Your dream of owning commercial real estate can quickly turn into a nightmare if title defects are discovered after your closing date. Once you’ve closed, a title defect becomes your problem, and the old owner is under no obligation to assist with the matter, even if it was an issue that developed during their tenure as the owner. So what can you do to resolve title defects that are discovered after closing? We discuss how to manage these defects and prevent them from developing in today’s blog.
Preventing Title Defects Before Closing
In the medical world they say that an ounce of prevention is worth a pound of cure, and that sentiment holds true when it comes to title defects. Instead of working to overcome them after closing, you’ll want to do everything in your power to prevent them from going unresolved prior to closing. Some of the best ways to do that include:
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Connecting With A Title Service Team - The best way to catch any and all potential title defects is by hiring a title service team like Commercial Partners to perform a title search. They will put their industry expertise to work to uncover obvious and hidden defects on a title. Finding these defects prior to closing places the onus on the seller to resolve them or work with buyer to come to an agreement prior to closing so that the issue doesn’t become the buyer’s sole responsibility.
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Conduct A Survey - A land survey can reveal any potential defects that may exist in regards to property boundaries or buildings placed on or near property lines, like the position of a fence or storage shed. Ensuring you know exactly where the property begins and ends can resolve any boundary disputes that may have gone unnoticed by previous owners and their neighbors.
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Purchase Title Insurance - After your title search has been conducted, you’ll be able to secure title insurance, which protects you in the event that title defects are discovered after you’ve closed on the property. Title insurance will protect you from any title defects that began prior to your acquisition, as any newly created issues (like not paying your property taxes or erecting a fence on a neighbor’s property) will not be covered by the policy.
Resolving Title Defects After You’ve Closed
Do everything you can to prevent defects from going undiscovered prior to closing, and purchase title insurance for peace of mind knowing that your investment is safeguarded against most title defects. If you don’t do your due diligence and fail to secure a title insurance policy, you may be forced to address newly discovered title defects on your own. Remember, the old owner is under no obligation to settle these defects once they’ve sold the property, so while you could reach out and see if they’ll correct a mistake that originated while they were the owner, don’t throw much hope behind this strategy.
Unfortunately, you may be forced to confront the reality that paying to correct these title defects may have to come out of your pocket, even though you didn’t create the issue in the first place. Paying off an old property tax lien, removing a fence on a neighbor’s property or buying out a long-lost heir may become your financial responsibility.
At the end of the day, if you outsource the title research process to a professional and secure a title insurance policy, you shouldn’t need to fear any issues pertaining to title defects discovered after closing. These preventative measures will absolve you of financial liability, even when the unexpected happens.
To learn more about protecting yourself from title defects after your closing date, or for assistance with any other aspect of the commercial real estate purchasing process, reach out to the team at Commercial Partners today at (612) 337-2470.