Prospective commercial mortgage borrowers, and in particular, those who’ve been inactive or who are just new to investing, should be aware of the wide usage of title insurance on commercial real estate transactions.
The traditional manner of closing a commercial real estate transaction involved the purchaser’s lawyer producing an opinion letter. As the name would suggest, he or she “opined” on whether the purchaser had good and marketable title to the property, and whether the lender had a valid mortgage charge, and hence enforceable security.
Why is title insurance now so popular and in common usage? Simply put, it is an efficient way for your lawyer to mitigate risk and protect your interests. Like any form of insurance you are seeking to protect yourself against the unexpected. Title insurance allows for the shifting of risk to the insurer, and in return for a one time premium payment, you are covered for losses incurred as a result of survey defects, title fraud matters, municipal issues, and other claims more specifically outlined in the policy document. A basic difference between title insurance, and perhaps what one would consider a typical insurance policy, is that you are not covered for future events, but rather, for matters existing at the time of closing of the transaction.
What are the implications for you as a property buyer and mortgage borrower? Absent title insurance, both buyers and lenders alike relied heavily on the lawyer’s opinion. Any potential loss arising from an error or negligence on the part of a lawyer would necessitate a costly and time wasting law suit to prove negligence. Not a course of action for the faint of heart! Title insurance on the other hand, essentially does away with this, and requires only that the insured (typically both the owner, and the lender, often through separate or combined policy documents) prove that the title (or other) problem exists, and is covered under the term of the Policy.
There are several competing Title Insurance Companies in Canada. Speak to your lawyer about which one is best suited to your situation.