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Title Guarantee Companies

1911 Encyclopedia Britannica

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The name given to companies which apply the principle of corporate indemnity to the protection of those interested in real estate titles, either as owners or lenders. They are of the class of indemnity companies in which technical skill and experience in investigation of risks are relied upon to protect the guarantor from loss. They are peculiar to countries where the title to real estate is a matter of public record, and where the complexity of the record and the variety of possible liens and encumbrances have made it difficult and expensive to determine whether the title is good. The only country where they have reached large proportions or achieved success as independent business enterprises is the United States. In Australia no investigation of a title to real estate is necessary, because before the land passed into individual ownership the government adopted a system of state registration and guarantee of title, so that its certificate of registered title was universally accepted. In certain other countries there is neither registration of title nor recording of deeds; the title-deeds are preserved and passed from owner to owner, and are accepted on the authority of the records and opinions of family solicitors. In the United States, however, there have been from the beginning acts providing that all deeds and mortgages be recorded, and the records, when properly made, constitute legal notice to all the world of their contents and claims. At the same time, there are other records of wills, suits, judgments, taxes and mechanics' claims which may encumber the title. In the great cities these various records became in course of time so voluminous that the proper investigation of them, and the determination of the validity of the title in view of them, required the best skill of an experienced lawyer and involved very heavy expenses. On a re-sale of the property the new buyer did not rely upon the lawyer who had made the examination for the seller, but felt called upon to employ and pay his own lawyer, who had to go over the same work again, and more, for with each new transaction the history was getting longer. The delay and expense involved were great, and yet the owner had little or no protection, for a lawyer is not held to guarantee the correctness of his opinion.

The first legislative grant of corporate authority to guarantee titles to real estate was included in the charter of the New York Guaranty and Indemnity Company, a trust company incorporated in New York by act of the legislature in 1864; but the power to guarantee titles was never exercised. In 1869 the Real Estate Assurance Company of the City of New York was chartered with the sole object of insuring the validity of titles, but was never organized. In 1871 a pamphlet was issued by a member of the New York bar, calling attention to the business carried on by the Prussian Mortgage Insurance Company of Berlin, and outlining plans very similar to those now followed by the principal title guarantee companies of the United States; but the pamphlet seems to have been forgotten. The first company actually to undertake the guarantee of real estate titles was formed in Philadelphia, Pennsylvania, in 1876. It differed from the Prussian Mortgage Insurance Company (which guaranteed titles merely as an incident in its business as a dealer in, and custodian and guarantor of, mortgages) in that its main business was the issue of a policy of guarantee on a transfer of title to land. The advantages of its method were immediately recognized. Corporations to carry on the business were organized in Washington, Baltimore, Boston and New York, in the order named, and subsequently in nearly every considerable city in the United States.

In order to be independent of the inaccurate and clumsy methods of the public record offices, title guarantee companies generally compile in their own office a copy or digest of all the real estate records of the locality in which they are established, maintaining for this purpose a staff of skilled clerks. To make the necessary examination of a title prior to the issuing of a guarantee, they require continually a body of experienced real estate lawyers. By these means a title can be examined and guaranteed in a week, whereas thirty or forty days was formerly required. This has done much to make real estate available capital, for individual and corporate lenders on mortgage accept the guarantee of the companies as the best evidence of title, and loans can be had without the delay that once prevailed.

The expense of maintaining the staff of clerks and lawyers is great, amounting to half of the gross charges on titles guaranteed. Strictly speaking, the risks outstanding are also large, running up to $ioo,000,000 a year for a single company in New York City; but in well-managed companies the losses are very small, not exceeding 2% of the gross charges on titles guaranteed, so that the outstanding obligations should scarcely be called risks. In spite of the office expenses, the charges for first bringing a piece of land under the guarantee are no more than owners were in the habit of paying each time for examination and opinion by counsel, amounting to about one-half of I % on the value of the property or on the amount of the mortgage; and when once the guarantee has been issued, it is re-issued on a subsequent sale or mortgage on short notice and for a small fee. (C. H. K.)