The Birth of Land Title Insurance: 1876

In 1868, in Philadelphia, a transaction was consummated which demonstrated very forcefully the necessity of having some further type of protection than there mere examination of the records. This very transaction can be traced to reveal the coming into existence of the land title insurance industry.

All the facts are to be found in the Pennsylvania Supreme Court case of Watson vs. Muirhead, 57 Pa 161.

In this case, a conveyancer conducted a title search and disclosed the existence of a judgment. He noted the judgment and turned the abstract over to a well-qualified attorney for a legal opinion as to the effect of the judgment. The attorney advised that the judgment was not a valid lien on the property and, based on the information, the purchaser completed the deal.
Shortly afterward, execution was issued on the judgment and the property was sold at Sheriff's Sale. There was some later litigation and the courts held that the judgment was a valid lien and the Sheriff's Sale was good.

As a result of the loss incurred in this transaction, for which the attorney and the conveyancer were held not liable, a group of individuals interested in the law of real estate decided that something should be done to protect innocent investors from such similar hazards.

TITLE INSURANCE OVERVIEW

The title insurance industry has been protecting the American dream of homeownership for more than 125 years. Real estate property is the nation’s largest asset, and the 1990s was one of the best decades in American history for housing. The behind-the-scenes work of title companies ensures the quick and secure transfer of land, fostering lender and consumer confidence in their real estate investments.

The objective of title insurance remains the same as it has always been – helping the parties in real estate transactions to determine their rights and interests, and assuring that land transfer is expeditious and secure. Protecting the parties involved in real estate transactions is the reason the title insurance product was developed.

In this country, matters affecting ownership and other real estate interests are entered in public records. Before a transaction is completed, a title search of the records is made in an effort to locate potential problems so that they can be rectified and the transfer 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.

Title insurance is substantially different than other types of insurance coverage, which can often lead to a misunderstanding of the product. Title insurance emphasizes risk prevention rather than risk assumption. This emphasis on risk prevention is a labor intensive and costly component of doing business, but the coverage offers the best possible opportunity for avoiding claims and losses in real estate transactions.

During the title search, title companies find and fix problems with the title in 25 percent of transactions – usually unbeknownst to the consumer or lender. In addition, title companies pay millions of dollars each year in claims.

When a property is resold quickly, or refinanced within a short period of time from the original purchase or most recent refinance, a new title search and title policy are needed. The owner/seller may have created or experienced claims, liens or other encumbrances since the original policy was issued, and the lender will require a new title search to ensure that the title is clear. For instance, the owner may have taken out a second mortgage, incurred a mechanic’s lien or a lien from unpaid taxes.

The American Land Title Association, the national trade association for the title industry, was founded in 1907 and currently represents 2,000 abstracters, title insurance agents, and title insurance underwriting companies.