The process of a title search is a fascinating puzzle. It is so interesting to see the history of ownership and the different burdens and benefits related to a property. Even more so is the value a title search can bring to a client, especially in relation to a parcel of commercial land.
The thorough examination of title should be a part of due diligence for any deal to gather vital property information. Generally, a title commitment will provide the current owner of record, a legal description of the property, any easements, restrictions or covenants which would apply to the property and exceptions to the title policy. It also will show any liens, mortgages or tax issues. In other words, the title search gives you a better understanding of the history of the property, the chain of title and what issues could impact the transaction.
One of the major misconceptions buyers have about title policies is that as long as the purchase of land is insured nothing further is needed. Unfortunately, this is not the case. Title insurance is a policy purchased to protect the buyer from defects in the chain of title. The title company is promising that the seller has the right to sell the property to the buyer and there are no major debts prohibiting that sale. If the title company makes an error, the policy covers the legal fees over the dispute and/or reimbursement of the policy amount in the event the title company cannot prevail.
What title insurance does not automatically cover is any encumbrance that is an exception to the policy. This can be anything from a gas pipeline easement running through the middle of the tract to a restriction against building height or a particular use. Title attorneys assist in this area by carefully reviewing every detail of the policy and making objections to potential issues or errors on the title commitment. Title attorneys use these objections to basically “clean up” the policy. They also evaluate the property to determine any need for endorsements, which are additional coverages addressing issues such as surface use waivers, boundary discrepancies, zoning and environmental issues.
Large title issues can impact the value of the property, the timeline for project construction and even the ability of the developer to construct what they planned for in the development. While title insurance in a residential purchase is often seen as a formality, title insurance in commercial transactions is an integral part of due diligence and closing. Since commercial deals are frequently a high-stakes proposition, buyers and their lenders have a strong interest in ensuring the title policy issued is the best policy available. Title attorneys are key in obtaining that level of a policy.
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