Scarinci Hollenbeck, LLC, LLCScarinci Hollenbeck, LLC, LLC

Firm Insights

Why Every Buyer of Real Estate Needs Title Insurance

Author: Bruce Feffer

Date: April 18, 2022

Key Contacts

Back
Why Every Purchaser of Real Estate Needs Title Insurance

While title insurance may seem like extra paperwork and added costs, it is an essential element of any real estate transaction.

While title insurance may seem like extra paperwork and added costs, it is an essential element of any real estate transaction. Title insurance can help avoid costly legal issues by protecting buyers and mortgage lenders against defects in title during and after a transfer of property ownership. 

Title Insurance 101

Every real estate transaction must have a clear title to ensure the property is free from liens and other “encumbrances”. This is true whether you are conducting a commercial or residential real estate transaction. Title insurance is a form of indemnity insurance that protects you from suffering financial loss due to issues with the title.

The first step of obtaining title insurance is a title search. In performing a title search, the title insurance company will investigate all of the recorded property transfers, tax liens, easements, and any other encumbrances affecting the subject property. The information is then used to create a title report.

Since title reports are not infallible, title insurance protects against any undiscovered title defects.  If a defect in the title is discovered post-closing, and the title company should have disclosed it in its report, the title insurance company is generally responsible for covering any associated legal expenses and damages. A typical residential title insurance policy covers the following:

  • Ownership by another party
  • Incorrect signatures on documents
  • Forged or fraudulent documents
  • Flawed records
  • Restrictive covenants, i.e., unrecorded easements
  • Encumbrances or judgments against property, i.e., unresolved lawsuits and liens

Many buyers are not aware that title insurance is not available for the purchase of a co-op apartment, since this involves the purchase of corporate shares rather than actual real estate. Nevertheless, most title companies will provide a “Judgment and Lien Search Report” to help buyers learn whether there are any such encumbrances on the shares of a particular co-op unit. These reports are usually provided at a nominal cost as there is no insurance being offered.

Importance of Title Insurance for Commercial Transactions

Given their added complexity, title insurance is particularly important with respect to commercial real estate transactions. Various endorsements are available to protect purchasers and lenders from more than just title defects. For instance, endorsements can cover additional issues, such as zoning concerns and environmental issues. 

While the policy should be tailored to the transaction, the American Bar Association recommends that commercial buyers obtain title insurance policies addressing the following:

  • Extended coverage;
  • A closing protection letter, with verification of issuance and continued validity; 
  • Available and relevant endorsements, such as endorsements relating to 
  • covenants; 
  • survey issues; 
  • minerals and subsurface substances; 
  • loss determination; 
  • taxes; 
  • special use (for example, zoning); 
  • special mechanic’s lien coverage; 
  • project use; 
  • unusual loan document issues (for example, shared appreciation, swaps, re-characterization); and 
  • the standard ALTA 9.06 (Restrictions, Encroachments, Minerals-Loan Policy), 
  • ALTA 9.2-06 (Covenants, Conditions, and Restrictions-Improved Land-Owner’s Policy), ALTA 28.2-06 (Encroachments-Boundaries and Easements-Described Improvements), and ALTA 35.2-06 (Minerals and Other Subsurface Substances- Described Improvements).

The ABA also recommends that commercial property buyers consider the financial depth and durability of the title insurer. 

Types of Title Insurance

There are two main types of title insurance. Loan policies protect the mortgage lender’s investment should a title defect arise. Meanwhile, buyer’s policies protect the buyer of the property in the event there are problems with the title. 

Mortgage lenders almost always require buyers to purchase a lender’s title insurance policy. The policies are distinct, meaning that property purchasers can’t rely on their lender’s title insurance policy. Accordingly, a lender’s policy and an owner’s policy are often both required to guarantee adequate protection for all parties. Finally, unlike other types of insurance, title insurance requires payment of a one-time premium, which is paid at closing. 

Key Takeaway

Title insurance is invaluable in any real estate transaction as it protects lenders and buyers from financial loss due to defects in the title to the property. Without insurance in place, buyers may have to shoulder the financial burden of unpaid taxes, open building permits, contractors’ liens, and other title problems.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Bruce Feffer, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

Related Posts

See all
The Current Administration's Proposals for the Financial Services and Banking Industries Will Affect Your Business post image

The Current Administration's Proposals for the Financial Services and Banking Industries Will Affect Your Business

Since his inauguration two months ago, Donald Trump’s administration and the Congress it controls have indicated important upcoming policy changes. These changes will impact financial services policies and priorities. The changes will particularly affect cryptocurrency, as well as banking rules and regulations. Key Regulatory Changes in Cryptocurrency For example, in the burgeoning cryptocurrency business environment, […]

Author: Dan Brecher

Link to post with title - "The Current Administration's Proposals for the Financial Services and Banking Industries Will Affect Your Business"
Tips for Commercial Landlords Impacted by Wave of Retailer Bankruptcies Part 1 post image

Tips for Commercial Landlords Impacted by Wave of Retailer Bankruptcies Part 1

The retail sector has experienced a wave of bankruptcy filings over the last year. Brick-and-mortar businesses in financial distress include big-name brands like Big Lots, Party City, The Container Store, and Vitamin Shoppe. When large retailers seek bankruptcy protection, they are not the only businesses impacted. Landlords can be particularly hard hit. While commercial landlords […]

Author: Brian D. Spector

Link to post with title - "Tips for Commercial Landlords Impacted by Wave of Retailer Bankruptcies Part 1"
How Understanding Bankruptcy Trends Can Benefit Your Business post image

How Understanding Bankruptcy Trends Can Benefit Your Business

The bankruptcy legal landscape presents both challenges and opportunities for businesses navigating financial distress. Understanding current bankruptcy trends can help businesses make more informed and strategic decisions. Corporate Bankruptcy Filings Trending Upwards Bankruptcy filings continued to trend upwards in 2024. According to statistics released by the Administrative Office of the U.S. Courts, personal and business […]

Author: Brian D. Spector

Link to post with title - "How Understanding Bankruptcy Trends Can Benefit Your Business"
SEC Takes Actions Against Issuers for Failure to File Form D post image

SEC Takes Actions Against Issuers for Failure to File Form D

In December, the U.S. Securities and Exchange Commission (SEC) announced charges against two privately held companies for failing to file a Form D notice, which is generally utilized for exempt securities offerings. Here, the SEC’s enforcement sends a strong message: compliance with regulatory requirements is not optional and failure to comply can have significant consequences. […]

Author: Kenneth C. Oh

Link to post with title - "SEC Takes Actions Against Issuers for Failure to File Form D"
Redefining Labor Relations: NLRB's Pivot from Abruzzo’s Memoranda post image

Redefining Labor Relations: NLRB's Pivot from Abruzzo’s Memoranda

On February 14, 2025, the Office of General Counsel (OGC) of the National Labor Relations Board (NLRB) under Acting General Counsel William B. Cowen issued Memorandum 25-05, “New Process for More Efficient, Effective, Accessible and Transparent Case handling.” The Memorandum rescinds nearly all of the Memoranda issued by his direct predecessor, Jennifer Abruzzo, setting the […]

Author: Matthew F. Mimnaugh

Link to post with title - "Redefining Labor Relations: NLRB's Pivot from Abruzzo’s Memoranda"
What Are FIRPTA Withholding Requirements? post image

What Are FIRPTA Withholding Requirements?

If you purchase real property from a foreign person or entity, you may be required to withhold taxes from your payment to the seller under the Foreign Investment in Real Property Tax Act (FIRPTA). The federal tax law is designed to ensure that foreign sellers pay any applicable capital gains tax on profits realized from […]

Author: Jesse M. Dimitro

Link to post with title - "What Are FIRPTA Withholding Requirements?"

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Sign up to get the latest from our attorneys!

Explore What Matters Most to You.

Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.

Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.

Let`s get in touch!

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!

Please select a category(s) below: