We have put together a history of title insurance that we use in presentations offered to our clients here at Homestead Title. This information will give you a good background to the history of our modern day title insurance product and serve as a quality resource for professionals and consumers.
Title insurance has the unique distinction of being the only form of insurance invented in the United States. Title Insurance dates back to a real estate transaction in 1868 in Philadelphia in which a conveyancer (or searcher) conducted a title search and disclosed the existence of a judgment. The searcher turned the abstract over to a well-qualified attorney for a legal opinion. The attorney advised that the judgment was not a valid lien on the property and the purchaser completed the deal.
Soon afterward, execution was issued on the judgment and the property was sold at a Sheriff’s Sale. There was, of course, litigation challenging the validity of the lien, at the expense of the purchaser mind you, but the original case was upheld. The courts held that the judgment, and resulting sale of the property, were good. Both the conveyancer and attorney were not held liable. Even in instances were searchers and/or attorneys are held liable, their liability is limited to the cost paid for the search or legal opinion.
In 1874 Pennsylvania enacted the first statutes authorizing the issuance of title insurance. In the years that followed, title insurance spread over the entire East Coast in New York, Philadelphia, Washington D.C. and Baltimore. During the early 1900s, title insurance companies competed with land registration systems, sometimes called a Torrens system. The Torrens system was a system wherein public officials by statute promulgate a system of land registration and title certification. The system incorporates a provision for court action to perfect titles if necessary.
But the Torrens system was inadequate to meet the needs of purchasers and lenders. There was no consistent method from county to county, or state to state. There was a backlog of recordings and issuing title certificates. And if there was a claim, it had to go through the courts, which often times took months, or even years. The Torrens office was often times distracted by elections and each successive Registrar had different ideas, procedures and methods. Further, they were more exposed to corruption and bribes.
What finally made the Torrens system obsolete was the boom of the nationwide market for residential mortgages and the national secondary mortgage market. Title insurance companies were able to cross city, county and state lines with their product. They helped streamline the recording and closing process. They helped standardize the mortgages, procedures and forms. The emergence of organizations such as FNMA (Federal National Mortgage Association) and ALTA (American Land Title Association) served to both stimulate business and standardize insurance forms and coverages.
Title insurance has also replaced the “abstract of title” which was very popular in the mid west up until the 1960’s and 1970’s. The abstract relied on an attorneys opinion of the searched records but did not give the protections that are found in the title insurance policy.
Hopefully this history in a nut shell of title insurance has been interesting and informative for you. Please consider utilizing our professional staff for your title insurance needs. We are here to serve and do enjoy making a difference for you and your client. Homestead Title: Insuring with experience, integrity, and trust. Expert connection for real estate professionals. Contact us at 913-390-8880.
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