Why title insurance is essential to the U.S. system of property rights

By BrokerOwner.net January 28, 2025 Housing News

Once
the
parties
have
closed,
it
is
only
then
that
we
place
the
transfer
document
(deed)
in
the
government
land
records.
These
records
are
kept
at
the
county
(or
similar
local
government)
level.
Importantly,
the
local
government
officials
who
keep
these
land
records
do
not
vet
documents
for
truthfulness
or
accuracy.
To
the
contrary,
they
have
a
duty
to
accept
any
documents
that
are
in
a
proper
format.

U.S.
system
of
property
rights
is
unique

For
over
250
years,
our
system
favoring
the
free
transfer
of
real
estate
between
private
parties
without
prior
government
approval
has
built
wealth
and
fostered
economic
growth.
The
advantage
of
this
system
of
local
property
records
is
that
it
keeps
the
claims
to

ownership
close
to
the
property
itself.
U.S.
property
rights
are
established
under
state
rather
than
federal
law,
making
the
shift
to
a
centralized,
national
land
registration
system
unworkable
without
a
significant
rewrite
of
private
property
law.

But
there
are
tradeoffs
to
our
approach.
First,
since
the
government
does
not
vet
land
records
before
accepting
them,
private
parties
must
do
so.
Second,
and
relatedly,
any
real
estate
dispute
that
is
not
settled
by
the
parties
must
ultimately
be
decided
in
court.
Litigation
can
be
lengthy
and
expensive.
This
makes
detecting
problems
from
prior
transactions
particularly
important.
Doing
so
is
difficult,
high-risk
work,
since
a
mistake
could
mean
losing
the
property.

Anyone
undertaking
this
“title
review”
must
first
establish
that
the
seller
has
ownership
of
the
property.
This
requires
searching
through
the
documents
of
earlier
transfers
to
trace
ownership
of
the
property
through
time,
seeing
whether
the
trail
ends
with
the
current
seller.
Second,
it
requires
determining
whether
others
have
any
claim
or
interest
on
the
property.
For
example,
people
claiming
they
are
owed
payment
can
attach
claims
–
called
“liens”
–
to
the
value
of
the
property.
These
may
be

mortgages,
tax
liens,
HOA
liens,
child
support
judgments,
etc.
Beyond
the
research
work,
the
answers
to
these
questions
are
rarely
cut-and-dry,
and
often
require
judgment
calls.

Furthermore,

the
records
themselves
are
not
necessarily
complete
or
accurate.
Some
claims
need
not
be
placed
in
the
land
records
to
be
considered
legitimate
by
a
court.
Nor
are
the
land
records
authoritative.
As
noted,
anyone
can
record
a
claim
and
even
take
it
to
court,
regardless
of
its
legitimacy.
Fraudsters
can
register
bogus
claims
for
ownership
and
then
attempt
to
sell
the
property
to
an
unsuspecting
buyer,
often
disappearing
with
the
cash
before
the
fraud
is
discovered.
Litigation
often
erupts
when
the
legitimate
owner
discovers
the
fraudulent
sale,
leaving
the
true
owner
and
defrauded
buyer
shouldering
the
costs
of
the
lawsuit.

Critical
role
of
title
insurance

That’s
where
the
story
of
title
insurance
begins.

Title
insurance
policies
solve
these
problems
by
protecting
buyers
against
legal
challenges
to
their
ownership.
Title
insurance
goes
well
beyond
an
“attorney
opinion,”
which
only
opines
that
the
“evidence”
of
ownership
as
shown
by
the
public
record

appears
to
support
the
legal
transfer
of
the
property
from
one
owner
to
another.
By
contrast,

title
insurance
wraps
its
title
review
with
a
duty
to
defend
against
claims
challenging
the
legality
of
the
transfer,
including
bearing
the
burden
and
cost
of
going
to
court
if
necessary.
And
should
the
sale
be
void,
title
insurance
can
pay
back
the
full
value
of
the
property
to
the
insured
party.
Since
evidence
of
ownership
may
not
always
appear
in
the
public
record,
nor
are
the
land
records
necessarily
accurate
or
authoritative,
there
is

always
a
risk
of
a
legal
challenge
inherent
in
our
system
of
private
property
rights
in
the
U.S.
Given
this
inherent
risk,
it
is
always
wise
to
purchase
a
title
insurance
policy
to
protect
the
purchase
of
real
estate
in
the
U.S.