What is a Title Policy and Why Is it Important?

A title policy is a critical component of doing business in the commercial real estate world, and something that all commercial brokers should be familiar with inside and out. A title policy is also known as title insurance and its importance, regardless of what you call it or the variant of words assigned to its description, is something that can’t be understated.

Commercial Property Buyers and Title Insurance

Title insurance is especially important for commercial property buyers, because it protects them from the unlikely yet all too feasible scenario that their purchase of a particular piece of real estate could be challenged by someone else also claiming ownership. Here’s a perfect example: a corporation buys a piece of commercial real estate from a landlord with the intent of moving in and conducting business, only to be thwarted after the money’s changed hands by the claims of yet another party with proof to show that they legally bought the same piece of property at an earlier time. Needless to say, having someone show up waving ownership papers can put something of a crimp in the assumption of business for a corporation – not to mention serious financial issues. A title policy also protects a buyer from the discovery of existing tax liens on a property, non-disclosed restrictions on the property’s use, mistakes in the public recording of the exchange of ownership, and even fraud and forgery. The title insurance policy covers the purchaser for up to the amount that the property was purchased for.

Lenders and Title Insurance

Another type of title policy is one that offers coverage to the bank or lender that’s financing the purchase of a piece of property. This gives the lender legal protection against the same risks, and stays attached to the loan in the event the property is sold again to another party.

Commercial Real Estate Brokers and Title Insurance

It’s not often that a commercial real estate broker encounters the need to exercise a title insurance policy, but just because it’s not an everyday occurrence doesn’t mean that there’s not a very real chance of this kind of mess materializing in time to lay waste to all of the due diligence and hard work put in by all involved. For this reason, title insurance isn’t just a benefit for buyers and lenders, but for commercial real estate brokers as well.

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