There is no denying the fact that commercial real estate transactions can come with a lot of complexity. This means that it also comes with a lot of risk, too. Thankfully, title insurance can help protect against them, giving you more confidence in making your investment.
What are the Hidden Risks of Commercial Real Estate?
There are many risks that can arise when you purchase any property. However, commercial real estate involves more money, multiple investors (including corporations), and many opportunities for something to go wrong.
Let’s take a look at a few of these hidden risks.
The Seller
Does the seller of the property actually have the right to sell it to you? This is one of the first things that a title company looks for in their title search. After all, if the seller does not have the legal authority to make the sale, your transaction is usually moot.
With commercial properties, there are often multiple owners, corporations, registered agents, and more that hold rights to the title. Without ensuring that the seller is legally able to transfer the property, you could be at risk.
Property Issues
There are many different issues that can arise with a commercial property that can impact its future use once it has been transferred to you. In order to reduce the risk of any issues with the property, you will need to make sure that there are no easements, encroachments, survey issues, zoning issues, and more.
Litigation and Bankruptcies
If there is any current litigation taking place, this could complicate the transfer of the property and increase your risk greatly if you proceed. Lawsuits or bankruptcies that have been concluded could have had outcomes that could jeopardize your rights to title. Knowing about them before moving forward is one thing. Though having them show up later, is quite another.
Work with your title team to gain an understanding of how these legal troubles will impact you.
Liens and Judgments
Liens and judgments that attach to the property must be paid before a real estate transaction can move forward. It is not uncommon for this payment to be a condition of the sale.
The risk appears when a lien or a judgment is missed during a title search. For example, if it is not properly recorded. So, if it randomly appears down the road or when you go to sell the property in the future, you will be responsible for clearing it. Because they can be for any amount, this could leave you with a great financial loss.
How Title Insurance Can Help
The above title issues can often be caught during a title search. This will allow you to reduce your risk when buying commercial real estate. Title examiners, after all, do a deep dive looking to avoid things like:
- Outstanding taxes
- Liens and judgments
- Unknown heirs
- Bankruptcies
- Forged or fraudulent documents
- Easements
- Encroachments
- Recording or indexing errors
Unfortunately, it does not matter how thorough the search is—sometimes things get missed. And sometimes things are recorded wrong at the county level. There may even be hidden wills or documents that were forged that few know about until it is too late.
What do you do?
Invest in title insurance.
As its name suggests, title insurance offers protection against a list of specified title issues. Should any of the title defects appear after you take ownership of the property, you can feel confident that they will be addressed on your behalf, reducing your risk.
Protect Your Commercial Investment
When you invest in your commercial property, Loudoun Commercial Title, LLC, will offer you the opportunity to purchase title insurance policies — one to reduce your risk and one to reduce that of your lender. And, for added confidence, any questions you may have can be answered by our title experts before you move forward.
Ready to get started? Contact us today.