Why do I need title insurance on a commercial transaction?

Jan 24, 2020

Why do I need title insurance if everyone does their job to begin with?  My settlement agent will make sure everything is taken care of, right? This is one of the questions I get asked the most… other then what is title insurance?  For now, we will assume we all know what title insurance is.

Does everyone do their job to the best of their abilities with due diligence and practicality? Of course! The examiner chains the title and searches for exceptions and liens with a fine-tooth comb. The underwriter reviews all documents provided and underwriting counsel advises within the applicable law. Step by step, all parties work in a manner to ensure that the transaction goes as smoothly and accurately as possible, because trust me, no one wants a customer that might not be happy! Referrals are, after all, the best form of flattery!                                                                    

However, just like with car insurance, you just don’t know what the other guy might do and when he might blind side you so you want to be prepared. As much as we want our hard work and industry savvy to eliminate any issues that might be out there, there are still “hidden issues” that could exist. That’s where title insurance comes in.  It provides coverage for items the examiner and underwriter can’t possibly guess at such as forgeries, frauds, false representation, undisclosed heirs and human error, to name a few.

Imagine you are getting ready to lay your foundation and Joe Heir shows up with proof that he was one of the heirs that needed to execute the deed into your company but for some reason he wasn’t on the list of heirs originally filed? Or, as you are getting ready to refinance your loan from construction to permanent, an IRS lien pops up from the prior owner, because their name was spelled wrong and it wasn’t previously found? Or worse, the City knocks on your door to let you know they have an easement running through the corner of your building that they now need to access . . . an easement not shown on your survey or building plans and one that didn’t show up in a search because the Clerk had indexed it under the wrong name. Sorry, but you need to move that corner, please!

These are not title issues anyone could have foreseen, but with title insurance in place, you can at least rest easy knowing you are covered. Like any insurance, you hope you never have to use it, but the day you do, you want to make sure it is in place. One of the benefits of title insurance, is that you only pay the premium once. A small price to pay to take some of the “what if” out of your project.

 

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