Title Insurance History
Title insurance arose historically from a need of providing adequate safety and confidence to a buyer in a real estate transaction. Before title insurance, transferring title(ownership) was handled by conveyancers who searched the chain of title to make sure there were no gaps of ownership and no liens, rights from previous owners, encumberances and any other interests in a property(we call these “clouds”). Based on the search, the conveyancer would provide a description, or abstract, of the status of the title. From the abstract, the conveyancer would provide an opinion to those parties involved in the real estate transaction regarding how clean or clouded the title is. Unfortunately, the conveyancer was limited in their ability to provide adequate confidence to buyer because the information in public records was limited, their opinion(in good faith) chose to ignore certain clouds on title(see below) or the conveyancer was just not thorough enough in finding clouds on the title. Subsequently, the buyer would bear the full risk of an issue on title coming up after purchasing the real estate.
In 1868, there was a case in Pennsylvania involving this very issue: Watson v. Muirhead. The defendant and conveyancer Watson had discovered a lien prior to the sale but told Muirhead the title was clear after his lawyer had (erroneously) determined that the lien was not valid. Unfortunately, Muirhead(an innocent buyer) lost his investment and suffered financial damages in the real estate transaction because of that lien. The courts did rule that Watson was not liable for his mistake based upon his professional opinion, but it did bring to light a major problem in the real estate buying process.
In 1876, Joshua Morris, a conveyancer in Philadelphia, helped form the first title insurance company called “Real Estate Title Insurance Company of Philadelphia.” They were formed to “insure the purchasers of real estate and mortgages against losses from defective titles, liens and encumbrances,” and that “through these facilities, transfer of real estate and real estate securities can be made more speedily and with greater security than heretofore.” The first title insurance policy that was ever purchased was valued at $1500 and was from Morris’ aunt for a property on N 43rd Street in Philadelphia.
Title Insurance is very much an integral part in the real estate transaction process in the USA. Every state has it’s own laws regarding the different services that title companies may provide, but the core purpose still is the same: to assist all of the parties in real estate transactions by helping provide a maximum degree of efficiency, security and safety in the acquisition or transfer of real estate.