Thursday, June 12, 2008

Title Insurance, Another Philadelphia First

A little while ago I wrote a post about the Greater Philadelphia Association of REALTORS, one of the charter members of the National Association of REALTORS, both of which are celebrating their 100th Anniversary this year.

Even earlier I wrote another Philadelphia based post, talking about some of the Historical Firsts in our city, discussing the first Savings & Loan, their first mortgage, and possibly the first defaulted loan in the country. I enjoyed that so much, that I decided that this would be a great theme for GPAR's 100th year, so here is the second installment in that group of bogs. Hope you enjoy these random facts as much as I do.

In keeping with the theme of the blog, let's talk about the first Title Insurance Company in the United States which was founded here in 1876. Through successor companies, that firm ,known as Commonwealth Land Title (now owned by LandAmerica) still issues title insurance today!

Title Insurance is used to assure buyers that the title of their home is free and clear of liens and encumbrances at the time of purchase. During a re-finance, title insurance will often be required by the lender to protect their interest, assuring that they are the primary lien on the property.

The need for title insurance arose historically from the fact that traditional methods of conveying real property did not provide adequate safety to the parties involved. Until the 19th century, transferring title to real estate was handled primarily by conveyancers, who were responsible for all aspects of the transaction. The conveyancer conducted a title search to determine the ownership rights of the seller and any other rights, interests, liens or encumbrances that might exist with respect to the property, and, based on its search, provide a signed abstract (or description) of the status of the title. Although the conveyancer was generally not a lawyer, that individual was recognized as an authority on real estate law. The conveyancer only provided limited protection to the purchaser of real property.

In 1868, a lawsuit was filed was filed in Pennsylvania that would change the levels of protection the buyer expected in a real estate transaction.. In that case, a conveyancer named Muirhead, had searched and abstracted a title for a buyer named Watson. Muirhead chose to ignore certain recorded judgments (after consulting with an attorney) reporting the title as good and unencumbered. On the basis of that title abstract, Watson bought the property, but lwas later complelled to pay the liens that Muirhead had concluded were not a problem.

Feeling somewhat ill-used, Watson sued Muirhead , but the Pennsylvania Supreme Court ruled that there was no negligence on the conveyancer's part and dismissed the case. Watson, an innocent buyer had no protection.

The case of Watson v. Muirhead demonstrated that the conveyancing system could not provide safety to buyers ,so shortly after that court decision, the legislature passed an act "to provide for the incorporation and regulation of title insurance companies."

Since then, the title insurance industry has grown to become an essential component in the majority of real estate transactions in this country. Title services vary somewhat from one area of the country to the other, but the essential purpose is to assure a buyer that their transaction can be completed with efficiency, security and safety.

And it all started here in Philadelphia!