Title Insurance / Land Title
Torrens title is a system of land title where a register of land holdings maintained by the state guarantees indefeasible title to those included in the register. The system was formulated to combat the problems of uncertainty, complexity and cost associated with old system title, which depends on proof of an unbroken chain of title back to a good root of title.
In the United States, only Iowa has a complete Torrens system; other states with a limited implementation include Minnesota, Massachusetts, Colorado, Georgia, Hawaii, New York, North Carolina, Ohio and Washington.
Other than the above states, other states have opted for a system of document recording in which no governmental official makes any determination of who owns the title or whether the instruments transferring it are valid.
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 (usually the county) where the land lies.
Under this system, determining who owns the title requires the examination of the documents pursuant to various rules established by state legislatures and courts, scrutinizing the instruments to which they refer and making the determination of how they affect the title under applicable law. (The final arbiters of title matters are the courts, which make decisions in suits brought by parties having disagreements.) Initially, this was done by hiring an abstractor to search for the documents affecting the land in question and an attorney to opine on their meaning under the law, and this is still done in some places. However, this procedure has been found to be cumbersome and inefficient in most of the US. Substantial errors made by the abstractor or the attorney will be compensated only to the limit of the financial responsibility of these parties (including their liability insurance). The opinions given by attorneys as to each title are not uniform and often require time consuming analysis to determine their meanings.
Title insurers utilize this recording system to produce an insurance policy for any purchaser of land, or interest in it, or mortgage lender if the premium is paid. Title insurers use their employees or agents 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 (a fact that greatly pleases lenders and others in the real estate business) and the insurers carry, at a minimum, the financial reserves required by insurance regulation to compensate their insureds for valid claims they make under the policies. This is especially important in large commercial real estate transactions where many millions of dollars are invested or loaned in reliance on the validity of real estate titles. As stated above, the policies also require the insurers to pay for the costs of defense of their insureds in legal contests over what they have insured. Abstractors and attorneys have no such obligation.
Before Title Insurance is issued, the title company performs a “title search.” A title search involves examining public land records to ascertain if the seller has the legal right to sell the property. The title company will:
- conduct a chain of title, a review of the owner history of the property, checking for who purchased the property, who sold it, and when;
- perform a tax search to verify the present status of Taxes;
- conduct a judgment search to determine whether there are any general liens against the property;
- commission a survey, an on-site inspection to verify lot size, the location if improvements, and evidence of unrecorded easements.
Clear Title to property can be jeopardized by the discovery of “Hidden Defects” (discovery at a later date of an individual or organization that has a prior claim of some type or share of ownership in the property). Examples of Hidden Defects include mistakes in interpretation of wills and other legal documents, liens for unpaid estate or inheritance taxes, previous deeds by persons of unsound mind, forgery, missing or undisclosed heirs, falsification of records, etc. Should a Hidden Defect surface, at any time, that challenges an owner’s rights, the title company will defend the title, in courts, if necessary, and cover the owner’s losses up to the full value of the property. There are two types of Title Insurance:
- Lender Title Insurance – protects the interest of a lender with a mortgage to the property securing their interests. Most lenders require a loan policy when they issue a loan to protect their interest (the amount they loaned you) should a problem arise. The policy amount decreases each year as the principal balance on the loan decreases, expiring when the loan is paid off.
- Owner Title Insurance – protects the interest of the purchaser of the title to the land for the life of their ownership.
To fully protect one’s investment in real estate, Owner Title Insurance should be secured. It is estimated by the American Land Title Association that 25% of title searches find a tile problem that is fixed before the insurance is issued.
In common legal use, allodial title is used to distinguish absolute ownership of land by individuals as opposed to feudal ownership, where property ownership is dependent on relationship to the sovereign. The sovereign has allodial title, which cannot be taken by any operation of law for any reason whatsoever.
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