Forget for a moment that you are in the real estate business. Forget that you know all about the buying and selling of property, or insuring title to land, or perhaps working the labyrinth of title and legal issues that are necessary to shift ownership of a house. And forget that - since you do it every day - being intimately involved in the process of handling the exchange of huge amounts of money for a piece of paper called a deed doesn’t bother you a bit. It is, after all, what you do. What’s the big deal?
Now, put yourself in the shoes of a typical homebuyer who doesn’t have your real estate skill set. Perhaps some of us who are younger can remember buying a home before we knew what we know now, and can remember the trepidation and confusion of the entire process, which seemed to take forever to complete. I mean, what other transaction normal people find themselves involved with takes months to finalize? In a time when you can walk into a car dealership and drive off within hours with a brand new car fully insured, how does the average buyer comprehend a purchase over a series of weeks or months?
The answer is they don’t, but have no choice because they are captives to a process that has, to some extent, lagged behind the quickly accelerating technical sophistication and instant information availability that has simplified and quickened so many other transactional aspects of their lives.
But there is a reason for this. Real estate conveyancing, and title insuring, are not mathematics. Title examiners/insurers do not have the clear, clean parameters that engineers and mathematicians utilize which forces those groups to do what they do exactly correctly, or else the device they build will not operate, or the mathematical analysis will fail. The interpretation of real estate titles is much less clear, and is as much art as it is science. Yes, there are rules (title standards) for many title scenarios that have been developed in the various states, but no state has (nor can it have) a complete soup-to-nuts comprehensive guidebook to every title issue that may exist. That creates the need for interpretation, which leads to differing opinions of the problem, and the solution.
This is where title insurance comes in. The title policy has, to a great extent, become the parameter or standard that the conveyancing world uses as a guidepost. No, I don’t mean to say that it has supplanted state title standards as the rule book, but it has been very effective at growing into the roll, over the past few decades, of being the arbiter of title issues that do not have a clear, single answer. Prior to title insurance, the attorney opinion letter was all that was available in that role. But what happened when post closing, a major title issue was discovered that the attorney had missed, or pre-dated the attorney’s search period? There were basically two solutions. Either seek recovery against the attorney, who may have retired at that point and was for whatever reason not accessible and even if accessible, most likely lacked the funds to remedy the problem. Or, you could seek out the seller and attempt to enforce the warranty covenants (if any) provided to you in the deed. But how successful will that be when most sellers do not have sufficient funds available to make a buyer whole?
It’s a bit scary to realize that the average buyer does not have sufficient understanding of the conveyancing process to really comprehend the risk they are taking when they pay a large amount of money for an asset that has a complex, potentially (financially) fatal history. They are surrounded by real estate professionals in the transaction and naturally are inclined to think that even though they may not understand fully what is going on, somehow all these people are taking care of things and they’ll be all right. That’s a fine and comforting thought, until someone knocks on their door with a title problem.
So this is the “why” of title insurance. It is the ultimate consumer protection for title issues that the average buyer cannot - and will not - be aware of before they sign the check. It is an inexpensive, one-time premium payment insurance product that silently stands guard over millions of innocent home buyers. They probably don’t know what it is, and may not even know they have it as the policy sits in a file in their house among so many other inscrutable pieces of paper handed to them at the closing. But it is there, silently waiting for the time when the homeowner finds him or herself in the terrible situation of having title to the property suddenly attacked. That’s why title insurance is such a necessary thing.
Joe Attura is senior vice president New England at First American Title Insurance Company, Boston, Mass.