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The Importance of Title and its History



History of Title:


Title insurance is a relatively new tool used in protecting the parties in real estate transactions from financial harm arising from the transaction. Many other methods have been used to meet this goal, though most have been abandoned. Others have evolved into the tools used today in the title insurance underwriting process.


Historic title in the Colonies:


The first American colony that enacted an act related to title was the Colony of Massachusetts in 1640. This act required that mortgages, bargains, sales, or grants of house, lands, rents, or hereditaments (property that can be inherited), be recorded to be recognized under the law. This act became the foundation of the recording system used in the U.S. today. There is evidence of a recording system existing in New Jersey in 1676. The New Jersey Conveyance Act of 1799 serves as the basis of the current state Recording Act.

In real estate transactions in the Colonies, title assurance was often based on the seller's word swear an oath developed. The warranty deed also came into being, which required the seller to warrant in writing various statements regarding the title.

Conveyancer


A later development in the real property transactions was the emergence of the “conveyancer.” The conveyancer was generally a relatively well-educated individual who took on the responsibility of providing advice and counsel regarding title assurance. Conveyancers had occupations such as justice of peace, notary public, real estate dealer, lawyer, or similar position. Originally, people relied on an oral opinion from the conveyancer. Still, over time, as public records were assembled, title opinions relied on these written records as support, and the opinions began to be written as well.

As the demand for opinions of conveyancers increased due to increases in the population within the Colonies and their expansion westwards, laypeople began entering the occupations of a conveyancer, title searcher, title examiner, and drawer of conveyance documents. As transactions became more prevalent in number and increased in complexity, lawyers became the dominant performers of the functions necessary to assuring title. Requiring that all title opinions were necessary when title questions required knowledge of the law as more and more did. In some states, laws were passed requiring that a lawyer must issue all title opinions. After some time, lawyers’ opinions must be issued by a lawyer. After some time, lawyers’ opinions became issued on decorated certificates and were called “certificated of the title.”

In the late 1800s, the first title insurance was developed and offered. Despite the attorneys' best efforts, title searchers, title examiners, abstractors, and honest sellers, problems with title and resultant financial loss still occurred, so insurance was developed.

Use of Public Records:


An important element of title assurance is checking public records to examine the property’s title. Today, public records are found in many government agencies and offices. Earlier in America’s history, public records were much more limited, but the recording of deeds was in practice from early colonial times. By requiring the recording of deeds, the law protects a purchaser from having the purchased land resold by the seller without the purchaser’s knowledge. The recording of deeds also provides a method of verifying ownership should a deed be lost or destroyed.


The recording does have its own problems, however. For example, errors can occur when deeds are recorded, and if the original deed is lost, any such error made by the recorder will be included in the replacement deed. Another problem in the recording of deeds can and did occur because of the systems used to record them. Under early recording systems, deeds were recorded and indexed based on the parties' last name in the transaction. There were also separated by transaction type. Because of this, a title searcher or examiner might be unable to follow a chain of title if a name change occurred or when an institution or business, which has no “last name,” was a party in a transaction. This problem still exists today, although more efficient indexing has been developed and is practiced in many places.

Abstract of Title:


An abstract is all instruments, such as all recorded deeds, mortgages, leases, and other aspects affecting title to piece of land. Although laymen were largely replaced by lawyers in the issuance of title opinions, laymen continued to perform title searchers. These laymen would create a summary of the search in the form of an “abstract of title” and became known as “abstractors.”


Abstractors searched the public records for the information to create their abstracts. Early abstractors worked with a lawyer, the abstractor acting as a title searcher, and the attorney as the examiner. Under such an arrangement, the abstractor was liable only to the attorney who employed him for any errors in his work. Over time, abstractors began to work as independent contractors, creating abstracts for more than one attorney and individuals needing a title abstract. As an independent contractor, the abstractor was directly liable for his work.


To decrease the likelihood of errors in the title abstracts, and therefore, reduce liability for these errors, abstractors came up with more efficient record-keeping; the “Abstract Plant” was one such innovation. Under an abstract plant, public records are indexed geographically rather than by the last name. In some places, abstractors are still used. Abstract plants are the model for the index system in many recording offices.

Today, the terms “abstract” and “search” relate to title examination of title, going back to the earliest record, regardless of how far back in the past the document was recorded. A “search” is an examination that is more limited in scope, for example, researching title going back for a maximum of sixty years.

Some insurers held the view that they were guaranteeing the existence of certain facts. Therefore, the liability of the insurer would be limited to loss or damage resulting from those facts that proved to be untrue.


Other insurers issued insurance contracts of indemnity, which is how the courts, over time, agreed that a title insurance policy should be constructed. A contract of indemnity promises to compensate the person who suffers a financial loss under specific circumstances. Although title policies include some representations and warranties regarding the title insured, they are not surety contracts. They are contracts of insurance and require premium as consideration. The insurer may not require the insured to reimburse the insurer for payments the insurer makes on behalf of the insured under the policy's terms.

Some insurers held the view that they were guaranteeing the existence of certain facts. Therefore, the liability of the insurer would be limited to loss or damage resulting from that fact that proved to be untrue.

Other insurers issued insurance contracts of indemnity, which is how the courts, over time, agreed that a title insurance policy should be constructed. A contract of indemnity promises to compensate the person who suffers a financial loss under specific circumstances. Although title policies include some representations and warranties regarding the title insured, they are not surety contracts. They are contracts of insurance and require premium as consideration. The insurer may not require the insured to reimburse the insurer for payments the insurer makes on behalf of the insured under the policy's terms.


Issuing Title Insurance:


Title insurance is issued based on a close examination of all records and property related to the title. The title insurer is responsible for this examination. The title examiner in the title or escrow firm’s office may actually carry out the process. In addition to insuring against claims against the title, the insurance provider ensures the accuracy and sufficiency of items found in a survey or site inspection of the property. Title Insurance is purchased to protect the interests of owners, lenders, and leaseholders in real property.

Difference Between Title Assurance and Title Insurance:

“Title assurance” refers to establishing that all aspects of the title are valid. Many steps are taken in a real property transaction to attain title assurance. These steps include the conducting of surveys: an examination of records at the registry of deeds, at the recording office, at government tax offices, at the registry of probate, and the vital records office; and engaging a lawyer or taking other legal action to clear a title of claims.

Insure Matters of Title:


Title insurance insures only matters of title. Losses can occur in real estate transactions that have nothing to do with title. For example, if the seller replaces an outbuilding on the property at the request of a potential purchaser and the purchaser backs out of the transaction, the grantor has experienced a loss of time and money spent replacing the outbuilding. Title insurance does not cover such matters. Rather, title insurance insures against unknown risks of title such as interests in the title by an unknown heir or spouse of a secret marriage, illegally executed title transfers, and so on. Title insurance also ensures the accuracy and sufficiency of the abstract and the title examination and matters disclosed in the property's survey and site inspections.

Leaseholder Coverage:


A leaseholder estate involves possession but not ownership for a certain period of time. The estate usually results from the formation of a lease. In an estate, for years, there is a determined beginning and ending date. A periodic estate is formed under period-to-period(month-to-month, week-to-week, etc.) Agreements. Under a period-to-period- agreement, the estate automatically renews and does not end until one of the parties terminates the agreement. The terminating party must give proper notice, which is generally one period.

Leaseholders do not have an owner’s interest in the property. However, if the lease is for a specified period of time, state laws require that the leasehold interest be recorded. This is because the states recognize that although not an owner of real property, a leaseholder can be harmed if title is passed improperly or if the property is misrepresented in the deed. A leaseholder, especially one with a long lease, pays consideration for real property use. In some cases, a lease arrangement will allow the lease to be continued by heirs should the leaseholder die. The leaseholder has a valuable consideration in the real property leased. Because of this interest, title insurers developed coverage for these title interests of leaseholders.

Life tenants may not use the land in a way that reduces its value permanently; if the life tenant did cause the land to lose value permanently, the owner of the life estate following could sue the life tenant for the loss, known as “waste.”

Life estates are less commonly used today than in the past. Providing for an individual for life in this way is now usually done through trust ownership. Property held in trust is easier to transfer, and the trustee can oversee the proper use of the property, such as a sale if a profitable opportunity arises. Life estates are most often used to protect the surviving spouse and give the surviving spouse interest in the deceased spouse’s property until the surviving spouse’s death. Policies may be issued to cover the interests of a life estate.

Riparian Rights:


Riparian Rights are the landowner's rights that form the bank of a river or stream to use the water on the land, such as for drinking water or irrigation. Title insurance excludes riparian rights as it is not intended to cover estates or interests in waters. This includes riparian rights in abutting waters and docks. Between the normal high-water mark and the ordinary low water mark, title is qualified and riparian rights are subjected to control and regulation by the State and Federal governments.

Restrictions, Limitations, and Conditions:


If a violation of a restriction, limitation, or condition of the property is known at the policy's date, it is included in the exceptions to coverage. Generally, such violations are remedied before the title is transferred, and the real estate transaction is closed. Some known violations may be insurable if it is unlikely that any repercussions will occur resulting from the violation. Such a situation may occur when many property owners subject to the same restriction are also violated, rendering the restriction in all practicality, null, due to estoppel.

Mechanics and Construction Liens:


Mechanics and Construction liens are liens by contractors or subcontractors who have done construction or improvements on real property or provided materials. In New Jersey, the law governing Mechanics liens has been replaced by the Construction Lien Law. This law applies to all work for which building permits were issued on or after April 22, 1994. Under this law, any contractor, subcontractor, or supplier who provides work, services, material, or equipment according to a contract is entitled to a lien for the value of the work or services performed or materials or equipment furnished by the contract and based upon the contract price, in an amount governed by law. The lien generally attaches to the interest of the owner in the real property. If a tenant contract for the improvement of the real property and the contract for improvement has not been authorized in writing by the owner of a fee simple interest in the improved real property, the lien attaches only to the leasehold interest of the tenant.

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