The Rights of Real Property Ownership
Title is our system for demonstrating legal ownership of a property. Property titles define your authority to live in or rent out spaces, build on your land, and, should you wish to move on, sell any property you own.
If you’ve ever been a part of a real estate transaction, you know it requires experts to pin down a clear title, and you’ve either paid or seen people pay astonishingly high closing costs for title insurance and title search.
But have you ever asked why it’s such a complicated process to ensure a clear title? Have you ever wondered what you’re really paying for?
A Messy System
When a title company conducts a title search at closing, they’re not searching any kind of central list. That’s because in the United States, there’s actually no central list of who owns what property.
People have documents of title, but these are just claims, not definitive proof. At any point during your ownership of a property, someone else could come forward with their own claim to ownership, and the only way to resolve the conflict would be through the legal system.
Title insurance protects against this possibility. The title insurer’s job is to review all public records connected to the title until they’re confident making the bet that no previous owner’s great grandchild is going to come calling about false documents that their great uncle used to make a bogus sale, and claim the property as his or her own. Then, if someone does come forward with an ownership claim for your property, the title insurance company will have your back.
Generally there are enough deeds and supporting documents for the attorney to sign off with near certainty of a clear title, but it’s impossible to really know for sure. Whether the source of the claim is fraud or confusion, you need title insurance to protect you from the financial risks involved.
Why do we maintain this complex system of recording transactions? Why do we jump through so many hoops of title protections when many other countries (and a few jurisdictions in America, like Seattle) can just register the title itself, the way you register the title for your car?
A Brief History of Property Ownership in America
The legal system for property ownership in America has its roots in America’s founding fathers, who defined a legal right for Americans to buy, sell, and own real property. At the end of an era in which land had been granted to an elite class by inheritance and the authority of the Crown, the greater circulation of land in America represented a new political ideal—republicanism— which offered opportunities for political participation unprecedented in European society. This new freedom of land ownership and property rights was a pretty big deal.
The original title recording system was implemented at state and local levels, so different jurisdictions ended up with slightly different systems. Some state governments responded to inefficiencies by allowing localities to adopt the Torrens Title system – a registration system that originated in Australia, wherein titles can be registered with and guaranteed by the state. Today, select localities where you can register your property title are exceptions that prove the rule.
Title registration systems are almost certainly the more efficient way forward, but the realities of fragmented jurisdictions, the legal industry’s vested interests in the current system, and the sanctity of land ownership (and the law surrounding it) in America have made progress piecemeal, and a national title registration system unlikely to evolve.
In the name of our constitutional freedoms and maintaining the status quo, our closing costs are likely to remain high as our system continues to be weird.