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How to Calculate Title Insurance on a Commercial Property

Updated: Sep 5, 2023

a colorful for sale sign on a large brick building

Title insurance is a must-have for your commercial property investment.

Commercial real estate transactions are often complex - and usually have a high value assigned to them. A title search may reduce the risk involved, but even with the most thorough search, it is possible for something to be missed or show up later down the road. This could have devastating consequences.

Having the additional funds set aside to cover the cost of title insurance at closing can protect your investment for years to come. But, how much will you need? How do you calculate title insurance on a commercial property? Let’s find out.

What is Commercial Title Insurance?

Title examiners go all the way back to a property’s inception and diligently dig through records to make sure that there are no title defects. They make sure that the current seller has the legal authority to sell the property - and that there are no liens, judgments, outstanding taxes, current lawsuits, bankruptcies, undisclosed owners, missing signatures, forgeries, fraudulent activity, and more.

Unfortunately, some of these things won’t appear until after the title has been cleared and the ownership has been transferred. This is when your rights to the property can be jeopardized.

Commercial title insurance protects against these title defects. Should anything arise after you take ownership, this insurance policy will fight the claim and protect against a financial loss.

Types of Commercial Title Insurance

There are two types of commercial title insurance, including an owner’s title insurance policy and a lender’s title insurance policy.

An owner’s title insurance policy is one that protects the new owners of the property from any potential title defects. Whereas a lender’s title insurance policy protects the lender’s interest in the property - and reduces their level of risk.

If you are taking a loan for your investment, most lenders will make purchasing a lender’s title insurance policy a condition of the loan.

Keep in mind that each specific policy only covers the party indicated. In other words, an owner’s policy will only protect the owners - not the lender. For everyone to be protected, you will need both policies.

How is Commercial Title Insurance Calculated?

Commercial title insurance is going to be calculated differently, depending on where the real estate transaction is taking place. For instance, the rules about title insurance premiums are different for each state and sometimes even differ from county to county. In Maryland, title insurance premiums are regulated by the Maryland Insurance Administration. Your title company will be able to provide you with their approved title fees so that you can calculate the cost of your title insurance policy.

Regardless of who sets the prices, commercial title insurance amounts are almost always a percentage based on the purchase price of the property. And, because commercial properties often come with a higher price tag, the cost of a title insurance policy is going to be greater.

Paying For Commercial Title Insurance

With most insurance policies you are paying in advance to protect against things that may or may not happen in the future. And you will pay routinely to ensure that protection is in place, whether monthly, annually, etc.

Commercial title insurance is different. Believe it or not, you make one payment and your rights to title are protected for as long as you have an interest in the property. This premium is paid at closing when the title insurance policy is issued.

It is worth noting that if you are purchasing an owner’s policy and a lender’s policy, each will have a premium that will need to be paid at closing. So, plan accordingly.

Commercial Title Insurance at Endeavor Title

At Endeavor Title, we understand the needs of investors and how to protect their real estate purchases. Commercial title insurance can be highly beneficial, especially when dealing with risky investments. And our team of title experts will be able to calculate the cost of your commercial title insurance premium so that you are prepared for it.

To learn more or get started, contact us today at (410) 666-3780.

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