Title Insurance: The CT Scan and MRI for your real estate transaction!

Photo: Succor

Are you asking yourself how medical techniques like a CT Scan or MRI have anything to do with a real estate transaction?

After all these tests were created for looking inside the body, in a non-invasive way, to determine if an injury or abnormality exists that the naked eye cannot see.

So how these two medical tests in any way relate a real estate transaction is course an excellent question and the answer is really quite simple.

In a typical transaction the prospective homebuyer or commercial real estate investor will look at a property both inside and out.

They will then determine whether for their specific needs it fits the criteria, run the numbers to determine financial feasibility all before finally coming to the decision to make an offer.

For an expanding family looking for additional space, variables that they will consider will include the number of bedrooms, size of the yard, finished or unfinished basement, surrounding neighborhood, school district and taxes.

The commercial building investor will look at different criteria that will vary to some extent depending on the category of building that they are considering (multifamily, mixed-use, warehouse, etc.).

Will the property be owner occupied, is there potential to change zoning, is it in an acceptable location, what is the quality and term of current leases, the historical and pro forma net operating income, the condition of the physical plant, access to highways and so on.

But once the property is targeted, who will be looking under the ‘hood’ beyond appearance and numbers on a page to determine what the underlying legal condition of the property is in terms of the ability of the current owner(s) to convey good and clear title to the new owner?

That is where your title insurance firm enters the equation!

They will do the historical work-up on a property’s chain of title to ensure that when the new buyer is handed the keys, that no entity can come back later and contest the fact that they in fact are the true and rightful owner!

Determining clear title is also going to be of particular interest to anyone who lends money to the new buyer in the form of a mortgage because the subject property is serving as that lenders collateral. This is critical if for some reason the property owner defaults and the lender needs to foreclose.

The last thing they would want to learn is that the free and clear or ‘unencumbered collateral’ that they thought they had was in reality encumbered by someone or something else.

The title company makes sure that does not happen and provides insurance that guarantees that fact. Have the taxes been paid, are any prior mortgages not satisfied or are there any liens on the building? All critical questions and all taken care of prior to the closing by the title company in addition to many others.

It is therefore also extremely important to make sure that the underwriter of the title insurance policy has the financial means to pay claims when due! Companies like Chicago Title of the Fidelity Group that has over $1 billion in claims paying reserves.

Bottom-line? Pay close attention to the firm that is being used for this extremely critical function and, if you have any questions, please feel free to contact Hallmark Abstract Service and we would be happy to answer them at info@hallmarkabstractllc.com or 516.741.4723)!

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• Who is your underwriter?
• What is the claims experience of your title insurance provider?
• Do you know whether the non-title insurance premium fees you are paying are fair and reasonable?