Purchasing commercial real estate can be a stressful process and each transaction carries some challenges during the closing process. This is especially true right now, as the real estate industry and commercial buyers and sellers navigate business deals during a pandemic. Title insurance helps to mitigate the risk of issues that may arise concerning your property transaction. Gap insurance is one of the resources to help overcome specific issues during the transaction process.
What is Gap Insurance?
Gap insurance is an endorsement added to the title policy that provides additional coverage for title defects that may arise during a gap period. To better understand why gap insurance is valuable, it is important to understand how the gap period is defined along with other elements that come into play when title is being transferred.
A gap period may refer to the span of time in either or both of the following scenarios:
There may be a time period between when a document is submitted for recording and when it is actually indexed by the recording office and available for search, usually a matter of days. This means that title commitments and subsequent date-down searches may not include documents that have not yet been indexed.
In some states, it is common for transactions to close a day or more before the insured documents can be recorded. If the title insurance policy is dated as of closing rather than recording, there can be a gap in coverage because the documents do not take effect until they are actually recorded. Recent government office closures due to COVID-19 concerns have made this scenario more prevalent than usual.
Title Commitment: Preliminary Report & Commitment for Insurance
The title commitment identifies the property to be insured, the owner of the property and any title defects that may not be covered by the insurance, which are listed exceptions to coverage. These commonly include things such as liens and easements.
Most title agencies perform the date-down search of public records concerning the insured property immediately before closing on a purchase or loan. This notifies the parties of any title matters appearing in the public records after the date of the title commitment.
Do you need Gap Insurance?
Most title insurance policies provide coverage for defects that may arise during the gap period caused by indexing and search availability and coverage is generally not required. However, when a title policy is dated effective at closing, rather than recording, a gap insurance endorsement is added to title insurance to cover any items that may be discovered after the closing date (policy date) and before the recording date.
Landmark Title is Here for You
The Landmark Title team is highly experienced in handling complex real estate transactions. We are committed to taking care of all your escrow and title needs, providing a comprehensive, personal approach.
If you have questions about Gap Coverage or have questions regarding title services, please contact us at (602) 748-2800 or email@example.com.