Due diligence is a cornerstone of all commercial real estate transactions. Both sides have a duty to do sufficient research and understand all relevant factors before agreeing to a deal. Title searches for commercial real estate are a key step in the due diligence process. These searches provide the crucial information needed to evaluate the potential risk of the transaction, allowing buyers to protect their funds, assets, and other interests. If you are currently in the process of a commercial real estate transaction and want to learn more about due diligence, consider contacting the experienced real estate lawyers of Polymath Legal PC at (833) 931-6418.
What Is a Commercial Real Estate Title Search?
A title search contains some of the most important information that buyers and sellers need to know before finalizing a commercial real estate transaction. The entire history of the property can be found in the title search, including all mortgages, deeds, and easements. Title searches may also indicate possible issues with the property, such as a lien or unpaid taxes.
Title searches are common in both commercial and residential real estate transactions. However, commercial real estate title searches are more complex than residential searches due to factors including the following:
- Commercial real estate transactions generally involve much higher prices
- Most commercial real estate transactions involve business entities, not individuals
- Commercial titles generally have more complicated terms
What Is Due Diligence in Commercial Real Estate Transactions?
All real estate transactions require due diligence, which is a process in which each party gathers all relevant information before signing the contract. Conducting due diligence helps to minimize the risk of unforeseen financial issues after the transaction is complete. Those who are considering a commercial real estate transaction can practice due diligence through title searches; the searches can reveal liens, zoning restrictions, encroachments, and other issues related to the property.
Due diligence also involves physically examining the property for any areas that need repairs and compiling cost estimates for those repairs. The commercial real estate agreement should also specify whether the new owner will take on liabilities for the previous owner’s legal and regulatory issues. Each real estate transaction will have its own unique due diligence requirements based on the nature of the transaction and the property itself.
How To Run a Title Search on a Commercial Real Estate Property
Prospective buyers are free to conduct their own title searches, but many buyers turn to professionals for assistance. The relevant legal documents can be confusing, and gathering these documents often requires access to court records. An experienced real estate attorney can conduct a thorough title search that discovers all pertinent information on the property. If you are exploring a potential commercial real estate purpose and are seeking assistance related to title searches for commercial real estate, the attorneys at Polymath Legal PC may be able to help.
Identify the Property and Find Deeds
In the early stages of the research process, prospective buyers should identify the exact location of the property and the local tax assessor’s office for the county or city where the property is located. Next, a title search will often involve the following steps:
- Check tax assessor records—Contact the local tax assessor’s office and request property tax records
- Search for property deed—Most property deeds can be found online. For example, real estate records for Los Angeles can be found on the website of the Los Angeles County Registrar-Recorder/County Clerk. If the local office does not have an online system, the records can be found at the office. Find the most recent deed and then conduct a deeper search for all deeds in the history of the property, which can be used to establish the chain of title
- Outline a chain of title—After all deeds have been collected, they should be arranged in chronological order, from newest to oldest. This chain of title shows whether ownership of the property has been passed along properly.
Search for Financial Restrictions and Liabilities
A title search involves thorough research into any loans, judgments, liens, outstanding taxes, or other financial restrictions and liabilities. This stage of the process often involves the following steps:
- Review tax records—The documents from the tax assessor’s office should be reviewed for any outstanding taxes or special assessments on the property, which could lead to a lien against the property. In Los Angeles, property tax records can be found through the Los Angeles County Property Tax Portal
- Check for liens—Prospective buyers should check whether the property is currently under a judgment lien, which allows creditors to take control of the property if the owner fails to meet certain financial obligations
- Consider speaking with a lawyer—If financial restrictions are found on the property, the prospective buyer should consider speaking with an experienced real estate lawyer about how to proceed
Common Defects Found in Title Searches
Title defects are circumstances that could lower the value of the property or cause disputes regarding the owner of the property. Some common title defects discovered during commercial real estate title searches include:
- Documents that call the validity of the title into question
- Errors in the chain of title
- Foreclosures
- Fraudulent or forged titles
- Pending probate issues
- Unreleased liens
- Clerical errors
- Encumbrances and easements
- Illegal property transactions
Learn More from an Experienced Real Estate Lawyer Today
When exploring a possible commercial real estate deal, the prospective buyer should seek out all information related to the property. Title issues can cause serious difficulties if they are not discovered before the deal is finalized. These issues can sometimes be addressed by clearing the title through the legal system. However, conducting a thorough title search and clearing titles with issues is a complicated process that often requires professional assistance. An experienced California real estate lawyer helps clients with all aspects of completing commercial real estate transactions, including conducting title searches for commercial real estate and working to resolve title issues. Consider contacting Polymath Legal PC today at (833) 931-6418 for more information about due diligence and protecting yourself in commercial real estate transactions.