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sibility that records relating to real estate may be wrongly interpreted. Lawyers may differ as to the effect which certain instruments or court proceedings will have upon the legality of a title, and their conclusions may be either imperfect or mistaken.
Tlie Advantages of Title Insurance.—Title insurance is probably the least speculative of all the forms of insurance. Yet there is a sufficiently large element of risk attached to titles to make this form of insurance a convenient help to those who own or buy and sell real estate. The various advantages of this form of insurance, if issued by a reliable company, may be summarized as follows:
1. It frees the real-estate owner, or lender of money, from all worry as to possible loss because of a defective title resulting from a faulty examination of the public records. As regards the examination of the title, a titleinsurance company renders all the service given by any other system, the premium including the cost of making a thorough examination, and such an examination being back of every title policy. Furthermore, because of its efficient organization and skilled employees, a large title company can give better and more reliable service than can an individual abstracter. According to law, the abstracter of a title agrees with his employer to furnish a summary of the records relating to all grants, conveyances, wills, liens, and incumbrances, judicial proceedings, mortgages, taxes, assessments, etc., which pertain to his title. The task requires skill, and the law holds the abstracter liable in case any loss results because he has not made all the necessary searches, or has not performed his work with "due care," or has certified to something which is incorrect. But the law in this respect is little more than a form; for, supposing that the abstracter is guilty of any of the above acts, how many possess the financial resources to indemnify the holder of the title for loss resulting from a serious mistake? Nor can the abstracter be held liable for not calling the owner's attention to defects in the title which are not within the public records. A large company, with its millions of capital and surplus, on the other hand, can give assurance that if its work is not well done the owner will be indemnified for any loss he may suffer. 2. It gives security against loss resulting from errors of judgment on legal questions involved in the title. 3. It insures against loss resulting from defects which, because they are not in the public records, cannot be discovered from an examination of the same by an abstracter, such as the forgery of instruments, the making of a deed by an attorney-in-fact whose power was fabricated, or under the power of an attorney after the death of the principal, which renders it void, acts of insane persons or minors, improper probate proceedings, and failure of all parties to sign an instrument. 4. It obviates much of the loss frequently resulting from rumors affecting the validity of titles to which real estate is susceptible. Our law reports give evidence of numerous cases involving the legality of titles, and resulting in longdrawn out and expensive litigation. Title-insurance companies, however, provide in the policy that they will at their own expense “defend the insured in all actions or proceedings founded on a claim of title or incumbrance prior in date to the policy, and thereby insured against.” 5. The title policy proves advantageous in so far that, unless special conditions to the contrary are inserted, it guarantees the title for all time to come. In this respect title insurance is again unique in that its term runs indefinitely into the future. The holder may assign it to subsequent purchasers or creditors, who then are protected against any loss resulting from defects in the title prior to the original date of the policy. It must be distinctly understood, however, that such purchasers are not protected against defects which arise after the issuance of the policy and prior to the assignment.
6. As the term of a title-insurance policy runs indefinitely into the future, so the premium is paid but once when the policy is issued; and an assignment of the policy may thereafter be made for only a nominal fee. Although the premium may seem large, varying in the case of one company from $20 for an estate of $1,000 to $378 for an estate of $100,000, this sum is paid but once, and loses its apparent significance when spread over the long term. Moreover, it represents chiefly the cost of making an examination of the title which may necessitate the tracing of records back to Colonial days. A great variety of charges exist for this service in different sections of the country, depending chiefly upon the amount of labor involved in the examination of the records as found in the particular locality.
Realizing that the holder of a title policy may, at the request of a purchaser or mortgagee, desire a new policy, the companies are willing to grant such policies at a reduced premium. The policy usually provides that:
"Whenever the holder of a policy of this company on his title as owner in fee or of a leasehold shall, within seven years from the date of the policy, sell or mortgage any or all of the real estate therein described, and shall within thirty days thereafter apply for a new policy on the same title, to be issued to the guarantee or mortgagee, then, if the risk be again accepted by this company, the former policy shall be surrendered and canceled, and one half of the sum paid as premiums therefor will be allowed as a deduction from the premium on the new policy."
7. As an additional protection to policy-holders, titleinsurance companies are under the supervision of the several state insurance departments, and must make ample deposits with the various states in which they do business. As compared with the old system of abstracting, our modern companies give the holders of title policies the benefit of the substantial security involved in their large capital stock and surplus and sums deposited with the insurance commissioners. The Manner of Examining Titles by Title-Insurance Companies.—Originally it was customary for the owner of property who wished the title to be examined to engage someone who claimed to know how to search the records and make an abstract thereof. Then it was customary to have the abstract examined by a lawyer who was supposed to know whether or not everything was legally satisfactory. If he found the abstract satisfactory, he would give his opinion to that effect; if not, the records had to be corrected. If, in his opinion, the title was good, certification would be made to that effect on the abstract, and this opinion constituted the “certificate of title.” In modern days most of the abstracting and issuing of “certificates of title” is done by large guarantee or title companies which, in the course of time, have prepared elaborate so-called “tract systems,” covering practically every piece of land in a given county or a given section of the country. These tract systems are so arranged that the title company has a classified index of the records as regards practically every tract of land within a given area. To obtain this sort of a system involves the expenditure of great labor and money. Thus the counsel for one company in the city of Los Angeles states that it would require $250,000 to construct an abstract plant which would be complete and perfect enough to be relied upon by an abstract company or the public. He explains that in his county there are 3,504 deed books, 1,922 mortgage books, and 149 miscellaneous volumes of records, and that the entire books of records aggregrate 5,800 volumes approximately. These records take into account 400 kinds of instruments. A large title company usually has employees in the various record offices, whose duty it is to abstract briefly the instruments as they are filed for record. Thus for deeds and mortgages they write the names of the parties, the consideration, the description of the property, the date of the record, and the book and page of the record. These abstracts, as made in a record office, are then sent over to the office of the company every hour or at frequent intervals, and are immediately turned over to certain employees who classify the same, and indicate to what property each instrument should be posted. The posting is usually done at night, so that the tract system is complete on the following day. The tract system is so organized that the company can, with the least delay, ascertain and obtain every instrument affecting the title to any specific parcel of land, if the owner should want its title examined or insured.
The manner in which the examination of a title is conducted is very fully and ably discussed by Mr. Lee C. Gates, for his own company, the Title Insurance and Trust Company of Los Angeles.1 He explains that when an applicant desires to have his title investigated and insured he must furnish the description of the property on the customary application blank. This description of the property is then sent to the "searching department," where it is assigned to a "chainmaker." This chainmaker examines the company's tract system, which contains the account of the property upon which the search is desired. Prom the book before him he inserts upon proper blanks the names of the parties, the grantor and grantee, mortgagor and mortgagee, the date of record, the instrument to be examined, and the book and the page of the record. In other words, he makes out the "chain of title."
When all the instruments affecting the title to the property have been noted, the chainmaker's chain of title is handed over to the "searcher," who goes over the books with
1 Proceedings of the second annual meeting of the American Association of Titlemen, p. 114 and following.