Industry veterans are predicting that the market will start a marked recovery in 2012. At Guaranty, we are already seeing an increase in the volume of transactions that involve the actual exchange of assets at near market values. The timing is opportune for a refresher on what you should expect from your title agent.

Title Insurance provides you with protection against future losses resulting from defects in the title to real property that exist at the time of purchase but are unknown or undisclosed. A title defect can include unpaid taxes, liens, an easement or restriction, fraud or forgery. According to the American Land Title Association, 36% of title searches find an encumbrance or defect. Beyond providing a list of encumbrances and defects and issuing a policy, your title agent should also provide you with a strategy for resolving any defects.

There are two main types of policies: the Lender's Policy and the Owner's Policy. The lender will usually require a policy insuring their loan and protecting their interest in the property. An Owner's Policy insures title to the property for the buyer and is inexpensive when issued simultaneously with a loan policy. The premiums for title insurance are paid one time only.

In commercial real estate transactions, the title exam is a critical component in the performance of due diligence. You should contact your title company early in the acquisition process. They can produce an Owner's and Encumbrances report which may provide valuable information to use in negotiation of your purchase price. It can make you aware of any issues or concerns with title to the property. When the seller accepts your Letter of Intent, you should have your Owner's and Encumbrances report upgraded to a full title commitment. The title commitment is a complete report following the title company's examination of all issues which can affect title. Your title agent should have the expertise to help you develop a strategy for resolving any issues it uncovers. When the Purchase Agreement is executed, it should state who is paying for the title insurance and associated costs. Customarily, in commercial transactions conducted in Minnesota, the seller pays the title commitment fee and the buyer pays for the insurance. The Purchase Agreement should also identify the title company holding the earnest money.

The Importance of the Closer

Upon entrance into the due diligence process, all parties need to be in constant contact with the title company. Although the title company may not be involved in all aspects of the transaction, they can help to move the transaction along and can offer suggestions when parties are unable to resolve differences. A great closer should have extensive legal experience and problem solving skills and can help to informally mediate issues among the parties or offer solutions to any issues that arise. They can be a tremendous resource in ensuring a successful closing.
 

For a diagram of the Title Company's role in the closing process and for more information regarding the commercial title industry.  Please visit the resources page on our website.