What you’ll learn (TL;DR)
The property records are where deeds and other documents that affect property interests are filed. The government does not oversee the accuracy or completeness of the property records.
The title insurance industry helps maintain the quality of property records. Before property is sold, the title company searches the property records and works to resolve any errors or problems.
The title industry also helps prevent errors and fraudulent documents from corrupting the property records.
Without reliable property records, homeowners lack security in their ownership rights. They face costly legal battles and the potential loss of their property.
The Government Does Not Verify Property Records
The public land records, or property records, are where deeds and other documents that affect property interests are filed. There are over 3,000 counties in the United States, and each local government has a different system for managing the property records within their area. Anyone can file documents in the property records, and county clerks do not verify documents before filing them.
The government does not oversee the accuracy or completeness of the property records, which are kind of like a library. The librarian scans and indexes books, then places them on the shelf. They do not read the books. Similarly, the county clerk places documents in the property records but does not confirm they are accurate. They generally only confirm that their requirements are met and filing fees and taxes are paid.
Title Insurance Is the Backbone of the Property Records
The title insurance industry bears much of the burden of maintaining the quality of property records. Before property is sold, the title company searches the property records, and a title examiner reviews the property’s history for any problems like deed errors, missing owners, or liens.
A lien is an interest in property for a debt that is owed. If the debt is not repaid, the creditor can force the sale of the property and apply the money from the sale to the debt. Mortgages, unpaid real estate taxes, and court judgments are examples of liens.
If any errors or problems are found, the title company works to resolve them before the property is sold. For example, if the property is subject to liens, the title company typically makes sure they are paid and removed.
Since accurate and reliable property records are essential to secure ownership rights, the public benefits from the title industry’s efforts. According to a study by the American Land Title Association, title companies spend an average of 22-45 hours to close a transaction, depending on the difficulty.
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This includes the work to research title and fix issues. Title companies estimate that 36% of transactions are “difficult,” meaning they require significant non-routine efforts to clear title.
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For example, the title company may discover that the deed to a seller is defective because it was not signed by all prior owners of the property. The title company may then try to locate the missing owner and assist in having them sign a deed, which is then filed to correct the property records.
Title Insurance Companies Aid in Preventing Errors
In addition to fixing mistakes in the property records, the title industry also assists in preventing errors. When handling transactions, title professionals take great care to make sure deeds and other documents are correct and complete before they are filed in the property records. Title companies also play a key role in flagging fraudulent documents. Title professionals are skilled at spotting red flags and stopping suspicious transactions before the buyer becomes a victim of fraud.
What if the title insurance industry no longer helped maintain property records?
Without reliable property records, homeowners lack security in their property rights. They face costly legal battles and the potential loss of their property. In 2022, title insurance companies paid $596 million in claims.
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If title insurers did not resolve issues before the sale of property, this figure would be much higher since 95% of the cost of title insurance goes toward expenses, including the work needed to clean up the property records.
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The goal of title insurance is to do the necessary work upfront to prevent homeowners from having to deal with a claim. The title industry excels at this goal, which is why claims are only filed on around 3-5% of title insurance policies.
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Title Insurance Is Essential
Title insurance plays a vital role in maintaining the quality of public property records. While mistakes occasionally occur, fraud and schemes to steal properties or create fake mortgages are on the rise. The work done by the title industry supports the stability and certainty of property ownership. Without title insurance protecting them, homeowners could face a variety of legal challenges that may impact their property rights or require them to defend their ownership in court.
References
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“More than pushing a button: Estimating the time and complexity of clearing title.” ALTA, 2024.
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“Study: Average title insurance claim for fraud, forgery costs $143K.” The Title Report, 21 May 2024.
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Jensen, Katie. “Inflation Impacts Title Insurance, But Coverage Cost Stays Low.” National Mortgage Professional, 6 May 2024.
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Moore, Jonathan, Marencik, Louise, & Streibich, Wayne. “Making the Old New Again: The Resurgence of Attorney Opinion Letters as an Alternative to Title Insurance.” BLANKROME, Nov. 2023.