The Role of Title Insurance in the Due Diligence Process – Part 3 in a Series
Protecting Ownership Rights
What kind of protection is available to the buyer or lender at the end of a real estate transaction, complex or simple? The answer: commercial title insurance, designed to shield the insured against losses resulting from title issues and defects.
Important: the Right Title Insurance Company
You’ve got be on the lookout for any special exceptions to title, as they can interfere with your real estate investment goals. A good title insurance company can help you with this (BTW, such a company, usually for a fee, will perform due diligence services of its own). Such a company offers what is called an owner’s policy, the purpose of which is to ensure that the property purchased by the buyer isn’t saddled with defects, liens and encumbrances.
What Title Insurance Offers the Lender
Lenders, for their part, desire a policy that protects and facilitates the sale of mortgages to the secondary market – Fannie Mae and the Federal Home Loan Mortgage Corporation, as well as to private institutions. Available to them for that purpose are the forms provided by The American Land Title Association (ALTA), in which the basic elements of insurance designed to address problems involving title to a property to be mortgaged can be found.
Among these problems
- When the property to be mortgaged is subject to defects, liens or encumbrances; or is simply unmarketable
- When the lien created by the mortgage is invalid or unenforceable; is not prior to any other lien existing on the property on the date the policy was written; or, under certain circumstances, is subject to mechanic’s liens
- When the insured faces legal challenges
Title Insurance Policies Covering Construction Loans
There are also title insurance policies covering construction loans. These usually require a Date Down endorsement affirming that the insured amount for the property has, due to construction funds that have been vested in the property, gone up.