For many individuals, acquiring commercial real estate will be one of the largest financial purchases they will ever make. When you’re dealing with a major purchase, you need to protect your interests so that an unforeseen issue doesn’t cause financial chaos. One of the simplest and cheapest ways to protect your investment is with the help of a title insurance policy.
Title insurance comes in two different forms - lender’s and owner’s title insurance. Do you need both, or is one type of policy enough coverage for your purchase? We take a closer look at lender’s and owner’s title insurance in today’s blog.
Lender’s And Owner’s Title Insurance
When you’re in the process of acquiring commercial real estate, you will work with a title service company to research the property’s title. This process seeks to uncover any potential issues with the property so that you know exactly what you’re buying and that you are indeed buying a property from the true owner with no additional liens or claims on the property. Title service companies do a great job of clearing a title or uncovering defects, but as you can imagine, not every property has thorough records and clear chains of acquisition. Despite a title service provider’s best efforts, there’s always a very slim possibility that someone else may eventually attempt to make a claim to the property.
To counter this unlikely but potential issue, commercial real estate investors can buy title insurance. This policy acts as a financial safeguard in the event of an eventual claim on your property. Even if this claim is unsuccessful, title insurance can help with the investigation and any costs incurred to prove that you are indeed the true title holder.
As we mentioned above, title insurance comes in two forms, the lender’s policy and the owner’s policy.
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Lender’s Title Insurance - A lender’s title insurance policy protects the financial interest of the financial institution that lends the individual the money to complete the commercial purchase. In most cases, this is your bank. This insurance ensures that your bank or financial lender is not out a large sum of money if a legitimate title claim is made on your property.
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Owner’s Title Insurance - An owner’s title insurance policy protects the financial interest of you, the commercial property owner. If you put forth a lot of money, or you make regular payments for years, only to find out that someone else has a valid claim to its ownership, you may not be able to recoup the money you’ve invested unless you are protected with an owner’s title insurance policy.
Although your specific situation may vary, many mortgage lenders require that a lender’s commercial title insurance policy is acquired as part of the loan approval process, so it’s highly likely that you will need to purchase a lender’s policy if you are seeking a loan to fund a commercial purchase. The owner’s policy is not typically required, since it’s just your financial future at stake, but it is highly recommended. It is a very low cost option that prevents a very high risk situation, so many commercial real estate investors acquire both a lender’s and owner’s title insurance policy, even if only the lender’s option is required.
If you want help clearing a title or acquiring lender’s or owner’s commercial title insurance, connect with the team who does it best in the Midwest. The group at Commercial Partners can handle all your title service needs for your next commercial purchase. For more information, give our team a call today at (612) 337-2470.