GAZETTE
JAN/FEB 1993 '
It is not surprising to discover that
there are parallels in the general
operation of the Torrens system with
that of the Land Registry in Ireland.
Title is registered in an official book
which is "conceived as being a
permanent and complete record of
the exact status of the title and the
sole and conclusive legal evidence of
title
6
," an owner's certificate of title
with an identifying number is issued
by the registrar, a duplicate of which
is delivered to the holder of the
registered estate; subsequent interests
in the registered estate are valid only
if filed and noted on the face of the
original certificate; transfers are
effected by presenting to the registrar
a fully executed instrument in a form
prescribed by statute; transferees are
not bound to inquire behind the
official certificate and, in the
absence of fraud, take title without
being charged with notice of
unregistered interests; and assurance
funds have been established to
compensate those demonstrating a
loss caused by the registration
process.
To initiate registration a property
owner must petition a court by
means of an
in rem
action against
the property. Notice must be
published and an order made for an
examiner of titles to examine the
records and investigate the claims
and allegations made in the petition.
If title is found in the petitioner, the
court issues a decree which enables
the property to be registered. The
high cost and expense of this judicial
proceeding (perceived as essential to
satisfy constitutional due process
requirements) has been called the
greatest theoretical and practical
barrier to the establishment of the
Torrens system in the United States
not counting the opposition of
various vested interest groups.
7
A
major player among those groups is
considered next.
III. The Title Insurance Industry
a) History.
The preparation of
abstracts of title by professional
abstractors or examining lawyers
together with, in many instances, a
lawyer's opinion as to the state of
title, eventually became a standard
conveyancing practice for
unregistered land in most areas of
the country. In 1868 the Supreme
Court of Pennsylvania held that a
title abstractor could be found
negligent in performing a title
search,
8
a decision which is generally
credited with influencing the
establishment of the title insurance
industry.
9
Title insurance companies
were soon after incorporated in the
major East Coast cities and,
beginning in the early part of this
century, competed with the new land
title registration systems.
10
In the 1920s institutional lenders
began making record numbers of
mortgage loans as a result of the
nationwide residential building
boom. They soon realised that a
more standardised form of title
protection could be obtained for
their mortgages by using title
insurance instead of lawyers' title
opinions. The advantages of title
insurance also became clear to the
lenders in marketing the bulk sale of
discounted mortgages in the newly
developed secondary mortgage
market.
11
While most institutional
lenders traditionally made loans to
their business base, life insurance
companies began to lend nationally
and buy discounted mortages in bulk
from other lenders. Life insurance
companies were instrumental in
influencing the title insurance
industry to standardise the policies
issued by its constituent members so
that the type of coverage available
was similar nationwide. This enabled
the life insurance company's home
office, from a title perspective, to
quickly and accurately decide
whether a second hand mortgage
would be acceptable wherever the
property was located.
One result of the lenders' actions
was a tremendous increase in title
insurance business and a recognised
presence for the industry. Today, title
insurance companies are permitted to
sell title insurance in all states except
Iowa and in 1989 alone their
combined yearly operating revenues
were $4.1 billion.
12
While the
lawyer's title opinion is still used in
some, particularly rural, areas of the
country, in some states, such as
California (which no longer has a
system of title registration), real
property transactions are rarely
conducted without title insurance.
b) How does title insurance work?
In essence, a title insurance policy is
an indemnity to make good a loss
up to a stated maximum if it is
determined that the actual title of
the interest insured is not as
described in the policy. Title
insurance differs from almost all
other types of insurance in that the
risks insured against are not based
on the occurrence of a future event.
As one commentator put it: "with
other forms of casualty insurance,
the effective date from which
coverage commences means that the
insurance policy will reimburse the
insured for loss caused and suffered
after the effective date shown on the
policy. However, title insurance is
entirely different in this regard. The
title insurer will reimburse the
insured, subject to the policy terms,
for loss caused before but suffered
after the effective date of the
policy."
13
"Title insurance differs from
almost all other types of
insurance in that the risks insured
against are not based on the
occurrence of a future event."
Typically, after the opening of an
order with a title insurance company
a title search is usually conducted.
Title insurance companies or their
agents, usually abstract companies,
own and operate "title plants"
which literally contain, by
arrangement with the Recorder's
office in each county, complete
copies of all documents and
instruments affecting real property
recorded in that county. Title plants
are, however, organised differently
than most Recorders' offices and use
a " t r a c t" index which identifies all
recorded interests pertaining to a
particular parcel of property (similar
26