Title Insurance History and What it Is
Have you ever wondered why and how the concept of title insurance ever started?
Well, the origin of title insurance is directly traceable to a lawsuit from 1868, where a purchaser suffered financial damages because his title was not clear when he bought his property.
Transferring a title to real property up until a century ago was handled by conveyancers, who were responsible for all the details of the transaction. A title search would be done by a conveyancer to determine the ownership rights of the seller and any other rights, liens, interests, or encumbrances that could exist. The conveyancer was typically not a lawyer, but that individual was recognized as an authority within real estate law.
The case of Watson v. Muirhead case from 1868 filed in Pennsylvania. In this particular case, Muirhead the conveyancer searched and abstracted the title of home for Watson, the purchaser of the real property. After consulting an attorney, Muirhead decided to ignore the recorded judgments and reported the title as good and unencumbered. From that abstract, Watson purchased the property and was then presented with liens which he was responsive for and had to pay. Watson sued Muirhead to recover his losses, and the Pennsylvania Supreme Court ruled that there was no negligence on the part of the conveyancer and the case was dismissed. Watson suffered financial damages and because of the encumbrances on his title had no recourse to recover losses.
The courts’ decision clearly demonstrated that an existing conveyancing system could not provide complete assurance to the purchaser that the real property would be safe and secure in their ownership. With this occurrence, the Pennsylvania legislature passed an act that would provide for the incorporation and regulation of title insurance companies. The first of these type of companies was Old Republic National Title Insurance founded in 1876 in Philidelphia and incorporated in 1907.
How is a title search done?
The search is done by examining the public records to find the history of the property’s ownership. Issues that may arise are prior deeds to others, outstanding mortgages, will, or incorrect notary acknowledgments can be found through this search. They must be cleared before the property is settled. If the issues that arise from the search are not resolved before closing its up to the buyer’s discretion to proceed with the purchase of the real property.
How is title insurance different from other insurance?
It insures the property against events that have occurred to it in the past for a one-time cost due at closing. Once the premium is paid it protects you indefinelty.
What does title insurance cover?
It protects claims from defects, such as improperly recorded documents, forgeries, fraud, and any other items that are detailed in the insurance policy. An example would be if you are buying a property form an estate and the executor doesn’t have the consent of the heirs for the sale then the title insurance will protect you against this issue.
Who needs title insurance?
It is usually required from most lenders to have title insurance. You only pay title insurance once, but just like homeowners insurance you have that extra protection should you need it. Since a home purchase is usually the biggest purchase most people make why not protect that purchase?
If you would like more info on what the sales process is like please do not hesitate to contact me.