1876: The Birth of Title Insurance
Title insurance was born as a result of the need to protect owners of real estate from challenges to their property titles. From 1776 to 1876, consumers did not have an option to buy title insurance…there was no such thing. Thousands of buyers and sellers ended up arguing over expensive title disputes. “Buyer Beware” (caveat emptor) – was the watchword of the real estate industry, and as is implied, a buyer was expected to research the validity of the seller’s purported title and was free to hire experts in researching records. With many records in dispute, many innocent buyers lost their life savings when they invested it in real estate.
The 1868 Pennsylvania Supreme Court case of Watson v. Muirhead (legal citation is 57 PA 161) was well-publicized and called public attention to the issues surrounding title problems. Muirhead had lost his investment at a sheriff’s sale as a result of an outstanding prior lien and he sued his conveyancer. The conveyancer had uncovered the lien, but represented the title as clear after an attorney advised that the lien was not valid.
The court eventually ruled that conveyancers and attorneys could not be held liable for erroneous opinions based on professional standards of evaluation, and Muirhead lost his investment. As a result of the case, it became clear that something was needed to protect innocent investors from suffering the same fate and to encourage land purchases development and growth in America.
In 1874, the Pennsylvania legislature passed enabling legislation that would authorize the formation of indemnity companies to insure against losses where the validity of a title was at stake. A few short months prior to the United States’ Centennial, specifically on March 28, 1876, a group of conveyancers led by Joshua H. Morris met in a building near Philadelphia’s Independence Hall to incorporate the world’s first title insurance company,
The founders of the original company pledged that their new firm would “insure the purchasers of real estate and mortgages against losses from defective titles, liens and encumbrances,” and they guaranteed that “through these facilities, transfer of real estate and real estate securities can be made more speedily and with greater security than heretofore.” A short time later, the first title insurance policy was purchased by Morris’ aunt, Martha Morris, who took out a $1,500 policy to protect her loan on a home on North 43rd Street in Philadelphia. In that first year of business, The Real Estate Title Insurance Company of Philadelphia issued 169 policies. The original Real Estate Title Insurance Company of Philadelphia for decades was known as Commonwealth Land Title Insurance Company and it was bought on 1998 by Lawyers Title Insurance Company in 1998. A gradual merger into one entity has taken place and the company still exists to this day.
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