A title search and title insurance are two similar but very different aspects of the commercial real estate world. Both a title search and title insurance protect a prospective buyer from title problems that could cause major headaches once they’ve purchased the property. But if you conduct a title search, do you need title insurance, and vice versa? Below, we explain if you need both a title search and title insurance when eyeing your next commercial property, or if you can get by with just one of the two.
Title Search Vs. Title Insurance
Before we explain whether you need both of these services when purchasing commercial property, let’s take a closer look at the similarities and differences between the two:
- Title Search - A title search is the process of investigating a property’s title to see if there are any defects that could complicate the clean transfer of title upon purchase. A title services team like Commercial Partners will research property records, the local county recorder’s archives and public databases to learn more about the title. If any defects are discovered, you will want to work with the seller to ensure they are settled prior to your purchase. For example, if there is an outstanding tax lien on the property, or the property still has an ex-spouse named on the title, those clouds will need to be cleared so that they don’t become your concern once you’ve purchased the property. Failure to rectify issues that are discovered during your title search can cost you money or lead to the loss of your new property, so it’s imperative that a thorough title search is conducted prior to closing.
- Title Insurance - Title insurance is a policy that protects a property owner in the event that undiscovered title defects arise during their tenure as the property owner. A title service company will do everything they can to investigate a title, but it’s impossible to know with 100 percent certainty that a title is absolutely clear. Murky recordkeeping, complicated wills and fraudulent records can all cause issues when it comes to clearing a title. If you believe you’re buying a clean title only to find out 10 years down the road that the previous owner had an unpaid tax bill or didn’t have the legal authority to actually sell their property, these obligations can become your problem, unless you have title insurance. Title insurance protects you from defects that began prior to your acquisition that were discovered during your time as the owner, it will not protect you from new issues that you create (like failing to pay your own property taxes, for example). We highly recommend title insurance so that you can have peace of mind knowing that your investment is protected for as long as you own the property.
Now to get to the heart of the question of this blog. Do you need both a title search and title insurance, or can you get by with just one? You are not legally required to purchase owner’s title insurance, but as we mentioned, it is something we highly recommend. Moreover, if you are receiving a loan from a financial institution to fund the purchase, you will likely be legally required to purchase a lender’s title insurance policy, as the bank will need to know their money is protected before they’ll issue you a loan. And since a title insurance company isn’t going to issue a policy without a thorough title search, as they have a vested interest in decreasing the likelihood of any valid claims, you’ll likely need to pay to have a title search performed on the property.
So while an owner’s title insurance policy is not required, there’s a good chance that you’ll need to perform both a title search and acquire lender’s title insurance if you’ll be getting a loan to fund your commercial purchase. If the bank wants their investment protected, we think you should protect yours as well with an owner’s title insurance policy, so we highly recommend that buyers perform a title search and secure a title insurance policy as they move forward with a purchase.
For assistance conducting a title search or securing a title insurance policy, reach out to the team at Commercial Partners today at (612) 337-2470.