There are plenty of risks involved in the world of commercial real estate, many of which are hard to control. It’s imperative that you really take the time to understand the risks you’re taking and determine the best ways to mitigate some of the risks that could cause problems for your business or your property. The lender providing financing for your loan is going to do some comprehensive risk analysis, and you should too. Let’s take a closer look at risk management and the role commercial title insurance plays in risk mitigation in today’s blog.
Managing Risk Through Title Insurance
It’s impossible to completely remove risk from the equation when it comes to commercial investing, but understanding common vulnerabilities can ensure you account for these unknowns in a smart way. As a title services team, we can’t know the risks associated with your business venture and vision for the property, but we do understand how risk factors into the property itself. If a property has hidden issues or title defects, these risks can become your problem once you’ve purchased the property, and that’s a risk you shouldn’t have to take.
Your loan lender works to mitigate this risk with a title insurance requirement. When financing a loan for a commercial purchase, the bank is likely going to require that the buyer purchases what’s known as a lender’s title insurance policy. This policy protects the financial institution from issues that pre-date the origination of the loan used to finance the commercial purchase. For example, if unpaid property taxes are discovered and it causes the owner to fall behind on mortgage payments, the lender is protected from financial loss because of the lender’s title insurance policy. The same goes for if a long lost heir comes out of the woodwork and successfully challenges the sale of the property in court. If you were to lose the property because of an invalid purchase, the bank would have financial restitution because of the lender’s title insurance policy.
This lender’s policy is only created after a title services team has thoroughly investigated the property. That ensures the purchaser pays the best rate for a policy, because the investigation should be able to determine with relative certainty that no title defects exist. However, even the best title service companies can’t get this risk down to absolute zero, which is why a title insurance policy exists. Following a thorough investigation, your title services team will be able to create a lender’s insurance policy that provides specific protections at a fair price.
That’s great for the financial institution providing your loan, but what about you? You’re not really going to care that the bank is protected if you’re the one stuck footing a bill or contesting a property’s ownership in court. You also need to manage your personal risk, and you can do that with the help of an owner’s title insurance policy. An owner’s title insurance policy is exactly like a lender’s title insurance policy, except you’re the one getting the risk protection.
An owner’s title insurance policy is different from a lender’s policy, so you will have to purchase this separate type of insurance as well, but it’s not something you’ll need to pay annually. Both a lender’s and an owner’s title insurance policy only require a one-time payment, and this policy will protect you for as long as you own the property. One payment can mitigate decades of risk, and while an owner’s title insurance policy isn’t required as part of a purchase contract, it is the single simplest thing you can do to greatly reduce the risk of losing everything because of an unexpected title defect.
Risk is inevitable in commercial real estate, but you can lower your risk of a major financial issue by purchasing an owner’s title insurance policy. If the bank requires it for a loan, it’s clearly a wise investment to carry yourself, and we can help set you up with a policy suited to your needs after we’ve thoroughly investigated a property for title issues. Let us lower that risk so that you can move forward with your commercial vision with peace of mind. For more information about title insurance policies, connect with the team at Commercial Partners today at (612) 337-2470.