While every commercial real estate transaction is different, a title company’s role in commercial real estate transactions may be broken down into 5 main steps:
Title Commitment – Also known as a title commitment, the initial commitment is the first stage of securing insurance and beginning the property ownership search process. Commercial title commitments, provided by the commercial title insurance company, lay out the conditions of the title insurance policy. This policy details the exact steps the agency will take to give the commercial real estate a “good title opinion”, including any measures the title company may need to take to resolve preexisting ownership disputes, record errors, encumbrances of liens.
Title & Property Search – Before a title insurance policy can be issued, insurance agencies must first draft an “abstract of title”. The abstract provides essential details regarding the history of the land title, revealing any liens, encumbrances, record errors or ownership disputes. In order to draft an abstract, insurance companies hire lawyers and/or underwriters to perform a thorough property search, also known as a property search. This search examines the property’s entire chain of ownership. If any liens, encumbrances or other problems are found on the commercial land title, the title agency works to resolve these issues in order to issue a good opinion. Once the real estate title is cleared from any problems, it is deemed “insurable”.
Escrow Service & Transaction Coordination – Agencies work behind the scenes of real estate transactions to coordinate and facilitate record filing, document preparation and financial transactions, mediating between the real estate buyer, the lender and the seller. One of the most important of these financial transactions is escrow service. Title insurance companies often provide escrow services in conjunction with other title services, acting as a third party by accepting the loan amount from the lender and holding it in escrow for the buyer until the property closes.
Closing Service – Closing services for commercial real estate closings are often provided the title insurance agency, which typically hosts the closing at the agency’s own office. The buyer, seller, closing agent and sometimes lender attend the closing, at which the settlement statement, purchase contract, loan papers, insurance policy, property insurance, land title and other documents are signed. Closing costs and down payments are also required by the buyer at the closing.
Final Title Insurance Policy – At the closing, the title company finally offers the buyer (and sometimes lender) an insurance policy. The title insurance policy insures the property owner for the cost of legal defense should the title be attacked in court; commercial title insurance also vouches to compensate for financial or property asset loss (up to a specified amount) due to preexisting liens or ownership disputes.