Not so very long ago, land in the United States was bought and sold without title insurance. The transactions were risky, the recordkeeping inconsistent, and it was possible to lose your whole property investment should serious title defects come to light. Something had to change – and it did.
From colonial days until nearly the American Centennial, real property in the United States was bought and sold without any form of guarantee or insurance. Buyers of land still aimed to buy property that was free of any title rights, interests, liens, or encumbrances — but this was far from guaranteed.
Many early land transactions in American history were handled by men called conveyancers. These conveyancers were not lawyers but were recognized locally as authorities on matters of real estate law. Conveyancers handled all aspects of the transaction, conducting a title search to determine ownership rights of the seller, and other rights, interests, liens, or encumbrances. Based on their research, conveyancers would produce an abstract, or a signed description, of the status of the title that certified whether the title was good and unencumbered.
Expansion of Property Transfers
Though transactions at this time were risky — the protection a conveyancer provided was quite limited — the practice was mostly suitable for the small volume of transactions. While at this time America was a vast unsettled expanse of land, much of that land was not for sale, because it had not yet been organized into parcels that could be bought and sold.
Amazingly, only 700 valid private land titles existed in California when the first state legislature met in 1850. But change was already underway due to the California Gold Rush. San Francisco’s population had exploded from 1,000 in 1848 to 25,000 by the end of 1849. A whole industry of conveyancers, abstractors, attorneys, and title experts emerged in and around the city, to assist the newly monied property buyers and sellers attracted to the booming Bay Area. Similarly, other areas of the country were undergoing economic growth, and with it, growth in title transactions.
The End of the Conveyancer System and the First Title Company
The increasing volume of these still-risky real estate transactions eventually led to the breakdown of the old conveyancer system in 1868. That year, a Mr. Watson attempted to buy a property parcel in Pennsylvania. He hired a Mr. Muirhead to act as the conveyancer. Muirhead discovered recorded judgments on the title, but after consultation with an attorney, Muirhead disregarded these title defects, certifying the title as good and unencumbered. Based on that assessment, Watson completed the sale, but he was soon hit with losses from the liens. Watson sued Muirhead, but ultimately had his case dismissed by the Pennsylvania Supreme Court.
After Watson v. Muirhead, it was clear that something more than the old conveyancer system was needed for increasingly complex and numerous property transactions. In short order, the Pennsylvania legislature codified the incorporation and regulation of title insurance companies into law, and the first title firm, Real Estate Title Insurance Company of Philadelphia, was founded by conveyancer Joshua Morris in 1876.
That year, Morris sold the first title insurance policy to his aunt for a property on N 43rd Street in Philadelphia, then appraised at $1,500. A second Philadelphia firm, Land Title and Trust Company, was chartered in 1885, but by that time the industry had already spread to other parts of the country. The first New York policy was issued on June 1, 1883, by the German American Loan and Trust Company of New York. Firms in Chicago, Minneapolis, and Los Angeles followed.
The Push for a Standard Uniform Title Policy
The American Land Title Association (ALTA), the primary trade association for title insurance, first formed in 1907. At that point, title insurance was available in many parts of the country but was subject to local customs and practices. Each firm issued its form of title insurance coverage, a tedious practice for the mortgage lenders that had to examine each policy. By 1929, some insurers and ALTA had come together to address the issue and agree on a standardized policy. Over time, more title insurance products and policies and procedures were standardized on a national level as the industry grew.
By the mid-1940s, more and more Americans were becoming homebuyers. Returning servicemen were starting families and settling down, and not always in primary mortgage markets. The secondary mortgage market grew, bringing capital to areas of the country where mortgage money was needed. To reduce the risk for lenders, title insurance became an increasingly important part of homeownership. Lender’s policies became the standard for mortgages sold on to the secondary mortgage market, enabling millions more to become owners of the American Dream.
Title insurance today continues to be an integral part of buying a home, reducing what was once a substantial risk for buyers and lenders to a more manageable level. The history of title insurance is closely tied to the history of America itself. As America grew and prosperity spread, more Americans took the plunge to become property owners. After more than 100 years, title insurance continues to help ensure those purchases can be made efficiently, securely, and safely.