VAULT Commercial

The right to own a piece of real estate is referred to as "title." Deeds transfer ownership between buyers and sellers. However, unlike title to other assets, such as automobiles, real estate title is not determined by a single document. Rather, when real estate is financed, purchased, or sold, a record of that event is filed in public record. Other events that affect the ownership of a property, such as liens or levies, are also filed in public record. Together, this is known as the “chain of title.” Undiscovered defects in the chain of title can lead to a variety of problems, including the total loss of ownership of a property.

Although most insurance products are designed to protect you against a problem in the future, title insurance protects against something that may have happened in the past. When you buy title insurance, a title insurance company compiles the chain of title by searching public records to determine exactly who has an interest in a property. It is a detailed and complex process where every effort is made to ensure that all transfers, easements, liens, or encumbrances are known. However, even the most skilled professionals may not find everything that could cause an issue. Some issues or defects, such as those due to fraud, forgeries, undisclosed heirs, or filing errors, are difficult to identify. Title insurance protects against losses stemming from undiscovered title defects.

Title insurance companies typically offer two types of polices – lender policies and owner policies. When financing a property, lenders will require a loan policy to protect their interests until the loan is paid off or refinanced. An owner’s policy will protect your ownership rights to the real estate and will last as long as you own the property.

Although title insurance is sometimes looked at as a formality in residential real estate transactions, it is an essential component of both the due diligence and closing phases in commercial real estate transactions. Commercial transactions are often complex and involve large sums of money. Some commercial properties have legal descriptions that are comprised of dozens of pages and include building renovations, zoning changes, and multiple owners.

In addition to protecting against title defects, commercial title insurance also protects against boundary line errors, zoning conflicts, and environmental concerns.

As an impartial third party, the title agency will ensure the title search is completed accurately and in a timely manner. A good commercial title team will also review the search, legal descriptions, surveys, zoning reports, and environmental reports when necessary. The team should masterfully manage the complex efforts often needed to clear any objections, defects, or “clouds” on title. They must also cultivate and maintain a strong relationship with municipalities, local authorities, surveyors, legal counsel, asset managers, underwriters, and outside agencies to streamline the closing process.