Title Insurance - Then and Now
The objective of title insurance remains the same as it has always been - to help the parties in real estate transactions determine their rights and interests and assure that land transfer is expeditious and secure. Protecting the parties involved in real estate transactions was the reason the product of title insurance was developed.
In this country matters affecting ownership and other real estate interests are entered in public record. Before a transaction is completed, a title search of the records can be made in an effort to locate potential problems so that they can be rectified and the sale can proceed.
While most problems can be located in a title search by skilled professionals, there can be hidden hazards that even the most thorough search will not reveal. Examples include forgeries in the chain of title, a claim by a previously undisclosed relative of a former owner, or a mistake in the records. Liens, easements, rights-of-way, life estates, air and subsurface rights, and future interests are also found in a title search.
Until the nation as nearly a century old, the conveyancing of real property did not include any form of guarantee or insurance. Many of the transactions were handled by conveyancers, who either personally searched titles or obtained some form of abstract (summary of public records) to determine ownership of the land and encumbrances on the title. Before taking title to property, the buyer required that the title be free of any rights, interests, liens, or encumbrances of others for which he or she would be responsible. Based on the title search or abstract, the title could be examined and an opinion rendered by the conveyancer that the title was clear, and thus marketable.
There clearly were limits on the protection that the conveyancer could provide to the parties involved. This inadequacy of safeguards was emphasized in a historic court decision in 1868 that led to the creation of title insurance - which brought a new dimension of security and stability to the real estate market.
In 1876 a group of Philadelphia conveyancers founded the first title insurance company. In an initial advertisement, the company said it was beginning operation to insure "the purchasers of real estate and mortgages against losses from defective titles, liens, and encumbrances," and added,: "Through these facilities, transfer of real estate and real estate securities can me made more speedily and with greater security than heretofore."
Subsequently, title insurance companies were organized in other cities - among them New York City, Chicago, Minneapolis, San Francisco, and Los Angeles.
As the title industry grew, title companies and their agents began providing essential services to real estate buyers, sellers, lenders, brokers, attorneys, developers, builders, and others. Following World War II, as returning servicemen began to buy homes in large numbers, the title industry began to change from an essentially local enterprise to one doing business on a national level. Yet despite this, national lending/investment title work continues to be based on local law and custom.
Title Insurance Today
With the advent of new types of mortgages and the rapid growth of an aggressive secondary mortgage market, title insurance companies have responded impressively to investor needs by creating new policies offering innovative coverages. (More on Title Insurance and the Secondary Mortgage Market)
Title companies in some locations have seen their functions evolve into much more than just title searching. Today many are involved in completing all aspects of the closing process from preparation of documents to recording instruments, to preparation of closing forms, to collecting and disbursing funds.
The title insurance industry continues to provide security to real estate investors, especially as rapid and dramatic developments drive the real estate market. From single-family home purchase to a multimillion dollar commercial transaction closing simultaneously in several cities, real estate investors in this country will continue to receive title protection at a level of excellence unequaled anywhere in the world.
*Copyright ALTA (American Land Title Association)
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