Residential & commercial title insurance: they’re the same, right?

By FCT


Wrong!

Residential and commercial real estate transactions differ by the purpose and nature of the property involved. Based on the type of transaction, the underwriting and search requirements vary as well. It’s a common misconception that residential and commercial title insurance have the same coverage—a misconception that could potentially lead your clients to face significant losses.

While there is an overlap in coverage between both policies, they differ in the following areas:

Title fraud

Commercial coverage

Lenders and owners are protected against fraudulent ownership transfers, discharges or registrations of mortgages that happened before the date of policy and in the insured transaction. Fraud is also covered after the date of policy up to $5 million.

Residential coverage

Both parties (lenders and owners) are protected against fraudulent ownership transfers, discharges or registrations of mortgages that happened before and after the date of policy, and in the insured transaction.


Taxes and utilities

Commercial coverage

Lenders and owners are covered against losses due to taxes and/or utilities that were due and payable at the date of policy but unpaid, provided the utilities form a lien.

There is no coverage for final meter readings and supplemental billings issued after the date of policy.

Residential coverage

Both parties are covered against losses due to taxes and/or utilities (including final meter readings) owing at the date of policy, provided they form a lien.


Work orders

Commercial coverage

Lenders have coverage for outstanding work orders that existed at the date of policy for all loans up to $50 million.

Owners have coverage for errors in responses from public officials related to governmental searches/inquiries made by legal professionals.

Residential coverage

Lenders and owners have coverage for outstanding work orders that existed at the date of policy.


Building permits

Commercial Coverage

Lenders have coverage for existing structures or improvements that were built without permits for loans up to $50 million.

Owners do not have coverage for open permits or existing structures built without the required permits.

Residential Coverage

Lenders are covered in the event that existing structures or improvements constructed before or after the date of policy have been built without the required permits. Coverage includes loss as a result of open permits that would have been revealed by a building compliance search at the date of policy.

Owners are covered in the event of forced removal or remedy of an existing structure that was built without the required permits. They are also covered for adverse circumstances that would have been revealed by a building compliance search at the date of policy, for example if the compliance search reveals open permits.


Survey/RPR/building location certificate

Commercial Coverage

Lenders have coverage for defects that would have been revealed by an up-to-date survey/RPR/building location certificate, regardless of the property type and size of the loan.

Owners have coverage for defects that would have been revealed by an up-to-date survey/RPR/building location certificate for properties valued up to $25 million. For properties valued over $25 million, they may have coverage for any loss resulting from matters that were not disclosed on an existing survey/RPR/building location certificate.

Residential Coverage

Lenders are covered for defects that would have been revealed by an up-to-date survey/RPR/building location certificate regardless of the property type.

Owners are covered for loss if someone refuses to purchase, lease or mortgage because of an adverse circumstance that would have been revealed by an up-to-date survey/RPR/building location certificate or if the owner is forced to remove or remedy their structure because it encroaches onto adjoining lands or onto an easement

If you have questions about the difference between residential and commercial title insurance policies, share them with us in the comments section!

 

This is for general information only. For specific coverage, please refer to your title insurance policy or an FCT representative.

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