics liens which are recorded for non-payment of contractors or supplies.
- Zoning Restrictions and Violations – Infringements on use restrictions local governments establish to control land use. For example, a commercial property partially developed in a residential zone.
- Easements and Right-of-Way Disputes – Which result from another party using or accessing part of a property for specific purposes, such as utilities or shared driveways, or over who owns the land on a right-of-way.
- Boundary Disputes – Uncertainties about the exact property lines, often arising from conflicting property descriptions or encroachments on neighboring land.
- Errors in Public Records – Mistakes in official property documents, such as incorrect ownership information or missing details, which can create title issues.
- Seller Fraud – Fraudsters are impersonating property owners to illegally sell commercial or residential property.
Procedures for resolving title defects include proving ownership, addressing missing documents, obtaining consent and certificates, dealing with restrictive covenants, clearing liens and reviewing a survey of the property.
The work that is done before closing serves as a safeguard and minimizes legal fees and other costs associated with resolving title issues before they become claims.
Working with a trusted title company and real estate attorney can ensure success in navigating complex title problems. These professionals can negotiate settlements, address legal disputes, and pave the way to closing.
Finalizing the Commercial Closing Process
Once the due diligence process has been completed and the title deemed clear, the collection of closing documents plays a major role in the transfer of ownership and finalizing the deal. The title company’s closing agent, working in tandem with all parties involved in finalizing the commercial transaction, is committed to ensuring a smooth and successful closing.
Commercial transactions typically use a customized PA (purchase agreement), as opposed to a standardized sales contract. In addition, commercial closing may require:
- An ALTA survey
- ALTA title endorsements
- Assignment and assumption of leases document
- Rent rolls
- UCC filing
- Land and business appraisals
- Environmental assessments
- Property condition assessments
- Zoning reports
- Operating agreements
- Good Standing Certificates
- Resolutions
- Payoff letters
- And more
It’s important to note that due diligence in commercial real estate shouldn’t end at the closing table. There are several steps you can take to protect your investment and mitigate commercial title risks for years to come. These include conducting regular title reviews and updates when necessary, along with maintaining accurate, up-to-date records.
Vanguard Title Is Your Partner for Commercial Closings
As you can see, commercial title insurance is the safety net that ensures your property rights and financial assets are secure. Vanguard Title understands the complexities of commercial title insurance and has successfully closed thousands of transactions — working with principals, commercial real estate lenders and brokers, investors, attorneys, law firms, asset managers, builders and developers.
Vanguard has the expertise to prevent unforeseen problems and make any transaction work. The company is uniquely poised to handle commercial closings due to its dedicated commercial division and its in-house legal counsel, enabling it to evaluate risk and give practical solutions for closing. Plus, Vanguard’s foundational partnerships with the nation’s largest underwriters provide pricing and insurability options.
What’s more, the commercial team at Vanguard draws on its diverse background and experience with both commercial and residential title insurance to better understand and service its customer base. Together with its passion for customer service, Vanguard is able to see each transaction from the perspectives of all parties involved.
Whether you’re just entering the commercial real estate market or are looking to expand your growing portfolio, you can rely on Vanguard to help you confidently close on your commercial transactions.
Guide to Common Commercial Title Terms
FOR MORE INFORMATION ABOUT OUR COMMERCIAL SERVICES, CALL (248) 751-1000.