- Title insurance is a necessary protection when buying commercial real estate.
- It protects the property owner against any defects in title.
- Once the owner gets a title commitment, its lawyer should review the commitment and send the title company a title objection letter.
I hope everyone had a fantastic Fourth of July weekend. Its my favorite holiday. I enjoy the time spent with friends and family, the celebration of our country – all of it.* So I hope you enjoyed it as much as me.
But we are back to work and back to doing deals. Because that’s what we all love in real estate – the thrill of closing deals. So this week we are going to talk about another part of the closing process – finalizing title insurance. We have talked about pieces of this before but this week we are going to talk about the overall policy itself.
A title report has a lot of information in it. And that’s why its especially important to have a lawyer review it. So lets talk about that this week.
Why Title Insurance is Important
First we briefly want to talk about title insurance. As you probably know, title insurance protects lenders and property buyers from financial loss sustained by a defect in title to the property. The protection is extremely important because a title defect in title can put ownership in dispute and ruin your investment.
When closing a commercial real estate deal, the title company will send a title commitment that explains the basic of what the policy is and what it covers. Importantly also – it specifically lists a number of exclusions to that policy that will not be part of the insurance coverage.
Its very important, therefore, to review the policy commitment and make sure it provides sufficient coverage.
Why a Title Objection Letter is Vital
This is why a good lawyer is essential. Exclusions in a Texas title insurance policy are listed in Schedule B. And Schedule C lists a number of issues that must be resolved prior to closing. These Schedules specifically reference a number of recorded documents that affect the property. These can be easements, covenants and restrictions, liens, etc. It is essential to have a lawyer review all of those documents to make sure they do not hinder your plans for the property.
Once your lawyer reviews all of those documents, he or she should send a title objection letter to the title company. A title objection letter details all of the terms in title insurance that a company disputes, as well as changes to the policy that the owner wants. Both the property owner and lender will likely send title objection letters.
Once the lawyer send the letter, that often begins the negotiation process with the title insurer This can sometimes take a while. Of course not every issue needs to be fixed to the title company – the seller needs to cure some of the identified defects.
Finally, as stated above, Schedule B lists specific exclusions to the policy. This can include, among other things, tax assessments, restrictive covenants, liens, leases, etc. Your lawyer needs to review all of these and object to the ones that he or she does not think are legitimate. Determining which exceptions should be removed directly affects how much coverage the policy provides to the property owner.
Once your attorney and the title company are finished with the negotiations, you should have a title policy that fully protects you against any defaults in title. And you can go forth with your plans with little concern over whether title defects will harm your investment.
*Can we all agree, though, that fireworks should stop at some point – at least by midnight? Especially when the Fourth is on a school night. Oh and – STAY OFF MY LAWN! #shakesfistatnothing