When venturing into the realm of commercial real estate, conducting thorough due diligence is crucial, especially regarding the property’s title. A clear title is essential to a smooth transaction and future operations.
However, several common title issues could complicate the purchase process and endanger your investment. Being aware of these issues can help you navigate or even avoid pitfalls during a real estate transaction.
Liens
Liens are financial claims placed on a property by a creditor or other entity, often due to unpaid debts by the property owner. These can include tax liens, mechanics’ liens, or judgment liens. Failing to address lien issues can leave the new owner with unexpected bills to pay, which can impact your bottom line.
Easements
Easements allow another party to use or access part of the property for specific purposes. These purposes can include utilities or shared driveways. An easement can affect not only a commercial property’s value but also your ability to develop the property. It is vital for buyers to factor easements into their purchase decision.
Boundary disputes
Discrepancies in property boundaries can lead to disputes. Always obtain an up-to-date survey of the property to verify the boundaries. This can ensure the property meets your needs regarding size and location.
Errors in public records
Human errors in filing or recording property documents can lead to title defects. These errors can include incorrect names, addresses or legal descriptions. It is important to review all records carefully and correct any errors before proceeding with the purchase.
Undiscovered wills
If a property owner dies without a clear heir, it might be difficult to determine who rightfully owns the property. An undiscovered will that surfaces after the purchase can challenge the seller’s authority to sell.
Fraud
Unfortunately, the commercial real estate market is not immune to fraudulent activities. Forged documents can lead to significant legal issues for potential buyers.
Being proactive and diligent when reviewing a title can lead to a smoother purchase. Title insurance can also help buyers identify and address these issues. These precautions can help safeguard the long-term success of your commercial property investment.