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Tuesday
Aug122014

Title Insurance - A History Lesson

 

The year was 1868 and in Philadelphia a property transaction was just closed that paved the way for what would become known as Title Insurance, demonstrating the need for greater protection when conveying real estate than what a mere examination of public records could provide. The facts of the case can be found in the Pennsylvania Supreme Court case, Watson vs. Muirhead, 57 Pa 161.

Until a century ago, real estate transfers were primarily completed by utilizing a "conveyancer", who were responsible for all aspects of a transaction.

In the case of Watson vs. Muirhead, Watson sought to purchase a parcel of real property. Muirhead, a conveyancer, searched and completed an abstract of the title for the property in question. Muirhead discovered a number of recorded judgements against the property, but after consulting with an attorney, chose in good faith to report the title of the property as good and unencumbered.

Watson, believing the property to be clear of encumbrances, went ahead with the purchase. Subsequently, Watson was presented with, and required to satisfy the liens that Muirhead had chosen to ignore! Watson lost the property and his investment due to the conveyancer's mistake in judgement.

Watson sued Muirhead to recover his losses, but the Pennsylvania Supreme Court ruled that there was no negligence on the conveyancer’s part and dismissed the case. Watson, an innocent purchaser who had suffered financial damages because of the encumbrances on his title, had no recourse.

 

At the time of the Muirhead decision, Philadelphia was beginning preparations for the 1876 Centennial 
Exposition to celebrate the 100th year of our country. A real estate boom was in the making, but when the effect of the Muirhead decision became well known, the real estate market slumped. Normal real estate purchasers, speculators, and mortgage lenders became alarmed and politicians began to take notice. In 1874, the Pennsylvania legislature passed an act “to provide for Incorporation and Regulation of Title Insurance Companies…” Thus, The Law Property Assurance and Trust Society was formed as the first title insurance company in the United States. 
The rest, as they say, is history...

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