Why Title Insurance Exists

Why Title Insurance Exists by Capital Ingenuity

Title insurance in the U.S. exists mostly because of the deficiency in the land records laws. Most of the world uses land registration systems for the transfer of land titles or interests in them. Under these systems, the government makes the determination of title ownership on the title based on the registration of the instruments transferring or otherwise affecting the title. Most often the government's determination is conclusive.

A few jurisdictions in the U.S. have adopted a form of this system, such as the cities Minneapolis and Boston. However the states have opted for a system of document recording in which no governmental official makes any determination of who owns the title. The reason for this is that it is much less expensive to operate than a land registration system.

Greatly simplified, in the recording system, each time a land title transaction takes place, the transfer instrument is recorded with a local government recorder located in the jurisdiction where the land lies. The instrument is then indexed by the names of the grantor and the grantee and photographed so it can be found and examined by anyone who wants to see it.

Under this system, determining who owns the title requires the examination of the indexes in the recorders' offices pursuant to various rules established by state legislatures and courts. The final arbiters of title matters are the courts, which make decisions in lawsuits brought by parties having disagreements.

Title insurers utilize this recording system to produce an insurance policy for any purchaser of land, or interest in it, or mortgage lender. Title insurers use their employees to perform the necessary searches of the recorders' offices records and to make the determinations of who owns the title and to what interests it is subject. The policies are fairly uniform and the insurers carry, at a minimum, the financial reserves required by insurance regulation to compensate their insured's for valid claims they make under the policies. This is especially important in large commercial real estate transactions where millions of dollars are invested in reliance on the validity of real estate titles. The policies also require the insurers to pay for the costs of defense of their insured's in legal contests over what they have insured.

For information on title insurance overcharges in Pennsylvania please visit www.ssem.com.

About the Author
Capital Ingenuity Corporation provides SEM services for attorneys and law firms.