The need for title insurance arose historically from the fact that traditional methods of conveying real property did not provide adequate safety to the parties involved. Until a century ago, transferring title to real property was handled primarily by conveyancers, who were responsible for all aspects of the transaction. The conveyancer conducted a title search to determine the ownership rights of the seller and any other rights, interests, liens or encumbrances that might exist with respect to the property, and, based on its search, provide a signed abstract (or description) of the status of the title. Although the conveyancer was generally not a lawyer, that individual was recognized as an authority on real estate law. The origin of title insurance is directly traceable to the limited protection that the work of such a conveyancer provided to the purchaser of real property.
In 1868, the celebrated case of Watson v. Muirhead (57 Pa. 161) was filed in Pennsylvania. In that case, Muirhead, a conveyancer, had searched and abstracted a title for Watson, the purchaser of a parcel of real property. In good faith and after consulting an attorney, Muirhead chose to ignore certain recorded judgments and to report the title as good and unencumbered. On the basis of Muirhead’s abstract, Watson went ahead with the purchase, but was subsequently presented with, and require to satisfy, the liens that Muirhead had concluded were not impairments to title. Watson sued Muirhead to recover his losses, but the Pennsylvania Supreme Court ruled that there was negligence on the conveyancer’s part and dismissed the case. Watson, an innocent purchaser who had suffered financial damages because of the encumbrances on his title, had no recourse.
The decision of Watson v. Muirhead demonstrated clearly that the existing conveyancing system could not provide total assurance to purchasers of real property that they would be safe and secure in their ownership. As a result of that decision, the Pennsylvania legislature shortly thereafter passed an act "to provide for the incorporation and regulation of title insurance companies." The first title company was founded in Philadelphia in 1876.
This new type of insurance (called "title insurance"), addressed the concerns raised in Watson v. Muirhead by providing: (1) responsibility without proof of negligence; (2) financial protection through a reduction of the risk of insolvency; and (3) the assumption of risks beyond those disclosed in the public records (for which the abstractor was not liable).
Since the late 1800s, the title insurance industry has grown to where it now is an essential component in an overwhelming majority of real estate transactions in this country. The services provided by the title insurers may vary somewhat from one area of the country to the other, reflecting the different laws, customs and procedures of the various states and counties throughout the nation. But the essential purpose of these services is the same – to assist all of the parties in real estate transactions by ensuring that the acquisition or transfer of an interest in real estate can be effected with a maximum degree of efficiency, security and safety. Exclusive Land Services Title is proud to play a leading and innovative role in this industry.
The Benefits of Title Insurance
Title insurance issued by Exclusive Land Services Title provides a broad range of benefits to the parties involved in a real estate transaction.
To the Purchaser of Real Estate
The purchaser of real estate needs protection against serious financial loss due to a defect in the title to the property purchased. For a single, one-time premium, which is a modest amount in relationship to the value of the property, a buyer can receive the protection of a title insurance policy – a policy that is backed by the reserves and solvency of the Company. A title insurance policy will cover both claims arising out of title problems that could have been discovered in the public records, and those so-called "non-record" defects that could not be discovered in the record, even with the most complete search.
A title insurance policy will not only protect the insured owner, but also that person’s heirs for as long as they hold title to the property, and even after they sell by warranty deed. The Company will not only satisfy any valid claim made against the insured’s title, but it will pay for the costs and legal expenses of defending against a title claim.
To the Lender…
The overwhelming majority of mortgage loans made in the United States are made by persons who are acting in a fiduciary capacity – by savings and loan associations, savings banks, and commercial banks on behalf of their depositors, and by life insurance companies on behalf of their policyholders. Because they are lending other people’s money (other people’s savings or policyholder’s funds) these lenders must be concerned with the safety of their mortgage investments.
A policy of title insurance provides a mortgage lender with a high degree of safety against the loss of security as a result of a title problem. This protection remains in effect for as long as the mortgage remains unsatisfied.
Exclusive Land Services Title also provides lenders with in-depth expertise on a wide variety of title related matters to facilitate the mortgage loan process.
To the Seller…
An owner of real property whose interest is insured by an owner’s title insurance policy has the assurance that the title will be marketable when selling the property. The title insurance policy protects the seller from financial damage if the seller’s title is rejected by a prospective purchaser. Also, when the seller conveys with "warranties," the seller is still protected if the buyer sues because of a breach of those warranties.
To the Real Estate Attorney…
Title insurance enables the real estate attorney to provide the client with substantially greater protection than would be afforded by the attorney’s opinion alone. The attorney’s opinion is generally limited to recorded matters and the client can only recover from the attorney if the attorney is found to be negligent. (Remember the case of Watson v. Muirhead that prompted the creation of title insurance?)
To the Real Estate Broker…
The title insurance company and the real estate agent both seek to ensure that as many purchases as possible are closed to the satisfaction of all the principals in the transaction. From the broker’s standpoint, the efficient and safe transfer of title will result in client satisfaction, increased prestige, and continued business.
Apart from the security that title insurance offers, most brokers have experienced numerous instances in which title insurance personnel have enabled them to close transactions that otherwise would have been delayed. By helping to avoid delays, Exclusive Land Services Title is able to facilitate the job of the real estate broker and to minimize the inconveniences and costs to the homebuyer.
To the Home Builder…
By providing various title insurance services and information to the home builder, the title insurance industry can and does assist the builder in identifying and evaluating building and use restrictions, easements, etc., in removing title problems that may arise, and in facilitating prompt and needed disbursement of construction funds from the construction lender. All of these services ultimately rebound to the benefit of the buyers of newly constructed homes.
To the Community In General…
Apart from the unique benefits title insurance offers to particular parties interested in a real estate transaction, title insurance companies can and do offer considerable assistance to public officials through the use of their "title plants" – the data banks of reorganized and indexed public records that are maintained by the Company in many areas of the country.
Much of the information contained in title plants is not readily available from other sources. This fund of information about the date of recent sales, representative sale prices, ownerships, area maps, use restrictions, surrounding properties, and a host of other matters pertinent to proposed projects, has helped representatives from all levels of government save countless hours and taxpayer dollars. In addition, title plant people frequently help recording officers correct errors they discover in public indices and records.
The job of searching the public records to identify existing rights and interests is not an easy task. The title searcher or abstracter reviews the public records to find all aspects of title, which can be seen and recognized. From the title search, the title examiner produces an opinion of title, from which the Company will issue its insurance.
In many areas, the title to a property can be traced back to a royal grant, charter, or the United States government. In many areas, titles are not traced back that far; instead, local custom or title insurance company requirements dictate a shorter search.
There are few titles, if any, that have a perfect history from their source, or root, to the present day. Each transfer of ownership is a "link" in what is referred to as the "chain of title." As each transaction or link takes place, there is a potential for a problem. Even if the entire chain of title appears to be in order, the chain is still subject to interpretation. When searching a title, what we are trying to determine are the various rights and interests that make up each link in the chain as it has passed from one owner to another.
A "title" is composed of three basic elements.
1. Rights and interests that are disclosed in the public records or by physical inspection of the property, i.e., deeds, mortgages, leases, etc., parties in possession, utility easements, etc.
2. Rights and interests that are not recorded but exist, i.e., limitations imposed by laws and statutes, etc.
3. Rights and interests that are hidden, i.e., forgeries, secret marriages and unknown heirs.
Every title is made up of many different "rights" and "interests" that may be owned by different people. The "owners" of the property own the most valuable of the property’s rights and interests, but other people may also have rights to the property, such as easements for utilities or mortgages, etc.
Each title can be compared to sticks in a bundle. The rights and interests are represented by the sticks. The "owners" own what we call a "fee simple" title, that is, they have purchased the most vital and valuable sticks including rights of possession, use, occupancy, enjoyment, inheritance, etc. Also, within the bundle are sticks that may be owned by other parties. These are called encumbrances and may consist of easements, mortgages, liens, etc.
When a person purchases a parcel of real estate, it is not only the physical property itself that he or she acquires, but the sellers rights and interests, "the seller’s title," in the property. It is essential for the prospective purchaser to know before the transaction takes place, precisely what rights or interests the seller can convey. The purchaser also needs to know who else may have rights or interest in the property, and about any encumbrances against the property that may affect the use or enjoyment of the land. The title search must cover all these rights and interests.
The Public Records
In the United States we maintain a public records system that varies from state to state. This system is controlled by "recording statutes." Simply, this means that in each and every county there is a public office where people may have their deeds or other written instruments relating to title recorded in permanent record books. The public records provide constructive notice to everyone as to the rights and interests of parties in a particular piece of property. There may be other rights and interests that are not disclosed by the public records (i.e., secret marriages, incompetency, unknown heirs, forgery, etc.). The public recording offices and their records constitute the most important source of information about title to real estate.
The offices in which these public records are maintained have different names in different states. In fact, there usually are several different offices in each and every county. One office may be for the recording of deeds, mortgages, and documents pertaining exclusively to land. Other offices in the same counties may contain the records of other matters affecting the title to the land. Lawsuits, marriages, divorces, insanity proceedings, and probate may all affect the title to the land. Still other offices may contain the records relating to taxes against the properties or, in some instances, recorded surveys.
In a very limited number of states the Registered Land System (also known as a "Torrens System") is used. Under this system, a court proceeding has been brought naming parties who have an adverse interest in the property. If everything in the proceeding is completed and handled properly, the plaintiff is said to have a good title as of that date. This title, however, is not guaranteed by the state. The Torrens System has been abandoned by most states primarily because the associated court proceedings complicated title transferring and delayed real estate sales proceedings caused extra and unnecessary expenses.