As we’ve talked about on this blog at length, commercial title insurance is something we deal with frequently when helping investors close on their first or their next commercial property. As we’ve also mentioned, if you’re getting a loan to finance the purchase of your commercial property, you will be typically be required to purchase a lender’s title insurance policy.
But why exactly are you usually required to pay thousands of dollars to secure a title insurance policy for your lender ahead of your commercial acquisition? We explain why lender’s title insurance is often required in today’s blog.
Why Lender’s Title Insurance Is Often Required
You’re likely spending hundreds of thousands of dollars or more on your commercial acquisition, and now you’re being told that you’ll also need to spend thousands on an insurance policy to protect your financial institution in the event an issue arises with the property or its title. That hardly seems fair. The simple fact is that a lender’s title insurance policy is usually required because the bank is taking on a lot more risk by financing your commercial venture.
You can better understand this risk when comparing a commercial property to a residential property, like a family home. For starters, while residential properties can be in the range of a few hundred thousand dollars, commercial properties can easily become million-dollar acquisitions, so there’s already more money on the line.
Also, there tends to be more issues that could cause problems for the property’s title when it comes to commercial real estate. There are more likely to be encumbrances associated with a commercial property, like an easement that governs a shared parking lot or delivery access. Oftentimes commercial zoning laws and land use regulations are more complex when managing commercial space in an urban area. There also tends to be more environmental risk with commercial real estate, as the bank is not going to want to inherit environmental cleanup costs in the event that they foreclose on a commercial property.
Combined with the fact that commercial space may be more likely to have many owners in a short period of time compared to a residential home that has been in the family for generations, it's easy to see that the bank is taking on more risk when it comes to financing commercial property.
At Commercial Partners, we can help secure the right type of title insurance policy for your needs. We can analyze the property and your needs to ensure the right endorsements are included in your policy so that coverage is tailored to your unique needs. To learn more about securing a title insurance policy ahead of your commercial purchase, reach out to the team at Commercial Partners today at (612) 337-2470.