What Is the Difference Between Title Insurance and a Certificate of Title?
December 20th, 2017
At Piedmont Law Group, our comprehensive Georgia commercial real estate services include providing certificates of title and title insurance. Both documents are commonly used in commercial real estate transactions, but they are distinctly different in nature and purpose. We are often asked to explain the difference between them and describe their roles in commercial real estate transactions.
Certificate of Title
A certificate of title is issued by a licensed attorney after a comprehensive examination of the public records of the county(ies) in which the property is located for at least a 50-year period of time. The purpose of the certificate is to provide the status of title, detailing all of the recorded documentation affecting a piece of property, through the current effective date established by the clerk of court of that specific county.
A certificate of title does not insure title — that is the primary difference between a certificate of title and title insurance. It is typically requested by a client when title insurance is not required, problems with the status of title make the property uninsurable, or purely for informational purposes.
Depending on a client’s specific needs, Piedmont Law Group can also provide a limited certificate of title, which is a similar certification reflecting the current condition of the title in the public records, but based on a title examination of less than 50 years. A limited certificate is requested, for instance, if a client is only interested in current ownership and encumbrance information. As an example, a lender may want a limited certificate from the borrower’s vesting deed forward to determine what other publicly recorded documents now encumber its secured interest in the property.
At Piedmont Law Group, we issue title insurance policies as licensed agents for Chicago Title Insurance Company, Fidelity National Title Insurance Company, and First American Title Insurance Company. On account of the significant financial commitments and complexity of commercial real estate transactions, title insurance for buyers and lenders is an essential component of any transaction involving transfer of the title to real estate or the refinance of real estate.
Title insurance, like a certificate of title, is issued based on a full abstract of title of at least 50 years prepared following a title examination. The similarity between the two documents ends there.
In a commercial real estate transaction, title insurance protects the buyers and lenders against unknown defects in the title. Title insurance is issued at closing on the property. A title insurance policy typically lists known defects, which are excluded from coverage. Certain other types of defects may be excluded as well.
A lender policy protects the lender from loss due to unenforceability or invalidity of the mortgage lien. If multiple lenders are involved in a transaction, each lender will require a separate policy insuring its distinct secured interest. The lender’s coverage will decline as the amount of the loan declines.
An owner policy protects the buyer of the property for and after the full term of property ownership for defects that occurred before the purchase of the property. The owner’s policy limit is usually the full purchase price of the property or the value of the property post-development.
Title insurance policy coverage includes financial protection against title defects unknown before the insurance was issued, such as conveyances by incompetent grantors, incorrect marital statements, forged documents, and improperly delivered deeds. The insurance provides reimbursement for the resulting monetary loss up to the stated policy limit coverage or costs for defending a legal action challenging the title. Generally, title insurance does not cover the cost of repairing defects or guaranteeing possession of the property.
Title insurance policies are written for the specific circumstances of each transaction. Endorsements may available to protect against issues other than unknown title defects, such as environmental issues, zoning conflicts, and boundary errors.
Certificates of Title and Title Insurance in Georgia Commercial Real Estate Transactions
Certificates of title and title insurance play critical roles in Georgia commercial real estate transactions. While both are based on a title examination and full abstract of title, the characters and purposes are distinctly different: Certificates of title provide details about known public records relating to the title as of the effective date in the county in which the property is located. Title insurance protects buyers/owners and lenders against unknown title defects existing on the date of policy issuance.
If you have questions about certificates of title or title insurance, or would like to talk with our attorneys at Piedmont Law Group about your Georgia commercial real estate legal needs, please contact our Atlanta office.