How did title insurance come to be? The creation of title insurance came in 1868 during the case of Watson v. Muirhead. Watson was the purchaser of the real property; however, an outstanding prior lien was missed by Muirhead, who was the real property lawyer. The property was then sold at a Sherriff’s sale in order for the lien to be paid off. Watson sued Muirhead to recover the losses and the Pennsylvania Supreme Court acknowledged that the lien and the following Sherriff’s sale was unlawful, however had dismissed the case. They had decided that the lawyer was not liable for the misinformation as there was no evidence that this was done out of negligence. After the case, legislation was passed in Pennsylvania in 1874 which allowed for the issue of title insurance. With this loss, a group of Philadelphia lawyers founded the first title insurance company. The title insurance industry started to grow in numbers, and soon grew their services to provide to real estate buyers, sellers, lenders, brokers, attorneys, developers, builders, and others.
Following World War II, returning service men started to purchase properties in large numbers and with that, the industry began to change from providing on a local level, to a national level. The process and the policies became standardized, and soon turned into the present-day title insurance industry we know today. The title insurance industry has grown to be more involved in the closing process and protecting the property. It has become more than just title searching, some companies are heavily involved with completing all aspects of the closing process by preparing documents, recording instruments, closing forms, and collecting and disbursing funds.
Some notable years for milestones of title insurance:
- 1853: The Law Property Assurance and Trust Society is formed in Pennsylvania, the first title insurance company in the United States.
- 1876: The Real Estate Title Insurance Company of Philadelphia is formed, the first title insurance company that we would recognize today.
- 1907: The American Land Title Association (ALTA) is formed, the primary trade association for title insurance.
- 1929: ALTA develops the first standardized title insurance policy.
- 1940s: The growth of the secondary mortgage market leads to increased demand for title insurance.
- 1990s: Title insurance becomes a standard part of the real estate purchase process in Canada.
Today, title insurance is a standard part of the real estate purchase process in the United States. It provides protection against defects in title that could result in the loss of ownership of a property. Title insurance is also available in Canada, but it is not as common as it is in the United States. Title insurance is unlike other forms of insurance. While other policies offer financial compensation in the event of a particular risk, title insurance focuses on loss prevention by addressing title problems that may arise from past events.