Buying commercial real estate is a substantial investment. If you discover that you don’t have a clear title after closing, it can cost thousands of dollars in legal and cleanup fees. No one wants that.
With a title insurance policy, you are protected by a form of indemnity insurance, which insures you against financial loss from defects in title to real property—as well as from invalidity or unenforceability of mortgage loans. This contract will reimburse you for your loss in the event someone asserts a claim against your property (as long as it is covered by the policy). Your title insurance company will defend you against a lawsuit attacking the title, or will reimburse you for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy.
For example, a seller claims to convey a full and clean title to a buyer. Yet after closing, a third party claims that they held all rights to the property. In this case, the title company will protect the buyer.
Most policies contain a number of specific exceptions (such as recorded liens) and general exceptions for issues the policy does not cover (such as defects known to the insured, or problems arising out of creditors’ rights or government documents not otherwise recorded). Most title policies insure the title against recorded and unrecorded claims, but are subject to exceptions. Because it is difficult—or even impossible—to ascertain all risks, coverage for unrecorded risks is extremely beneficial.