A title company plays a number of critical roles in ensuring that commercial real estate (CRE) projects move smoothly from concept to completion. Your title company plays an important role in the purchase of land for new commercial construction. When you purchase a new property, your title company performs a pre-purchase title search, provides owners and lenders title insurance policies, maintains an escrow account for construction and other costs, handles closing documentation, and works with you and your lender to monitor construction complications. Without a diligent, experienced partner in this process, construction delays, mechanics liens filed by contractors, or other hiccups can delay or derail your project entirely.
A seamless transition from the acquisition of property all the way through finished construction and closing can be the difference between a profitable development and a failed investment, and choosing the correct title partner is a critical link in this process.
Prior to the closing of your property purchase, the title company will perform a title search. A title search proves that the seller has a clear and marketable title to sell the property.
A title search is a thorough review of public records to search for:
- the legal description of the property
- the chain of title extending 30 years, to ensure that there are no gaps in ownership during which an unrecorded transfer might have taken place
- mortgage information for the current owner
- judgment liens against the owner that have been levied against the property
- mechanics liens for work performed where payment has not been made
- federal or state tax liens against the property
- easements, in which another entity or the public has the right to make use of some portion of the property for a limited purpose
During the escrow period between purchasing the property and closing the deal, your title company will perform this search and work with interested parties to clear up any title encumbrances that might jeopardize the deal. This process requires a knowledgeable partner who understands who the stakeholders are and how to resolve these issues.
There are two types of title insurance: lender’s title insurance, also called the lender’s policy, and owner’s title insurance, or the owner’s policy. Owner’s title insurance protects against financial losses that might occur when title is subject to liens, encumbrances, and defects that were unknown to the buyer and seller on the effective date of the title policy. Lender’s title insurance is similar, but protects against claims that might jeopardize the lender’s priority as a creditor in the event of a foreclosure or other forced sale of the property.
Construction Escrow Services
If a lender is involved in a commercial real estate construction project, the title company will perform construction escrow services. In such a project, the lender will deposit construction funds directly with the title company. The title company then supervises payment to the general contractor, any subcontractors, material suppliers, or others providing construction services.
Construction escrow services are critical in avoiding mechanics liens against a commercial real estate, or CRE, project. A common cause of such liens occurs when a general contractor is paid for work done on a construction project, but the general contractor either fails to pay a subcontractor or there is a dispute as to the amount owed to the subcontractor. The subcontractor then files a mechanics lien against the property for payment claimed to be due. mechanics liens, as described by Chicago Agent Magazine, are
specific claims for non-payment filed by contractors, subcontractors and suppliers against property owners. In Illinois, these claims are strictly controlled by the Illinois Mechanics Lien Act and provide a powerful mechanism through which these contractors and suppliers can enforce their rights to payment for services and materials provided as part of the development and construction process.
If a construction escrow account is established, each time a general contractor requests payment for work done, that general contractor must provide an affidavit to the title company listing all the subcontractors entitled to payment for that work. Each of those contractors and subcontractors, in turn, provides a “lien waiver” for that disbursement, preventing later disputes as to whether all relevant parties have been properly paid, and shifting liability for unpaid subcontractors to the general contractor.
The title company confirms the quality of the work and the payments with the owner and lender, and ensures that all claims against the owner or lender have thus been waived at the time of payment, protecting the legal rights of all involved parties.
During the construction process, the title company acts as the “point of contact” for all parties, coordinating the completion of construction work, ensuring that all parties are satisfied with the work, disbursing payments to general and subcontractors, and working to ensure that no mechanics liens are filed against the property during or as a result of construction.
Landtrust Title: Commercial Title Services Done Differently
At Landtrust Title, we understand that commercial title requires a different kind of expertise — you need a partner you can trust to handle deals of every size and level of complexity, without ever treating you like a number. That’s where our team of highly experienced title professionals comes in. With Landtrust, you’ve got someone in the trenches with you, focused on solving problems and making sure every deal is closed smoothly. We understand the ins and outs of commercial title and construction services — and how difficult it can be to get real support you can rely on. That’s why we’re doing things differently. We work alongside you as your advocates, offering personalized attention and creative solutions that ensure your deal gets done perfectly and on time, every time. Think of us as your very own title team. Start the conversation by contacting us at [email protected] or by phone at (312) 528-9210.